Cashing Out: Assessing the risk of localised financial exclusion as the UK moves towards a cashless society

TL;DR

This paper develops a composite indicator to identify areas at risk of financial exclusion in the UK due to the shift towards a cashless society, highlighting key factors and policy interventions.

Contribution

It introduces a novel composite indicator combining infrastructure, demographic, and lifestyle data to measure localized financial exclusion risk.

Findings

No clear link between deprivation and exclusion, but deprived areas often at higher risk.

Affluent areas generally face less financial exclusion risk.

Digital adoption by community organizations is the most effective policy intervention.

Abstract

Whilst academic, commercial and policy literature on financial exclusion is extensive and wide-ranging, there have been very few attempts to quantify and measure localised financial exclusion anywhere in the world. This is a subject of growing importance in modern UK society with the withdrawal of cash infrastructure and a shift towards online banking. This research develops a composite indicator using a wide-range of input variables, including the locations of existing cash infrastructure, various demographic factors (such as income and housing tenure) and other freely available lifestyle data to identify areas at greatest risk of financial exclusion, thereby aiding organisations to develop intervention strategies to tackle the problem. The indicator illustrates that whilst there is no apparent correlation between financial exclusion and deprivation, pockets of extreme financial exclusion are generally found in deprived communities, and affluent, suburban areas tend to score consistently more favourably and consequently carry less risk. The attributing causes vary, from a lack of infrastructure, to low car availability, but income levels have a pronounced influence. Three policy proposals are put forward, including offering banking services at PayPoint outlets, and converting cash machines to cash recyclers, but improving digital adoption was found to be the most effective intervention, provided that it is implemented by community organisations. Policies purely targeting infrastructure provision or addressing social exclusion are unlikely to be effective, as community-based initiatives coupled with wider reforms to the financial system are needed.