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Vulnerable populations and the case for cash

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By Scarlett Heunbuch, a payments risk expert in the Retail Payments Risk Forum, and Dontá Council, an adviser in community and economic development, both at the Atlanta Fed

We recently wrote a post about communities not being able to access cash because of natural or man-made disasters. Severe weather and war, for example, may leave a bank branch inoperable. But even in “normal” times, access to cash remains an important consideration, especially for consumers who use it as their only or preferred means of payment. With this post, we look at how cash remains an important payment option and how accessing it may be becoming more difficult for certain vulnerable populations. These vulnerable populations — who tend to be low- to moderate-income households, rural communities, and recent immigrants — are more likely to be un- or underbanked (underserved) and often rely on cash to buy groceries and pay utility bills.

Even with an uptick in digital payment usage, cash remains a critical payment choice for many Americans. Some may be unable to use digital payment options because they lack access to broadband or a smartphone, for example. Others may not be able to access these options because they are unbanked. Data from the Federal Deposit Insurance Corporation’s 2019 report How America Banks reveal that approximately 5.4 percent of households (7.1 million) were unbanked in 2019. Almost 14 percent of black households are unbanked and presumably rely on cash or alternative payment options.

There are many reasons why cash can be a person’s default method of acquiring goods and services, according to a forthcoming paper titled “Cash Is Alive: How Economists Explain Holding and Use of Cash” by Oz Shy, a senior policy adviser at the Atlanta Fed .

Unfortunately, recent data suggest that challenges to accessing cash existed pre-pandemic and accelerated during the pandemic. It may be especially difficult for the underserved, cash-reliant consumer, according to a report by the National Community Reinvestment Coalition:

  • The number of banking institutions declined from approximately 18,000 in 1984 to fewer than 5,000 in 2021.
  • The rate of bank branch closures doubled during the pandemic.

Rural areas tend to see the most bank branch closures, and those closures have contributed to a decline in ATMs as well. Adding to this, banks have been more cautious in providing accounts to independent ATM operators in part because of anti-money-laundering concerns. So some banks are adopting policies that prohibit business relationships with independent ATM operators or are charging much higher fees for their services — which means some ATM accounts with banks are closing and fewer ATMs are being established.

These closures matter, even to the unbanked consumer, who may need bank branches and ATMs, for example, to obtain cash from a prepaid benefits card for unemployment or social security payments, get a cash advance on a credit card, or cash a check at a bank where the check writer has an account.

As the digital economy expands, people in underserved communities and those who are cash reliant, whether by choice or lack of other options, are at risk of being further marginalized in the financial system. To help ensure that everyone, regardless of payment preferences, is included in this system, cash access and preservation in underserved communities across the nation remain important to maintain.

Reposted with permission by the Federal Reserve Bank of Atlanta. Original article available here.

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