Trial of cashback without purchase at stores ‘positive’, minister says

struggle in a cashless society
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The government has agreed an amendment to the Financial Services Bill which will enable shops to offer cashback to customers without making a purchase.

Replying to a debate in the House of Lords, Cabinet Office Minister Lord True said indications from an ongoing trial of the service are positive and the amendment will allow for such initiatives to be rolled out across the UK more easily.

“The government’s view is that cashback without a purchase has the potential to be a valuable facility to cash users and to play an important role in the UK’s cash infrastructure,” the minister said.

“This legislative change, which is possible only now we have left the European Union, would help both to support the availability of cash withdrawal facilities across the United Kingdom, benefiting individuals’ access to cash, and to support local cash recycling. These amendments are therefore a welcome step towards protecting access to cash.”

The amendment to the House of Lords Financial Services Bill, tabled by Conservative Peer Lord Holmes of Richmond, will remove an existing requirement for retailers to register with the Financial Conduct Authority (FCA) to offer cashback without an in-store purchase within the same transaction.

The amendment also ensures the regulation to take effect in two months after the passage of the bill, which is expected shortly.

Currently, cashback without a purchase is not possible under the Payment Services Regulations, which derives from the EU’s second payment services directive. If a business such as a corner shop or supermarket wanted to offer cashback without requiring the customer to make a purchase, it would have to be authorised or registered with the FCA.

“That is a significant burden for even the largest of retailers, let alone small, local shops along the various high streets across the UK,” Lord True said.

The government has earlier proposed facilitating cashback without a purchase through legislation in a call for evidence on access to cash published in October 2020.

In the same month, cash machine network LINK and PayPoint have begun a trial to allow consumers to withdraw cash using the LINK network from retailers’ tills without paying a fee or making a purchase as part of the community access-to-cash pilots.

The trial, expected to last till October this year, is operating across 12 shops in four communities across the UK: Cambuslang and Denny in Scotland, Hay-on-Wye in Wales and Burslem in England. Since launching, more than 12,000 cash withdrawals and 2,000 balance enquiries have been made with an average withdrawal size of around £29.

Welcoming the new legislation, LINK said it will allow thousands of shops to offer the service.

“This is a very positive step and brings much needed innovation in access to cash,” John Howells, LINK chief executive said.

“LINK expects that free ATMs will continue to be the most popular method for withdrawing cash and will be a feature of high streets and supermarkets for years to come. However, as consumers continue to increase their use digital or card payments, we need alternatives where ATMs may not be viable.”

The legislation is also welcomed by the Association of Convenience Stores (ACS), which called for the government to also ensure a ‘properly functioning and funded ATM network.’

“Over two thirds of retailers offer cash back to customers, so we welcome the extension of retailers offer cashback without having to purchase products,” James Lowman, ACS chief executive, said.

“A number of useful trials on extending the use of cashback without purchase are underway, and there is still much more we need to learn about how this can be offered securely and viably for retailers. We shouldn’t view cashback without purchase as a full replacement for a properly functioning and funded ATM network.”

Speaking during the debate, Lord True has indicated that supplying cashback without purchase will not be mandatory for any retailers.

“Industry will have discretion to make the service available across the United Kingdom. Where the service is offered, customers will be able to walk into a local business that wishes to participate, such as a corner shop, café or pub, and withdraw cash without having to make an accompanying purchase,” he said.

Cashback with a purchase was in 2019 the second most frequently used method of withdrawing cash in the UK, behind ATMs, with 123 million cashback transactions, amounting to a total amount withdrawn of £3.8 billion.

Figures from the 2020 ACS Local Shop Report show that more than two thirds of convenience stores (68%) already offer cashback to customers, with around half (49%) providing a free to use cash machine.

The bill has been returned to the House of Commons for consideration of Lords Amendments on 26 April.