Villages like Lossiemouth, Scotland and Itta Bena, Mississippi, have at least one thing in common. They’re cash deserts—places from which banks have fled and where cash machines routinely run dry.
Cash payments are on the decline in a growing number of countries. In South Korea, 89% of consumer payments are cashless. Paper money is becoming an oddity in Chinese cities, and cash hasn’t been king in the UK since 2017. And Japan, a paper-money stalwart, hopes to go digital by using tax breaks to encourage businesses to offer cashless payment options in advance of the Tokyo Olympics in 2020.
Sometimes though, the shift to digital happens too quickly. Sweden is looking at ways to re-introduce cash, or at least keep the underpinnings from collapsing entirely. India, seeking to flush out the underground economy and move towards a cashless system, suddenly removed high-value banknotes from circulation in 2016. But the effort in many ways flopped. There are few indications that it cut down illegal assets and the amount of cash in circulation rebounded.
A small but growing number of towns are unintentionally running out of bank notes and coins, part of a broader, global trend of bank branch closures. Some 2,000 or more US towns that had a bank in 2010 no longer have one. Britain’s ATM network has been in a tailspin, inspiring the UK government to pledge to protect the availability of physical money. It’s time to check the balances.
The end of the bank branch manager?
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When it comes to bank branch closures, the UK is something of a laboratory for the rest of the world. The country has embraced newer payment technologies, and its banking system is more concentrated among a smaller number of financial institutions. It also lacks certain regulations, like the Community Reinvestment Act in the US, that are designed to make sure that banks provide services and disclose data about their activities in vulnerable communities. These days Britain has fewer than 8,000 bank branches, down from nearly 18,000 in 1989. The shift is reaching a critical point, but it’s been underway for decades. Branch managers who worked in the provinces were a big deal in their communities in the 1970s. As credit scoring models caught on, much of their power and influence was relocated back to bank headquarters, in cities like London. Bank branches, over time, became little more than sales outposts.
The advent of online banking has turbocharged this shift. Around 1,500 previously banked towns in the UK no longer have a single branch.
But a growing stack of research also shows that robot lenders aren’t a full substitute for the traditional bank branch. Some consumers still like to do their banking in person and end up commuting to the nearest branch. They tend to do the rest of their errands at the same time, dragging commerce away from the smallest villages. Research published last year (pdf) by professors at the London School of Economics and University of Edinburgh Business School found that the closer a small business is located to a bank branch, the more likely it is to get financing for things like start-up costs, improvements, and expansion. “Our results suggest that, despite rapid technological change, local banking markets still matter,” they wrote.