by David Tymm
In September 2010 the UK’s largest energy supplier sent 685,000 of its pre-paying customers a letter with a difference: it contained a cash reward for their loyalty. All they needed to do was visit one of 23,000 retailers where the voucher would be processed and money would be handed to them out of the till.
Giving money away is always going to be popular, and the majority of recipients claimed their payment, ranging between £5 and £15, within seven days of receiving it. Retailers loved the scheme as it provided them with customers with money to spend, with over 60% of the cash handed out spent in the store during the same visit. Unsurprisingly for a campaign distributing free money, a survey showed that 97% of customers were ‘satisfied’ or ‘very satisfied’ with the service.
The scheme put around £4 million back into the local economy, and it helped these retailers avoid the cash-handling charges levied by the banks. To put this in perspective, retail margins on some products are under 5% so saving the 0.5% cost of banking the cash can increase overall margins by 10%. In addition the retailers were paid a handling charge equivalent to selling a £10 mobile phone top-up.
After years of branch closures by high street banks and the Post Office, the UK’s independent retailers now find themselves in the vital business of taking in and dispensing cash. Although these services have been abandoned by those who once controlled it, the need for it as pressing as ever.
So is cash the ‘new black’, the must-have for the local retailer? Since this scheme was launched, no less than 133 other schemes along the same lines have been launched. For example, customers selling their old mobile phones can now collect cash within a day of selling it instead of waiting the questionable three days for the payment to ‘clear’; and customers of modern phone banking services no longer have to wait days to get access to their cash if they lose their ATM card – instead they can contact the call centre, ask for money to be sent to their mobile phone and collect it minutes later from a local retailer.
The common denominator is that traditional retail banking services do not serve the needs of a small but significant minority: type ‘UK unbanked’ into Google and you will get 194,000 entries of conferences, papers, initiatives and lots of other well-meaning hand-wringing that does not seem to have made much of a dent in the millions of UK citizens who fall into the ‘financially-excluded’ category. Take the red-hot issue of payday loans as a case in point. It is reasonable to assume that anybody looking for a payday loan is doing so as other sources of funds are denied to them but does it need to be so expensive? Not if the amounts borrowed can be reduced to the actual amount required, and not if processing costs are reduced.
Leaving aside that unauthorised overdrafts from mainstream institutions are actually similarly expensive, there is evidence that customers borrow more than needed. As payday loans are paid into current accounts, these accounts need to be within agreed limits before they can be accessed. Somebody needing an urgent £100 when they are beyond their agreed overdraft limit by £100 will therefore need to borrow at least £200 at high interest rates before they can get hold of the £100 they really need. Compounding matters further, more approved payday loans are rejected by applicants than are taken up, because they realise it will be paid into a bank account that is inoperable. This increases the industry’s overall costs that are then passed onto to the minority taking up these loans. One solution to both of these problems is to allow payday loan customers to get instant access to the cash they need from a local shop – and avoid the banking system altogether.
Distressed borrowing aside, people like cash as they spend it on things they like rather than things they need. Nowhere is this more true that when it comes to gifts. Remember as a teenager when you got a birthday card from an aunt or uncle with a postal order in it? Beyond 2018 this will pass into history when the postal order system goes the way of most other cheques and even today it takes immense faith in human nature to believe the attention span of anyone under the age of 20 would willingly put up with a typical Post Office queue. Maybe a virtual card sent via their Facebook wall with a unique barcode that could be exchanged for cash at their local retailer, whatever time they get up, seven days a week is the way to go?
David Tymm is chief executive of i-movo.