Despite rapid digital advances in financial services access to cash will remain critical to many consumers, according to chief economist of the Bank of England Hugh Pill.
And Cardiff-born Mr Pill said while some tech start-ups are reliant on equity investment, new firms more broadly often see their founders using their credit cards to get started.
The Welsh Government is committed to creating a community bank to address what it sees as the disfranchisement of communities with the loss of high street banking branches.
It is now working with Monmouthshire Building Society to deliver on its community bank Senedd election manifesto pledge. Any community bank would need regulatory approval from the Bank of England and with the necessary reserves and start-up costs could need to raise tens of millions of pounds.
Mr Pill said he was aware of the project, although it didn’t form part of his remit. He added: “Put into the bigger context we want to have at the bank a world leading and state of the art approach to everything we are doing, whether it is monetary policy, payments etc.
"So there is a lot of thinking going on about that, but at the same time when we are talking about fintech innovation and the creation of central bank digital currencies we have been clear that this would not supersede, at least at this stage, the use of physical cash. That is partly for reasons of inclusion. So we do have a responsibility to ensure that people who don’t have access to digital infrastructure, and there is surprisingly high proportions of people in certain communities that don’t have access to digital infrastructure, are still able to engage with the financial sector.
"Of course there are pressures on traditional banks and the question is how you manage to sustain that access to financial services in a say an analogue way where the cost pressures are already high and the bank (BoE) is involved in that.”
It comes as the UK Government claims that millions of people across the UK will benefit from new legislation - the Financial Services and Markets Bill - to protect access to cash.
Currently more than more than 99.5% of the population are within two kilometres of a free-to-use cash access point.
Under UK Government’s planned legislation, financial regulator the Financial Conduct Authority (FCA, will be granted new powers over the UK’s largest banks and building societies, to ensure that cash withdrawal and deposit facilities are available in communities across the country.
To support the FCA, the government said in due course it will set out its expectations for a reasonable distance for people to travel when depositing and withdrawing cash. This will reflect the existing spread of cash withdrawal and deposit facilities in the UK.
Cash is the second most frequently used method of payment in the UK. Around 5.4 million adults rely on cash to a very great or great extent in their daily lives.
Economic Secretary John Glen said: “Millions of people across the UK still rely on cash, particularly those in vulnerable groups, and today we are delivering on our promise to ensure that access to cash is protected in communities across the country.
“I want to make sure that people are still able to use cash as part of their daily lives, and it’s crucial to ensure that no person nor community across the UK is left behind as we embrace a more digital world.”
Start up firm finance
Mr Pill said while recognising the important role of private equity and venture capital investment to back the growth of start-up firms, it was just a small part of the financing of all new firms in the UK. He added: “We need to recognise and be a little bit guarded against thinking that every successful start up business has to be a new tech firm that is financed through venture capital.
"There are firms like that and very successful firms too... but it is also true we that we have different types of firms. We have a lot of creative firms in the UK for example which aren’t tech. Most people who have left the labour market historically come back into the labour market as self-employed and not into employment. And most self-employment is in start up firms that are not high tech and a lot of those start-up firms are financed on credit cards.”
