The case for purchase-free cashback

The UK is fast becoming a cashpoint desert. According to figures from Statista, some 1,700 ATMs (Automated Teller Machines) closed between June and December of 2019 alone – and this decline is only likely to have been exacerbated by the COVID-19 pandemic.

Championed as a solution for reduced cash access outlets, cashback is a staple of supermarket checkouts and larger stores. It’s the norm for financial trends to be driven by these large organisations or even by the banks, but now there are some new figures fighting back against the advance of digitisation in the UK’s financial system – shopkeepers.

In this article, we take a look at the UK’s cash problem and how the local stores offering purchase-free cashback could help to solve it.

Why access to cash is so important

A study conducted by the since abolished Commission for Rural Communities found a large number of financial ‘deserts’, where households were further than 2km from the nearest Post Office, 4km from the nearest bank or building society branch, or 2km from the nearest ATM. It’s safe to say that people living in these financial ‘deserts’ struggled to access cash – and that was in 2011. Since then, Statista’s figures show that more than 7,000 cashpoints have been removed.

Whilst cashpoint transaction volumes are in freefall, few can deny the importance of cash access. Despite the rise of contactless payments and ecommerce, the UK’s older generations remain reliant on ATMs as local bank branches close. These are people who perhaps don’t have access to, or an understanding of, online banking and contactless cards.

Despite social distancing and virus transmission fears, access to cash is even more important for vulnerable groups during the coronavirus pandemic. Many of those people who are unable to go out shopping for essentials themselves have been shown to reimburse family and friends with cash – since this may be their only way to interact with the financial system.

The bottom line is that cash remains essential for society’s most vulnerable members, particularly those living in some of the UK’s most isolated communities. Whilst contactless payments and online banking may work for many of us, cash remains a staple for others.

Where does purchase-free cashback come in?

Purchase-free cashback forms part of new proposals from the UK Government to protect the country’s cash system. Recognising the shrinking branch footprint of banks, they say that the purchase-free cashback scheme forms part of a drive to “make sure people can easily access cash in their local area.” But what exactly is purchase-free cashback?

Well, it’s pretty much as the name suggests. At the moment, cashback is generally only available to store customers, requiring people to make a purchase before they can withdraw money. According to Forbes, customers received some £3.8 billion in this way – making cashback the second most popular method for withdrawing cash in the UK. By definition, purchase-free cashback will allow the public to request cash withdrawals from the tills of their local stores without the need to make a purchase. In essence, the scheme is all about maintaining the availability of free cash access.

For the businesses involved, it involves little more than permitting customers to put their debit card into a reader which will then allow them to request a balance or cash from the till without paying a charge. As an additional benefit that sets the purchase-free cashback scheme apart from traditional cashpoints, any sum between 1 pence and £100 can be withdrawn. This means that people who have low balances will no longer find themselves unable to withdraw cash, as would be the case with an ATM.

Is purchase-free cashback really the answer?

All things considered, the purchase-free cashback scheme provides crucial access to physical money in areas where it might otherwise be unavailable.

Although many recognise the public service value of providing purchase-free cashback, some businesses have understandably expressed concern at the prospect of mandatory participation in the scheme.

The concern at this early stage appears to concern the logistics of providing the service, since many smaller businesses do not tend to keep significant quantities of cash on site at all times. These fears are magnified for businesses who have been working towards a fully cashless model, since they may be forced to go back to the drawing board.

For some other businesses, the move seems illogical, since consumers would need to have a debit card to even make a cash withdrawal. This begs the question of why they could not simply use their card to pay in place of cash, yet this argument is predicated on the assumption that all outlets accept card payments.

Why businesses shouldn’t be concerned

It seems likely that the government will address these concerns in time, and it’s important to remember that the purchase-free cashback scheme is still in its fledgling stages. In the meantime, businesses who aren’t quite convinced about providing cash access without a purchase may find that their decision is helped along by learning of the benefits that the scheme provides.

A major criticism levied at the plan is that businesses may have to shoulder the costs of cash handling – yet this is far from confirmed. What is clear from those firms participating in the trial, however, is that offering purchase-free cashback can be a real winner for businesses too. Even though ‘purchase-free’ is the operative element of this initiative, it follows that increased footfall generated by this cashback offering could lead to higher sales figures. Increased sales are just one of the benefits of attracting new customers in, and free cashback is arguably much less costly than introducing loss-leading products to entice new trade.

Provided that businesses have robust and reliable card processing capabilities, they won’t even need to make any substantial investment to start offering purchase-free cashback. A countertop card payment machine from UTP could help them to effortlessly deal with cashback matters, for instance.

In turn, the UK Government’s cash protection strategy could serve to support both businesses and the public – they just need to iron out some of the more difficult operational issues first.

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