5UK Cash Network
64.While ATMs are the most visible parts of the UK’s cash infrastructure, they do not represent all of the UK’s cash network, as the Access to Cash review describes it:
There’s a complex value chain behind how notes and coins move, from their minting or printing, through years of use to their eventual destruction. Any weakness in this chain can threaten the viability of cash.
The current cash network is made up of many different parts and actors, its main components are:
a)Printing and minting—Bank of England banknotes are printed under contract by De La Rue Currency, while coins are produced by the Royal Mint.
b)Wholesale Distribution—New notes are distributed primarily to Note Circulation Scheme (NCS) cash centres where they are stored and purchased at face value from the Bank of England when required. The NCS provides a framework for the wholesale commercial cash industry which encourages efficiencies in their banknote operations.
c)Retail distribution—Notes are distributed to bank or Post Office branches, ATMs (which may be done by independent ATM Operators), and shops (either directly or via depots) in armoured vans. Consumers then get the majority of notes from ATMs (for around 90% of all cash withdrawals) but also Post Office and bank branch counters, in wages and benefits, and other means
d)Cash recycling—Cash spent in shops is taken to local depots or NCS cash centres (depending on geography and size of retailer) by armoured van, or for smaller stores by physically taking it to the bank or Post Office. It can also be used as change to other customers, distributed through onsite ATMs, or spent directly on stock or wages. After a period of time circulating in the local cash economy, notes are returned to an NCS cash centre. The Bank of England sets quality standards that NCS members use to tell whether a note is good enough to be redistributed. Dirty notes and those with holes and tears are returned to the Bank of England to be destroyed. Fit notes are re-circulated.
The images below provide an overview of the UK cash network, and the costs associated with different parts of it.138
65.During our inquiry we heard calls for the UK’s cash network to be reformed and simplified to reduce costs, this is particularly important for the network to remain sustainable as the total number of transactions decreases. According to the Access to Cash Review, the system “has multiple dependencies and was built for steady or increasing volumes. Built for a different age, it has many different parts run by different commercial player.” James Daley, who worked on Access to Cash Review told us:
The cost of fixed cash whole infrastructure is around £5 billion. We thought potentially you could save up to 20% of that, so hundreds of millions of pounds.139
66.The Review calls for the UK’s cash network to move from the current commercial model for cash distribution to a ‘utility model’—of joined-up wholesale cash infrastructure. It believes this could significantly reduce the costs of running the cash infrastructure, making cash commercially viable for the banks to fund on an ongoing basis. John Howells, Chief Executive, LINK, also told us that “a thorough review” was need of “the cash infrastructure to hold the thing together”.140
67.The number of different bodies involved in the UK cash network is also reflected as there is no single regulator responsible for the system with the Bank of England, the Financial Conduct Authority and the Payment Systems Regulator all having responsibility for part of the system. There are also elements of self-regulation, with the Lending Standard Board overseeing the sector’s approach to bank closures. James Daley, Access to Cash review, told that it was important for:
the existing regulators to be brought together, essentially by the Treasury, to oversee that system and have a responsibility for ensuring that we have access to cash. That needs to start with the Treasury making some kind of policy statement and commitment.141
68.When we raised this issue with the Minister, he said that the Government had created the JACS (Joint Authorities Cash Strategy) Group shortly after the Access to Cash Report came out. Chaired by a Treasury official this group which brings together the PSR, the Bank of England and the FSA to look at the efficiency of the cash distribution.142 The Minister described the work of this group as “urgent” arguing that it was “key to buying us more time” for other parts of the network to become more effective.143
69.We welcome the Government response to the Access to Cash Review in the creation of JACS and the Minister’s view on reforming cash infrastructure to make the system more efficient to buy time for wider reform of the system. We ask Government to update the Committee on the outcome of discussions between regulators and publish an action plan for how it will reduce the cost of the UK’s cash infrastructure.
138 These images have been taken from the Access to Cash Review, Final Report, March 2019
Published: 29 August 2019