EU legislation to facilitate the access to and acceptance of cash?

Could legislation contribute to the modernisation of the cash cycle by encouraging the adoption of new technologies and new business models?

The mantras of the “Next Generation EU” project (“Make it Green”; “Make it Digital”; “Make it Healthy”; “Make it Strong”; “Make it Equal”) might seem, at first sight, to lead directly to the adoption of a digital euro and the disappearance of cash.

However, the use of cash is entirely compatible with the Next Generation EU project, provided that a profound modernization of the cash cycle takes place. EU legislation, instead of being perceived as an obstacle, could rather be considered as a tool to achieve such a modernization.

Cash can be seen as “Green”, “Digital”, “Healthy”, “Strong” and “Equal”.

• A 2018 study by the Dutch National Bank concluded that the environmental impact of payments is generally small compared to other goods and services. Moreover, research shows that the use of cash generates greater “pain of paying”, that may lead to less conspicuous and more sustainable consumption.
• Cash is a key component of a digital monetary ecosystem. It is the last mile of the system and safeguards against the challenges and threats of digitalization because it always works.
• Cash protects individuals’ right to privacy and against state and corporate surveillance. It protects the most vulnerable against the digital divide.
• Cash reduces disaster risk, by acting as a critical exchange mechanism and ‘safe haven’ in times of crisis. It does not need electricity or an Internet connection to work. It generates resilience against technical outages, cybercrime and natural or man-made disasters.
• Cash is universal and equally available to all, regardless of age, gender, income, nationality, or ethnicity. It does not discriminate and is a key element of social cohesion and financial inclusion. 

There is no perfect substitute for cash, and an efficient monetary landscape necessarily includes cash. Consequently, it is essential to ensure it remains viable and sustainable in the future. This requires progress in three key areas:

• Establishing a regulatory framework that ensures access to cash for all and its acceptance. This includes strengthening legal tender status to ensure mandatory acceptance.
• Redesigning the critical infrastructure to distribute and collect cash. The closure of bank branches and ATMs has led to the deterioration of access to cash. Alternative cash distribution channels should be scaled up.
• A widespread public education campaign which ensures all citizens – and regulators – fully understand the social and economic role of cash. It is now time to argue the case for cash in the public policy space.

We could solve all the above challenges through the combination of technology, new business models and regulation. 

Technology is available to automate the handling of notes and coins both in the front and back-office: smart safes, coin and note recyclers; self-check-out; payment stations… Technology reduces labour costs and physical handling of cash and increases security. CashTech, the encounter of cash and technology, leverages software and modern communications technology to improve cash services: access to cash; acceptance of cash; and the efficiency of the cash cycle for all stakeholders.

The opportunity cost of handling cash can be tackled. For instance, money held in a smart safe can be credited to a bank account without physically transferring the money. This also reduces the environmental footprint by reducing the transportation of cash. Various cashback and cash-in-shop solutions require a business model that remunerate the retailers providing the service. 

The solutions are there but adoption has been slow. According to the latest ECB study on the payment attitudes of consumers (SPACE), less than 9% of cash in the hands of consumers is obtained through cashback and cash-in-shop channels in the euro-area. 

Bearing in mind the above, we believe that EU-wide regulation can contribute to accelerate the adoption of these solutions for the benefit of all, by defining the conditions under which banks provide these services to retailers and a business model for retailers when they provide cash services on behalf of banks.

Such a legislation could generate the following benefits:

For retailers:

(i)             Increase of the customer base, in terms of people who do not have access or prefer not to use digital payments;

(ii)           Further increase of the customer base, with customers visiting the shop to withdraw cash, but then deciding to purchase goods or services;

(iii)         Efficient cash management, including the reduction of the risk of robberies and saving time counting cash and depositing it into a bank;

(iv)          Immediate transfer of the money into their current account, with savings in terms of lost interest.

For financial institutions:

(i)             Ensuring both individual customers and merchants have adequate access to cash services;

(ii)           Responding to the critics arising from the closing of branches and ATMs;

(iii)         Putting in place an efficient and economic infrastructure, managed by third parties at no extra cost, with material savings in personnel cost (compared to branches) and in the security costs (compared to off premises ATMs).

For society:

(i)             Ensuring financial and social inclusion;

(ii)           Providing freedom of choice in terms of payment options;

(iii)         Cash being a legal tender would be accepted by all merchants;

(iv)          Controlling financial transactions and fight against tax evasion;

(v)           Improving hygiene in the distribution of food and fight against transmissible diseases;

(vi)          Making available more payment methods;

(vii)        Providing more cash access points;

(viii)      Ensuring a resilient payments infrastructure in case of a cyber-attack; a power or internet outage; a natural or man-made disaster. 

It goes without saying that this legislation would have a positive repercussion for the entire payments ecosystem.

Please share your thoughts on the need to promote EU legislation to facilitate the access to and acceptance of cash.

Jointly written by Guillaume Lepecq and Federico Regaldo (Legal Counsel Belgium & Italy – 360 Business Law ).