When one looks at the hot topics in retail today, no shortage of economists, journalists, industry thought-leaders and technology pundits are talking about the future of payments. One topic that many aren’t really discussing is managing large volumes of cash receivables.
As anyone who pays attention to these kinds of things is well aware, in recent years there has been a move toward digital-based payments technologies, especially in the mobile category. Add cryptocurrencies (i.e. Bitcoin) and blockchain technology to the discussion, and it can seem that in this digital future, paper and coin currencies will become relics.
Although cash transactions are on the decline when comparing cash usage against other payment methods as a percentage of total sales, the reality is that cash remains the most prominent method of payment when it comes to transactions taking place in retail environments.
According to an article in the Wall Street Journal, two economists from the Federal Reserve Bank of Richmond researched two billion transactions that took place at a chain of discount stores from April 2010 through March 2013. Their findings? Cash was the most popular method of payment, by a wide margin.
They concluded that cash was so prevalent in “small-dollar transactions” because of its sheer convenience and speed.
Another major contributing factor that drives cash usage in the U.S. is the “unbanked” and “underbanked” segments of the population. (An underbanked person is someone who may have a bank account but also uses alternative financial services (AFS) outside of the banking system. An unbanked person has no bank account.)
Other research shows that when consumers make quick purchases and low-dollar value transactions, even consumers with credit and/or debit cards opt to use cash more often than non-cash payments. In fact, who use them every day are 49% more likely to use cash for purchases less than $20 and currency is used by most consumers for purchases below $10, regardless of preference.
The easiest way to measure cash usage is by its volume in circulation. From 2007 to 2012, the amount of bills and coins in circulation in the U.S. grew 42% and that figure has actually continued to grow steadily since 2012.
Cash Management Solutions
No matter what the statistics show, every organization that manages cash is looking for solutions that help them to reduce the risk, expense, and resource cost that comes with processing cash transactions. One of the key factors for success, especially for the chain retail organizations, is determining a “right-sized” solution for cash management and optimization; one that is fully scalable for all locations.
For a location that handles less on average less than $5,000 daily cash deposit, a “Smart Safe” solution that counts, validates, and secures currency, supports end-to-end remote cash deposit, provide a deposit receipt and communicates the daily cash totals to the retailer’s bank will reduce risk and errors, increase staff productivity, reduce risk and theft, and accelerate credit for cash deposits.
The retailers’ bank often provides provisional credit for the deposits while the cash awaits pickup from the armored carrier service.
One approach that has been recently gaining a lot of traction among retail organizations with locations handling $5,000 or more in cash receipts is the deployment of cash recycler solutions for end-to-end cash handling automation.
Cash recycler setups will include a “smart safe” device — with added functionality that that allows retailers to deposit coins as well as notes. Retailers can make withdrawals for change (notes and coins) and the device actually “recycles” the lower-value bills and coins, which drastically reduces the need for change orders. By automatically validating the currency and transmitting the value to the retailers’ bank account – before the cash has been physically moved – the cash recycler solution eliminate the traditional labor-intensive processing.
This also effectively turns the currency on location into “bank owned cash” which frees up all that working capital, and when it comes to the big retail chains with multiple locations with $5,000 and up daily cash receipts, those numbers scale upwards pretty fast. Calculate the value of all the currency “trapped” at any one time at each one of a large chain’s many hundreds (or thousands) of retail store locations. Ultimately, larger the retail operation, the more valuable the solution becomes.
In addition, cash recycler solutions collect and store a treasure trove of data around chain-wide cash requirements, all the way down to a store-by-store basis, which retailers can harvest and use for trending and forecasting to increase operational efficiencies.
Joan Brancaccio is managing director and product management executive, global receivables in global transaction services at Bank of America Merrill Lynch.
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