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This policy brief will answer the following question posed by the Bank of Canada (BoC): What are the social policy implications for a less-cash society and how might it impact different population groups?

Through extensive literature review and stakeholder consultations, it has become evident that higher levels of financial exclusion for vulnerable cash-dependent demographics is the primary social policy implication of a less-cash society.

Overview

This policy brief presents findings on cash usage, patterns of cash access, and the interactions of vulnerable groups with cash. Mainly, this policy brief highlights the experiences of four groups vulnerable to less-cash: Indigenous Peoples, unhoused individuals, older people, and survivors of domestic abuse. Each of these groups have distinctive relationships and heightened dependence on cash 鈥� suggesting that less-cash will impact them disproportionately.

The policy brief centers:

1. Examining how the four identified groups are impacted by less-cash and understanding the value of cash to these groups based on their identities, socio-economic statuses, and unique needs.
2. Exploring the connection between the movement toward less-cash and financial exclusion, given the aggravating factors in the financial system that generate additional negative consequences stemming from a less-cash landscape.
3. Formulating policy recommendations that can shape the organizational philosophy, culture, and focus areas of the BoC, the financial system committees BoC engages with, and other pertinent federal agencies. This will ensure that the needs of marginalised populations are duly addressed in the shift towards a less-cash society.

This capstone project utilises information from a wide breadth of literature, including BoC reports, peer- reviewed academic pieces, international case studies, government documents, and media publications.

Beyond reviewing the existing literature, the project draws on qualitative data to understand the experiences of the identified population groups. Through interviews with 25 stakeholders, this policy brief reflects on an understanding of a less-cash society through the lenses of advocacy groups, researchers, and policymakers that possess knowledge on the financial habits of vulnerable populations.

Context

Less-cash in Canada

• The term "less-cash" describes the current trend of declining cash use, acceptance, and access, which is expected to continue in the future, although cash is likely to persist alongside digital payment tools.

• Cash-based transactions in Canada have drastically decreased, as payment preferences shift towards e-Transfers, credit cards, PayPal, and debit cards.¹
• Cash use for daily purchases has declined, from 54 percent in 2009 to 22 percent in 2021.²
• Despite the reduced use of cash, the total amount of cash in circulation has been increasing, indicating a higher demand for cash.³

Bank of Canada鈥檚 mandate

• As Canada鈥檚 central bank, the BoC鈥檚 core functions include anchoring monetary policy, issuing currency, providing fund management services, and supervising retail payments.⁴ The BoC is responsible for ensuring the country鈥檚 economic and financial welfare, as per the preamble of the Bank of Canada Act.⁵
• The BoC conducts research on cash and digital payments to better understand the payments landscape. Further, the BoC plays a fundamental role as the wholesaler of cash to financial institutions (FIs), overseeing the production and distribution of cash.

Key Findings

The value and use of cash for vulnerable groups

Cash continues to present unparalleled utility to many 鈥� as a means of payment, a tool for budgeting, a safeguard for times of crisis, and to alleviate challenges associated with marginalised identities.

• Low volume transactions are most likely to be paid in cash. In November of 2020, 40 percent of the total volume of transactions under $15 were paid in cash.⁶
• Many individuals express a preference for keeping their savings or emergency funds in cash, citing reasons such as: security, universality, accessibility, anonymity, and the sense of control they derive from managing their finances in physical currency. These facets explain why cash is still prominent in the Canadian economy.
• Digital payment methods do not lend themselves to the same accessibility in budgeting as cash does. For vulnerable groups, cash-based budgeting is reliable, easy to monitor, and prevents individuals from going into debt from an over-reliance on credit.
• In times of emergency, like the pandemic or a major network outage, cash is a familiar tool that can provide a sense of security. Demand for cash tends to increase during times of uncertainty.
• In Indigenous communities, cash maintains utility as a method of payment for various social events and traditional occasions. Further, Indigenous monetary customs and cultural practices have not been integrated in digital payment systems.

• Cash is vital for unhoused people, many of whom rely on panhandling to fund necessities. The pandemic impacted the unhoused community financially, as reduced cash usage meant that fewer people carried cash and thus panhandlers earned less.
• Those experiencing domestic abuse are advised to keep a 鈥済etaway fund鈥�, as cash is untraceable to abusers. Given the high likelihood that domestic abuse victims also experience financial abuse and financial exploitation, this practice is highly salient for their eventual autonomy.
• Many older Canadians rely on cash as a secure and accessible tool for financial management and paying for goods and services. Digital payments may increase older people鈥檚 reliance on others, creating susceptibility to elder abuse.

The irreplaceable role of cash in the lives of vulnerable groups must be recognised to prevent further financial exclusion.

Lack of trust and reliance on financial institutions (FIs)

Within marginalised groups, there is a strong perception of bias in services offered by FIs. The lack of trust in frontline banking services is a contributor to underbanking 鈥� a phenomenon observed when individuals possessing bank accounts underutilise the services offered by FIs.

• In Canada, three percent of Canadians are unbanked (have no formal relationship with a mainstream financial service provider), while up to 15 percent are underbanked (have a bank account but limited engagement with FIs).⁷ This presents challenges, as less-cash indicates a need to transition to online financial tools for tracking, budgeting, and payments.
• Marginalised communities fear discrimination when interacting with frontline banking staff, which can be attributed to unconscious bias.
• The lack of trust between FIs and the identified groups, especially Indigenous and unhoused Canadians, was notably underscored by many of the consulted stakeholders.

These experiences and perceptions highlight the need to foster greater trust between marginalised populations and FIs.

Limited bank access for vulnerable communities

As the number of bank branches decline in Canada, vulnerable people are concerned about where they will access cash and in-person financial services. A growing dependence on exploitative 鈥渇ringe鈥� institutions for accessing financial services has led to elevated costs, primarily in the form of fees associated with the use of supposedly more 鈥渃onvenient鈥� cash services.

• Geographic exclusion is a concern, as there is currently no policy indicating FIs鈥� obligations to continue operations in rural parts of Canada.
• Many who are unable to adequately access financial services through mainstream banks turn to 鈥渇ringe banks鈥�, which are operations like cheque-cashing outlets, payday lenders, or pawnshops. While these services do appear more convenient on the surface, they come with higher costs.
• There is a high proliferation of 鈥渨hite label鈥� ATMs in Canada, which are privately owned ATMs. These ATMs tend to charge high fees for cash withdrawals.

Stakeholders expressed concern over these costs, which inexplicably burden cash-dependent marginalised groups. As Canada progresses towards a less-cash environment, the demand for convenient and affordable cash services remains substantial.

Financial exclusion, abuse, and exploitation

The shift towards less-cash is exacerbating financial exclusion among vulnerable populations.

• Financial exclusion refers to the inability to access and appropriately utilise a suite of banking services (example: low-cost bank accounts). This condition is problematic, as it can perpetuate poverty and create financial traps for the most vulnerable.
• The remedy to financial exclusion is financial inclusion. Financially included people are portrayed as those who have and utilise mainstream financial products and services. Access to and the utilisation of cash and bank accounts are especially relevant to this policy brief.
• Financial exploitation and financial abuse represent complex dimensions of financial exclusion, as they pose a risk for marginalised groups when leveraging non-cash payments and using digital banking tools. Financial exploitation refers to the illicit or unethical utilisation of another individual's financial resources for personal benefit.
• Financial abuse refers to the deliberate and inappropriate manipulation of an individual's financial assets by another person, often within a relationship characterised by power imbalances.

Less-cash trends indicate a sense of urgency to design policies which can address the various dimensions of financial exclusion, to guarantee equitable financial outcomes for vulnerable demographics.

Recommendations

Recommendation 0: Strategic Review to Define Economic and Financial Welfare

Recommendation 0 suggests that the BoC conduct an internal strategic review to embed financial inclusion within its understanding of economic and financial welfare (EFW). The recommendation entails defining EFW based on five interdependent parameters: financial stability, economic stability, monetary stability, sustainable economic growth, and financial inclusion.

• BoC will establish an institutional setup to design an EFW framework over a 20-month period, involving team allocation, parameter identification, tool evaluation, data analytics, advocacy, and interdepartmental collaboration 鈥� ensuring regular re-evaluation of the framework every five years.
• The BoC will foster collaboration between internal departments such as the Financial Stability Department, International Economic Analysis Department, Canadian Economic Analysis Department, and the Currency Department to ensure a comprehensive understanding of EFW.
• The BoC will conduct research and utilise existing data to identify and define EFW parameters, considering their relevance in the BoC's context, including Canada's economic, demographic, and geopolitical landscape, as well as the implications of upholding global human rights standards.

Recommendation 1: Community Cash Connect Program

To improve cash access for vulnerable communities, the BoC should implement the Community Cash Connect (CCC) program, a proposed private-public partnership to provide no-cost ATMs where needed. The BoC should develop a framework that enables community leadership to request feasibility assessments to the central bank for their cash access needs. This program aims to address the inequity caused by bank branch closures and ensures reasonable cash access for those in need.

• BoC will conduct a feasibility assessment of applicant communities to determine whether people have adequate access to cash, analyzing factors such as: distance to nearest no-cost ATM, whether there are geographic barriers to cash access, and if a community has experienced bank closures.
• Through an agreement with the Big Six banks, the cost of the installation and maintenance of ATMs will be split. The BoC will ensure that cash services are included at no cost.
• BoC will oversee the success of installation of no-cost ATMs and coordinate with FIs to ensure that any technical issues are sorted within a reasonable timeframe.
• The CCC program attempts to remedy the increasing costs of accessing cash, while also addressing the needs of specific communities. As a community driven model, the CCC allows localities to determine whether infrastructural interventions are needed to ensure no-cost cash access.