Creating Efficiencies amidst Changing Times

Cash processing operations have traditionally evolved over the years in response to internal and external business demands. Recently, however, more significant operational changes have taken place, driven by extraordinary economic conditions as well as fundamental shifts in currency usage by businesses and consumers. Product and process innovation has also facilitated alternative approaches and opened up more options in cash management.

So what are the trends and changes in the way cash is being utilized in the cash cycle? What have companies done to transform their cash processing operations to adapt to these changes? How might other cash processors be impacted and what methodologies might be considered to gain more efficiencies? In this article Curtis Hallowell, VP of Product Management at Cummins-Allison Corporation, specialists in note and coin handling systems, addresses these questions.

Transition in the cash vault environment is evidenced by an increase in partnering arrangements, consolidation, outsourcing, and even some expansion. While many cash vaults continue to operate in a centralized manner, others are moving towards decentralized business models.

Economic conditions have certainly impacted some of these decisions, but there are other external factors affecting the prevalence and use of cash. Cash is certainly not going away, but consumers and businesses alike are utilizing it in ways that have ramifications for cash vault operations.

Changes in Cash Utilization

Traditionally, cash has always been subject to fluctuating demand - weekend spikes, seasonal increases around holiday periods, and so on. However, consumers' ready access to cash resulting from today's prevalence of self-service equipment has truly altered the cash cycle. Largely begun by ATMs in the 1970s, the consumer self-service phenomenon has now expanded to self-service checkouts in the retail sector, coin redemption kiosks, bill payment stations, check cashing stations, pre-paid card kiosks and more - all impacting the flow of cash in circulation.

One seemingly minor technological innovation - bill acceptors that can handle mixed and higher-denomination notes - has even impacted cash cycle patterns. This has also prompted companies further downstream - cash-in-transit, vending operators, public transit authorities, amusement parks, casinos and others - to implement more sophisticated cash processing.

Other trends affecting cash circulation include teller-assist devices such as cash recyclers at banks and credit unions, and cash-handling automation in the retail sector.

So let's examine some of these trends in more detail.

Automation and Optimization

Decentralized cash processing is being driven in part by technology at the branch level. However, decentralization itself may not be the objective. Rather, currency recyclers improve teller productivity and minimize balancing, freeing up time to engage in customer-facing activities. Self-service coin redemption kiosks, meanwhile, help drive customer traffic to the branch, but also free staff to focus on other duties rather than process coin, while multi-function ATMs further facilitate staff productivity. All these devices impact how cash is handled at the branch level as well as through the cash cycle.

Concurrent innovation has been taking place in certain tabletop currency sorters, including fitness sorting capabilities, enhanced counterfeit note detection, and serial number capture. With high-level sensors once found only on large sorters, these low-cost tabletop units are enabling higher level processing at the branch level. Consequently, more banking branches are becoming an extension of the cash vault by using tabletop sorters, reducing the burden of deposits being processed at the vault level.

Retailers, meanwhile, are seeking the most cost-effective way to manage their cash. Many are employing back-office solutions with automation in processing their cash drawers. Others are implementing front-office models with automated cashier deposit machines or employee banks, while new generation ATMs with check imagers and bulk note acceptors are being installed to provide even more services to shoppers.

New Business Models

There are some interesting business models emerging as a result of these 'automated safes' or intelligent deposit kiosks. One is that CITs are placing these kiosks in the stores as an extension of their cash vaults, whereby ownership of the deposit is transferred immediately to the retailer's bank for instant credit. In Mexico, banks are purchasing and placing these devices at decentralized points of deposit, netting the same effect. Similar trends throughout the world are taking place. The cash cycle is also being impacted by the widespread installation of self-service checkout lanes. Because most of the cash remains in the footprint of the self-service checkout terminal, fewer cash drops and pickups are required.

Interestingly, centralization of cash operations is taking place by some retailers themselves, utilizing their existing logistic chains to move cash around.

Multi-Industry Self-Service Kiosks

Self-service kiosks were mentioned earlier as a massive trend which impacts the cash cycle. According to the IHL Consulting Group, a global research firm in the retail and hospitality arena, 'transactions at self-service kiosks will surpass $607 billion this year in North America, as consumers continue to embrace self service technology. The amount will more than triple by 2012 to over $1.7 trillion.'

Self-service devices that manage cash or other payment transactions are commonly referred to as financial transaction kiosks and include advanced function ATMs, and kiosks for check cashing, bill payments, ticket payments, stamp and gift-card purchases, parking fee payments and others. Others include self-service check-in and check-out at hotels and airports, payment and ordering kiosks at quick-serve restaurants, DVD rental kiosks, coin redemption machines and casino slot payout and bill-breaking kiosks.

Also, new generation kiosks allow unbanked and underbanked consumers, or those who simply prefer cash, to access services including domestic or international money transfers, check cashing, prepaid wireless phone top-ups and other prepaid card dispensing.

Self-service devices have combinations of note acceptors, coin acceptors, storage cassettes and envelope drops. Someone must manage the cash including pick-ups, verification and replenishment of these devices. This market area is exploding with a variety of players, both traditional and non-traditional, meeting these needs.

Other Drivers

Changes in social, economic and environmental conditions are also causing transformation of cash processing. These drivers include:

• central bank policies, including fitness and recirculation initiatives
• pressures on the competitive landscape
• reactions to the state of the economy
• infiltration of high quality counterfeits
• demographic and population densities

Cash processors are continuing to adjust to these issues. For example, in the US, the Federal Reserve's Currency Recirculation Policy has changed the way many financial institutions manage their cash, while in Europe the ECB certifies and regulates note and coin processing equipment to ensure it meets their strict standards for fitness and counterfeit detection. Many other countries are instituting similar policies.

There has also been a rise in high quality counterfeits that appear to be regionalized, especially in port cities. These trends are causing financial institutions and retailers to upgrade their note processing equipment with the most advanced counterfeit note detection sensors.

Trickling Down

Cummins-Allison is seeing an increase in the purchasing of equipment that includes multiple sorting pockets and fitness detection, being placed in areas once dominated by single-pocket note scanners. There are also more installations of recycling technology and multi-function ATMs being placed at or in close proximity to merchants.

This is resulting in an interesting dichotomy: more deposit processing is being done by bank branches, yet automated and intelligent safes are reducing the need for merchant deposit processing at the bank branch level.

Nonetheless, the net effect is much the same. There appears to be a trend towards a decentralized philosophy, or a 'trickle down' effect, where many of the functions managed at the vault level are now being managed on a distributed level.

With deposit processing automation at the branch level, currency is verified, sorted and immediately made ready for redistribution, but only after it is delivered to the branch.

With deposit automation at the retail/merchant level, the deposit is verified with instant credit being given to the retail/merchant; however, the deposited notes must be picked up and are still subject to a second count and/or sort.

Of course, every method has its pluses and minuses, and all the participants in a deposit processing operation need to collaborate to determine the optimal route for a given organization.

Yet despite the automation taking place at the branch and retail levels, we are still seeing growth in inbound/outbound cash in the cash vault environment. Perhaps this is due to the increased amount of notes in circulation, year after year, confirmed by various central banks.

Conclusion

Cash continues to be a prominent means for conducting consumer transactions, even more so during the constrained economic conditions currently reverberating around the world. What is changing in the cash cycle is the 'how' and 'where' cash is exchanged. This is driving cash vaults and cash processors to modify their business practices, including relationships with customers and partners.