Improving the efficiency of your cash supply management in 2021

With the rise of digital payments, there seems to be an impression that cash is becoming a thing of the past—but that simply isn’t the case. It’s true that digital payments give consumers more convenient ways to pay, and more options. And it’s the “choice” factor that makes cash important, too—it’s one of consumers’ payment preferences and can’t be taken away—and it should be easy and conveniently accessible to consumers at all times.

But for financial institutions (FIs), cash management is complex, costly and time consuming. And the pandemic is making it even trickier to manage as consumer cash behaviors change. For example, consumers are making fewer transactions, but with larger deposit and withdrawal amounts. Also, businesses are relying on ATMs to securely make large deposits and conveniently get cash as they navigate the highs and lows of COVID-19.

What’s more, FIs are increasingly moving their services into areas of the world with large unbanked populations. For example, they’re offering more services in China and India with the highest unbanked populations in the world (225m and 190m people respectively without bank accounts). That means demands for cash in these countries is going to increase.

Handling this increase in cash is challenging at a time when FIs are looking to reduce operational expenditure.

The challenges of cash management: The inventory balancing act

It’s one of the most basic and crucial things a financial institution does: ensuring that they have the right amount of cash at all times (or as close as possible). Not having enough cash in the ecosystem can be disastrous, leading to lost revenue, hurting a financial institution’s reputation and losing customers (denying them cash access is one of the easiest ways to send them to your competitor).

On the other hand, having too much cash (excess inventory) is a more common problem for FIs and is costly, too, but for different reasons. With too much cash on hand, FIs can rack up costs like disposition and carrying costs—the latter includes storing cash and inventory management.

To help keep the right balance, FIs often offload excess cash to other FIs and get cash from them when their supply is too low—both are also costly. And then there is the ATM machine. According to a Deloitte report, “Retail banks often keep up to 40% more cash in their ATMs than required, when excess cash of 15% to 20% is considered sufficient.”

Effective cash management can help FIs maintain the right balance and control they have over their cash inventory. Because of this, some FIs have chosen to outsource cash management—but it’s still common practice to have bank staff manage the cash in house.  

So how do FIs stay on top of their cash activities using their own staff? One way is by cash forecasting which doesn’t exactly involve consulting a crystal ball. There’s a lot that goes into having accurate forecasts, including (but not excluded) to:

• Evaluating customer size and segment
• Taking the time of year into account—for example if it’s tax season that could impact the cash levels
• Monitoring previous cash trends
• Identifying national and local events
• Managing payment and collections
• Ensuring consistency and accuracy

Performing all of these functions, particularly during a pandemic, puts a lot of pressure on your back office. But fortunately, managed services are available as an alternative to going it alone. This year everything changed, pandemic cash use has thrown previous trends under the bus and FIs are in unchartered territory right now. As the number of cash withdrawals have fallen during lockdown, the amount of cash taken per transaction has increased.

Cash recycling helps lower costs and improves operations    

Investing in ATMs with cash recycling capability is an effective way to make cash operation s more efficient. This means enabling your customers to make cash deposits at an ATM with technology that re-purposes that same cash for withdrawals. That way, you can greatly reduce the need for cash replenishments and cash holding costs. The cash automation efficiencies can be huge, which is why FIs around the world are investing in cash recyclers. 

Related: How cash recycling is boosting branch efficiency   

For example, FIs in India are moving into underbanked areas with cash recycling technology and they’re seeing big ROI. Consider this: It’s likely that this year India will see cash withdrawal increase by 23 percent reaching 17 billion a year, while the value of these withdrawals will sky rocket by 65 percent to $1.2 trillion. By using ATMs with cash recycling capabilities, FIs can lower operating expenditure by as much as 50 percent while doubling the number of products sold per employee in the branch.

With that kind of return on investment it’s easy to see why India isn’t alone in investing in cash recycling. In fact, RBR in their Global ATM Market & Forecasts 2025 report predicts that the number of recycling ATMs across the globe is projected to increase by 25 percent by 2024.

So why are cash recycling ATMs so efficient? They help accomplish four main things:

• Reduce costs. In combination with cash recycling software, ATMs with cash recycling capabilities can lead to up to 50 percent in savings. That, according to the ATMIA, can mean up to $3k to $10k savings per branch.
• Increase productivity. When you reduce the amount of replenishments and the amount of cash handling by your staff, your tellers can focus on other higher value transactions and business objectives
• Improve customer experience. The chance that your ATMs will run out of money is greatly reduced, plus your customers have more options to bank how, when and where they want to—24/7
• Boost security. Cash recyclers not only can detect counterfeit cash, but also decrease errors in reconciliation and cash replenishments while reducing the costs of having too much cash on hand in branch.

Cash isn’t going anywhere anytime soon    

Cash is still king in many parts of the world and the management of it, for FIs, will continue to present challenges. Trying to maintain the perfect cash on-premise and in the ecosystem balance is costly and burdensome. But with the right management solution that fits your business and the use of cash recycling ATMs, you can reduce costs, simplify operations and mitigate risks. And the continued strong use of cash in many countries means having the most efficient cash supply management will edge out the competition, well into the future