Starting September 18, the Financial Conduct Authority (FCA) will enforce stricter requirements for banks and building societies to evaluate and address the availability of services like branches and ATMs in local communities. These institutions will be obligated to address any significant service gaps identified through assessments, which local areas can request.

Under the new rules, banks must ensure that a branch or cash machine remains operational until a suitable replacement is in place. Non-compliance could result in unlimited fines, according to the FCA.

This regulatory framework applies to the 14 largest high street lenders, who will be required to review their cash service provisions every two years.

The banking sector has frequently faced criticism for isolating communities due to widespread branch closures since the financial crisis. Approximately 6,000 branches have closed in the last nine years as part of cost-cutting measures. Banks argue that these closures are a response to the growing shift from branch-based services to digital banking.

However, critics claim that this trend neglects rural areas and vulnerable populations, such as the elderly, who are less likely to be proficient with technology.

Industry data released on Wednesday supported banks’ claims that customer habits are evolving due to new technology and increased investment. The UK Finance report on 2023 payment trends indicated that cash remained the second most popular payment method.

The report showed an increase in the number of people primarily using cash, rising to 2.6% of the population, or 1.5 million people, up from 1.7% in 2022. This increase might be attributed to the ease of budgeting with cash amid the ongoing cost of living crisis.

Despite this rise, cash transactions accounted for 12% of all payments, down from 14% in 2022. Additionally, 38% of the 48 billion transactions last year were contactless payments, and the use of Apple or Google Pay increased by 12%.

The FCA has expressed that it is not overly concerned about access to cash, noting that banking hubs and Post Office services are increasingly filling the gaps left by branch and ATM closures.

The report indicated that as of June 2023, 95% of the UK population lived within one mile of a free cash withdrawal point, such as ATMs and Post Office branches, with 99.7% residing within three miles of one.

However, Sky News reported in May that banks were hesitant about the Post Office’s demand for more than the current £200 million it receives annually in fees for providing basic banking services, especially given the criticism it faced over the Horizon IT scandal.

Sheldon Mills, executive director of consumers and competition at the FCA, stated, “Three million people continue to rely on cash, even as digital payments become more popular. Many small businesses still need somewhere to safely deposit their daily takings. That’s why we’ve acted swiftly, using new powers granted by parliament, to ensure reasonable access to cash withdrawal and deposits is maintained.”

Adrian Buckle, head of research at UK Finance, remarked, “Consumers have a wide range of payment options, but the popularity of debit cards and contactless payments is clear. This trend is driven by both consumer demand and new technologies that increase acceptance, especially among small and mobile businesses. Mobile contactless payments are growing rapidly, with one-third of adults using them at least once a month, and this usage is likely to increase further.

“While we are not heading towards a cashless society, cash remains the second most frequently used payment method in the UK, though its usage is declining. Over the next decade, we anticipate the continued decline in cash use and the growth of other payment methods like cards and Faster Payments. We also expect further advancements in the payments landscape that will enhance the customer experience.”