To protect local economies - Start with access to cash

“Scottish community loses its last bank branch/free ATM” is becoming a story far too often repeated in recent years. The latest iteration is the report this week that Scotland has lost a third of its free ATMs since the pandemic. Operators blame a fall in the use of cash but this is perhaps reversing the causality - that lack of access to cash causes people to use less cash in their transactions.

In any case, cash remains an important means of purchasing and for budgeting and as a vital fallback in the face of any kind of friction facing other forms of transaction. This can be seen in the fact that cash use remains higher in more deprived areas of Scotland. Slightly more hidden from view is that many of the newer forms of digital transaction via things like mobile phone apps carry substantial fees that, if not seen by the customer are certainly paid for by the seller. Unlike a cash transaction, each one of these digital transactions results in a percentage of each sale leaving the local economy and probably even leaving Scotland to feed the coffers of already rich megacorporations. In 2019, we estimated that £80 million left the Scottish economy via such transaction fees. It is likely that this figure has increased since then.

A linked issue is the loss of bank branches in communities. Banks have been steadily moving away from a “relationship model” of banking - where services are provided person-to-person and the local bank manager had an active stake in providing financial advice and even in shaping the economy of a local community by helping business owners identify potential niches - to a “transaction model” of banking where getting a loan is as “easy” as pushing a few buttons on a mobile phone app. This latter model is certainly cheaper to deliver for banks - thus allowing them to extract higher profits - but it may leave communities vulnerable both to the more predatory side of that kind of financial services and unable to sustain their local economies. Are businesses moving away from accepting cash transactions because fewer customers are buying products with cash? Or because the town no longer has a bank where the business owner can deposit cash or take out coins to make change?

Scotland’s rollout of “banking hubs” are a partial solution to this problem. These hubs allow participating banks to effectively share a single physical premises. In larger hubs there may be multiple desks where multiple banks operate simultaneously, while in smaller hubs a each member bank will operate on different days of the week. This is a stopgap solution but with only a couple of dozen hubs in Scotland so far, it’s a far cry from an ultimate goal which should be that every “15 minute neighbourhood” should have access to at least a basic level of financial service provision.

Common Weal has written policy papers on both access to cash and on local banking. Our paper on a Scottish Payments System would allow the Scottish Government to regulate and reduce transaction fees across the economy and would make it easier for local shop owners to effectively act as ATMs themselves - earning a small commission to do so rather than paying a fee as is the case with current “cashback” systems. It would even make it easier for an independent Scotland to launch its own currency in the future despite this being a system that could be set up now, under devolution.

Our proposal for local banking branches looks superficially similar to the “banking hubs” being rolled out at the moment but instead of being merely a host for existing private banks, could be the seed of a new Scottish retail bank, mutually owned by its customers. Using an already established “bank-in-a-box” blueprint communities would be able to set up a bank branch that suits their needs which could be anything from a large, fully staffed branch similar to traditional bank branches down to a secure room with a direct video link to a remotely working financial advisor. This model of local banking is the same one currently being used to develop Banc Cambria in Wales.

Local economies cannot exist without adequate financial support to underpin them and this support goes beyond just being able to take a loan out on your phone or to tap that phone on a machine to buy something. The shape of our economy is defined by our access to cash and to banks. If we do not demand one shaped around ourselves, then the economy we get will be the one that extracts maximum profit from us, without giving back anything in return.