By Joan C. Brancaccio, Bank of America Merrill Lynch and John Van Slingerland, G4S
Much of the discussion about the retail payments ecosystem has typically focused on mobile technology. A favorite pastime for the industry is predicting what platform will win the race for ubiquity in retail payments - will it be Samsung, Amazon, Apple, Android, or something else?
Separated from this swirl, and the loud buzz around digital payments, is the steadfast, continued use of retail cash transactions, which remains substantial overall, and in some industries, it’s actually growing.
According to a research paper published by the Federal Reserve Bank of Richmond, “Payment Choice and the Future of Currency: Insights from Two Billion Retail Transactions (Revised October 2014)”, the bank counted two billion transactions at a chain of discount stores from April 2010 through March 2013. Notably, cash was the most popular method of payment by a wide margin. They concluded that cash was so prevalent in “small-dollar transactions” due to its convenience and speed. The fact is, no matter how advanced smartphone computing becomes, currency is, and will likely remain for the foreseeable future, the most secure, flexible and efficient method for the smaller retail transactions.
As a result, it behooves the retail industry to not view innovation in retail payments and treasury operations as exclusive to digital options. And in reality, the security and financial services sectors have been pretty active when it comes to providing innovative solutions for retailers over the years.
Although the cash register was patented back in 1883, the first wave of innovation in cash handling began around 20 years ago, when safe manufacturers and armored carriers started to provide retailers with “smart safes.” A smart safe is a non-brand specific industry term used to describe a cash handling system; one that includes a deposit safe with a currency note validator attached to it. Retail personnel feed cash in bulk, and the smart safe is able to count and validate the currency. The smart safe stores the cash securely until the armored carrier picks it up and brings it to the bank.
By the early 2000’s, the currency validating machines had become increasingly accurate and dependable. This along with the improved connectivity between retailers and banks had advanced to the point where banks and armored carriers, supported by the various safe manufacturers and their technology partners and resellers, started offering provisional credit to retailers. Once the day’s cash is deposited in the smart safe, the retailer would receive bank credit for the cash deposited, instead of waiting the typical two or even three days to allow for the armored carriers to transport the cash to the financial institution. In addition to the instant credit to the bank accounts, smart safe also offered retailers key advantages such as streamlining the cash handling process and drastically reducing losses due to theft, miscounting and counterfeit bills. No doubt, smart safes contributed greatly to increased profitability at main retail operations.
By the end of the first decade of the 21st century, almost every category of retail had developed and expanded their usage of smart safes to count, sort, secure, and remotely deposit cash. Some of the more prolific categories of smart safe user include QSR, C-Store and fuel, mass market, department stores and grocery.
By 2008, it was clear that the larger operations, especially big-box retail chains with multiple locations with $5k and up daily cash receipts, couldn’t simply continue to reduce the costs associated with handling cash by adding more smart safes; they needed partners and suppliers to innovate solutions that could scale with growth. So, the industry looked abroad, to Europe and elsewhere, for ideas and inspiration.
Recyclers are a New Approach
The next step in innovative cash handling for North American retailers? Fully automated managed services solutions - to include full coin and note “recyclers”.
A cash recycler describes a holistic solution set for retail cash handling, which encompasses a smart safe along with added layers of functionality to include a bin for coin deposits in addition to the note recycler. With smart safes, the cash is deposited, validated, and booked as revenue, and all this happens before the cash is physically removed from the retail location and brought to the financial institution. With the cash recycler, retailers actually have access to the cash on-premise after it has been validated and credited, which they use to make “withdrawals” for change - both notes and coins. This is where the system gets its name - because it actually “recycles” the smaller-denomination notes and bills and coins.
Taking it a step further, a select number of financial institutions are starting to put programs in place where they provide retailers with an end-to-end solution that includes the cash recycler device (and efficiencies associated with operations), as well as armored carrier contracting, financial services and the electronic posting of the daily deposit totals. The managed services providers are further extending the value proposition by adding detailed data analytics focusing on key business initiatives including cash inventory management, 3rd party cost efficiencies and performance. The solution also reduces labor costs by eliminating the traditional personnel-intensive processing.
As mentioned, the software also collects, stores, and analyzes some extremely valuable past data around cash inventory requirements and make adjustments to cash-related forecasts, which can be granularized all the way down to an individual store level. Retailers can deploy this data to help identify trends and to forecast, and in the process increase their operational efficiencies. For example, if a weather-related event is expected, sales of certain products are predicted to rise, and the cash recycler solution is sophisticated enough to make adjustments to its cash-related forecasts for store locations in the affected areas.
Recyclers effectively transform the currency on location into “bank owned cash,” giving the retailer the opportunity to increase their working capital through improved management of their cash flow. When you add up the currency on-premise at any one time at each location of a large retailers hundreds (or thousands) of stores very quickly, true economies of scale can be attained.
Currently, cash recycler solutions are in thousands of retail locations, and widespread adoption is predicted to continue. While the early iterations of cash recycler systems were developed for the larger retail chains, cash recyclers are starting to see adoption among some of the smaller retailers.
In an industry such as retail, where revenues are difficult to accurately predict and where costs are anticipated to rise, it is vital for the banking, security and technology suppliers to continue to introduce cash handling innovations and reimaging solutions that will help retailers better manage and forecast their cash, and ultimately optimize their working capital.
Joan Brancaccio is managing director and product management executive, global receivables in global transaction services at Bank of America Merrill Lynch. In this role, she has responsibility for managing cash and check receipts product teams in the North America Transaction Services business. Her current focus is overseeing the transformation of core paper and cash based products into image and electronic solutions that are designed to revolutionize the way companies receive payments. “Bank of America Merrill Lynch” is the marketing name for the global banking and global markets businesses of Bank of America Corporation, including Bank of America, N.A., Member FDIC.
John Van Slingerland is Vice President of business development for G4S Retail Solutions.