Cutting costs in the cash cycle
An extended version of this article first appeared in issue 5 of the Volumatic Stolen Knowledge publication in Q3 2013.
Cash is King?
Cash is alive and well. Despite almost constant claims to the contrary, the oldest, cheapest and most reliable payment mechanism still accounts for more than half of all retail transactions – and the day we see a cashless high street feels as far away as taking a flying car to get there.
Indeed, the number of retail cash transactions increased by one billion from 2010 to 2012, albeit with a reduced value as the profile of cash transactions continues to shift towards lower value purchases. Note and coin in circulation continues to rise, and the 44 million ATM users in the UK each withdraw an average of £360 per month – a large portion of which will go on to be spent in retailers.
This is good news – and not just for sentiment. Customers like cash and as well as being the most trusted payment, it is also the most cost effective for retailers. According to figures from the BRC, the cost of processing cash in the UK in 2012 was £81m, at an average 1.5p per transaction. Debit card transactions cost 9.4p, whilst those made using a credit card cost a staggering 38p. Doing some rough maths reveals that moving all cash transactions to debit cards would cost the industry an extra £426m a year – and moving to credit cards would cost an extra £2bn – an almost unbelievable 2,400% rise.
As well as being the cheapest, it’s also much faster than the immediate alternative of the card payment. A difference of nine seconds per average transaction may not sound much, with 31 seconds for cash and 42 for card, but over an hour, week, month or year a cash-only till can make 28% more transactions than a card equivalent – critical at peak times.
So why would cash go? It’s true that its share of the overall payments market is declining – with debit card usage continuing to grow steadily and mobile and contactless technology on the rise – but cash is not forecast to lose its place at the top of the payments tree until at least 2020, according to the Payments Council, and the transition will be later in the retail market in particular.
So in the face of a changing payments landscape, and some innovative and potentially game-changing technology, cash still has a part to play for the customer with selling points as robust as ever:
- Anonymous, traceless and completely transferrable in a climate of mistrust of large corporations, and their visibility of our lives
- Universally accepted and available from any one of 66,000 ATMs plus countless businesses and bank, building society, or post office branches
- Payable for any amount, no upper or lower limits for spending
- Independent of technology
- Self-imposed spending control (you can’t spend £15 if you only have £10 in your pocket!)
As long as cash remains important to the customer, it’s important to the retailer… but the differentials in cost of collection and transaction time sweeten the deal. All the facts show that cash payments are still critical to the customer – and it’s no coincidence that many retail segments are seeing significant growth presently, including value supermarkets and price-point retailers.
It’s clear, then, with usage stable and benefits clear to both retailer and customer, that the world still needs cash. The past 12 months has seen significant investment in technology from some of the high street’s biggest names, and the question for retailers now is how to optimise the cash cycle, get cash in accounts quickly and minimise cost and risk.
Historically, there have been a number of core challenges which retailers face when dealing with cash:
1. Forgeries: a constant presence in any cash-issuing economy. Unfortunately, whilst many are detected at the point of sale, many more are found only at cash office, bank or cash centre level leading to a charge – direct or indirect – to the retailer.
Each and every element of the cash value chain is in a constant battle with the criminal production of forgeries, from technology updates and staff training to the design and manufacturing of the issuing bank’s security features… and if the good guys were to ever lose the upper hand, the results could devastate the economy.
2. Resource: counting, checking, balancing and reconciling multiple tills into prepared deposits is a time consuming activity which can demand specialist teams in medium stores upwards. Counting errors occur frequently and the resulting discrepancies may take days or longer to investigate and reconcile. As technology develops and links in this chain can be automated, retailers could see effective redeployment of staff into more revenue-generating positions.
3. Security: the holding of significant sums in tills and vaults on a retail site creates a risk to staff and customers of external theft, and creates a temptation – to a very small minority – of internal theft.
4. Working capital: as credit is harder to come by with a renewed sense of responsibility from financial institutions, organisations need to make their money work quicker, with many cash cycle models taking at least two days to give the customer credit from collection. This is an issue which will be amplified as interest rates, and the cost of holding cash, begin to rise.
5. Wastage: with fixed Cash In Transit (CIT) scheduling, cash collections and deliveries are often not used to their full potential – particularly when considering ATM replenishments. In a utopian, just-in-time world, cash would be collected just before the vault or insurance limit is reached, and delivered just before peak sales time (or just as the ATM is emptying). The technology and infrastructure for dynamic CIT scheduling is still in development, and as a result retailers waste millions each year through paying for more collections and deliveries than they need.
6. Visibility: in the past, there has been no sight of a client’s cash from the moment it’s collected up until credit. At any one time, a large retailer may have several millions of pounds sitting on neither its premises nor its balance sheet. Of course, in most cases there is no need for any increased visibility, but in cases of shortages and significant forgeries, conflicts could easily arise between client, CIT, cash processor and bank.
7. Flexibility: similarly, it was typical for retailer’s cash to be collected, processed and credited as per the standards set by the providers – not the retailers. The guidelines on presentation of cash and paperwork create a resource-hungry task – resource which again could be used to generate further sales for the business.
To manage some of these challenges, the cash industry is using developments in technology to implement a range of solutions.
Automated “intelligent” tills and safes have been available for a number of years, but have only recently seen the tipping point of benefits outweighing investment. The features offered vary broadly between devices, but can typically link with the POS to automate counting, recording transactions on a network to remove in an instant the manual end of day cashing up process. Cash is held in a secure, tamper-proof pouch or bag and forgeries are detected on receipt – removing two of the costliest risks in the supply chain.
Each transaction recorded can automatically be uploaded to a central database, where it can be viewed by management at company, region, store, shift or till level. With the right integration, this could be matched to CIT and processing data to provide a single data warehouse for all cash information, with drill-down, dynamic MI for speedy analysis and query resolution – all available to customers through a web based portal solution.
Early value, or provisional credit, has been offered by the cash industry based on a percentage of forecasted deposits, but the technology also exists to offer credit based on the deposits known to have been taken by a device. Through either mechanism, the retailer sees an increase in working capital and a decrease in the funding costs of cash held on the balance sheet.
It’s through enhancements like these and others, in the reporting, crediting, counting and holding of retail cash, that the cash cycle can work more efficiently than ever.
Despite its many challengers and its imperfect nature, the benefits to both seller and buyer are strong enough to keep cash as a key component of retail payment for many years to come.
The same issues which have always affected cash remain, amplified by the recession – but mitigated by developments within the industry which can offer retailers significant long-term savings through new products and solutions.
So, in a changing world of ever-new technology and payments to match, only one thing is certain: cash is here to stay.
 British Retail Consortium, 2012
 Payments Council, UK Payment Statistics 2013
 Payments Council, UK Payment Statistics 2012