Responses to the Public Consultation

The Wholesale Distribution Steering Group (WDSG) published a Public Consultation Paper (PC) on the Bank of England’s website covering the future of the UK’s wholesale cash distribution model which outlined the potential benefits of a utility model as identified by the independent industry analysis. The consultation ran between the 24 June and the 24 August 2020, and 12 formal responses were received comprised mainly of Financial Institutions, wholesale operators, Independent ATM Deployers (IADs) and Banknote Equipment Manufacturers (BEMs). This annex summarises the key comments received in an anonymised and aggregated format. The responses have been grouped against the four questions the WDSG asked in PC:

Question 1: Do stakeholders agree that moving to a utility model would be more appropriate to maintain an effective, resilient and sustainable wholesale cash supply chain in the UK in the face of declining cash usage compared to the alternative scenarios?

Overall there was a strong view that the current wholesale distribution model is characterised by overcapacity and increasing costs and that without some level of rationalisation it cannot remain effective, resilient and sustainable against the backdrop of steep declining cash volumes. Many stakeholders noted that this risk is likely to be accelerated with some presumed persistent impact from Covid-19 and as consumer preferences switch to digital payments.

There was acknowledgement that a utility model might be well placed to address these issues, however, the responses also noted that there were a number of outstanding questions on the design that would need to be resolved.

The key points raised were:

• A utility model might be more financially sustainable than the alternatives, and could be best placed to support access to cash for the medium to long term.
• However, any transition would need to address the complexity in consolidating multiple operators with different operational equipment, bespoke services, and practices under a single utility with a common set of standards, service catalogue and IT system.
• The business case for the ‘wholesale’ utility should take into account the financial and commercial impact further downstream at the ‘retail’ end.
• The needs and requirements of wholesale coin processing should be considered carefully given the significant differences between note and coin processing.
• There needs to be a clearer delineation between wholesale (in-scope) and retail (out of scope) operations within the current cash centres.

Question 2: Are there any alternative and/or additional proposals or factors that WDSG should take into account when progressing this programme of work? In particular, are there impacts on the wider cash industry or end-user access to cash that should be considered further?

The governance structure of the utility was a key consideration for a number of stakeholders. Many felt that greater efficiency and potentially reduced need for wholesale distribution could be delivered by innovation in retail distribution. Suggestions included local recycling, which is a mechanism for sorting and re-issuing cash locally without sending it back to wholesale cash centres for processing. Cash deposit hubs were also highlighted as potentially improving access and efficiency; these allow cash to be deposited into an account without the need to visit a branch, as a means for improving the overall efficiency of the cash cycle.

The key points raised were:

• The governance of the new wholesale cash scheme should be designed to best meet its public interest objective.
• Any utility should have an appropriate governance structure and regulatory framework to operate efficiently and in the interests of all stakeholders over time. The utility should consider having a balance of representation from across the cash industry on the Board.
• The existing market might be capable of effective consolidation and rationalisation in the short to medium term, which could offer an alternative to the utility and should not be ruled out.
• Responses to the Consultation suggested that an increase in innovative local recycling schemes could assist with broader access to cash objectives, and could lessen the burden on Cash in Transit and the wholesale processing of cash. However, it was noted that such schemes currently remain unproven in the UK at scale.

Question 3: Are there any design elements that would make the utility more or less successful from the perspective of the broader cash industry? For example, do stakeholders have views on the options for operating the cash centres?

There was broad support for maintaining multiple operators in wholesale cash distribution. However, while some favoured a competitive tender approach, others felt that an industry driven approach, at least in in the short term would be an easier transition towards a utility model. There were also contrasting views on what services the utility should offer, including careful consideration of any overlap in retail cash services.

The key points raised were:

• An open and competitive tendering process could be preferable to ensure the best outcome for all parties, members, and consumers.
• Careful consideration should be given to ensuring that the focus of the utility does not extend beyond its wholesale distribution remit, given the potential impact on competition in other markets.
• Automation, technology and a fully integrated, end-to-end approach are important to delivering increased efficiency.
• It is important to ensure the service provision within the utility is not standardised to the extent that it cannot be commercially responsive to adapting to consumer needs.

Question 4: Do stakeholders have any concerns about the timing of this programme of work that WDSG should take into consideration?

Most respondents felt that the short to medium-term timetable was very ambitious to develop a new centralised IT system, undertake a potential merger filing with the Competition and Markets Authority and assess the true impact of Covid-19 on cash volumes. This also meant there was considerable uncertainty about the plans. In contrast however, a few commented that the timetable will need to be ambitious to deal with the accelerated decline in cash volumes from Covid-19.

The key points raised were:

• One of the effects of the coronavirus crisis is that the forecast use of cash that was expected by 2028 now seems likely by 2024. Therefore, plans and measures to ensure that the correct system is in place to support this level of cash demand are a matter of urgency.
• The current timings of this programme is very ambitious. Respondents noted, in summer 2020, that it may be unrealistic to expect that in 18 months the new model will have been defined, agreed, funded, systems built, systems integrated and solutions tested. The merger controls process alone could take upwards of 12 months.
• The programme will need to assess the impact of Covid-19 on cash volumes to ensure any assumptions made to inform the model recommendations are still valid.