By Joan C. Brancaccio, Bank of America Merrill Lynch
Despite a fresh onslaught of “cashless society” articles over the past year, the fact remains American consumers are still using cash for payments in great volumes in retail environments. According to a Celent report, cash — although slowly declining as a percentage of point-of-sale transactions — continues to grow in the U.S. in terms of the amount of cash in circulation.
The Federal Reserve Bank of San Francisco also published research finding cash is still used for around half of all transactions that were valued under $50. The same study also found consumers will select cash more frequently than all other payment instrument choices.
So, managing and processing currency continues to be a factor retailers have to contend with now and for the foreseeable future. As retail embraces all facets of competitive efficiency through automation, where does cash-handling fit in? Fortunately for retailers, new approaches around the automation of cash handling can actually bring forth meaningful opportunities to support cash flow, reduce risk, and increase revenue. Following are ways this happens.
Freeing Up Valuable Working Capital
When cash sits in retailers’ registers, safes, and in cash rooms, it is unavailable for investment, debt repayment or business expansion. Even though most retailers work hard to manage the flow of cash via secure transit (i.e. armored trucks) between stores and banks, the objectives are set up around operational efficiency and risk management. The goal is to take the cash in, count it really fast, and keep track of what gets counted until it hits the bank vaults and gets booked as revenue.
However, through advances in cash handling automation technology, retailers can now take advantage of cash-recycler technology which automates this process by allowing retail workers to deposit coins and currency into a safe, as well as make withdrawals for change. Furthermore, the cash in the device is provided by the bank (such as an ATM) eliminating any need for retailers cash to fund store operations.
Cash in stores is now counted and validated, and then the value is transmitted to the retailers’ bank all before any of the cash has been physically moved from the retail location. As a result, we are seeing a new paradigm in cash handling emerge — one centered on the concept of unlocking working capital.
Consider the amount of cash that exists at any one moment in all big-box retailers, grocery, and large department store chains and the incredible and easily-quantifiable potential around automating cash handling becomes clear.
Optimizing Labor And Staff Levels
Typically, a retailer’s biggest controllable expenses throughout its many operations is labor, and cash handling is one of the most labor-intensive tasks in retail. Lowering the payroll — one of the most direct and immediate measures a retailer can take when costs must be reduced — can often produce quick results but may impair the ability for longer-term growth and profitability.
At the same time, for retailers with physical store locations, a significant element of their competitive advantage over online counterparts is their ability to offer a stellar in-store experience, an advantage that will be compromised by understaffed stores.
The cash-recycler technology isn’t a straight substitution for human labor; rather it’s a complement to it. Resources that formerly handled cash can be redeployed to service clients and increase sales. The automation in cash handling allows for the reduction of the labor costs and/or the redeployment of the retailer’s resource of trustworthy and competent employees.
Cash Supply Chain Optimization
The anodyne definition of the term “supply chain” is the sequence of processes involved in the production and distribution of a commodity. To a retail professional, supply chain optimization begins and ends with improvement, optimization and innovation around the inventory supply chain. However, a very crucial and oft-overlooked aspect of profitability in retail is better management of the cash supply chain. The cash supply chain is a term used to describe the logistics around cash handling — secure courier services for moving cash within and between banks, ATMs, retailers, and other types of merchants.
Getting the right amount of cash to the right location at the right times can be inefficient, labor-intensive, and costly — a process ripe for optimization.
Consider the spikes in cash usage and dynamic needs for retailers around a big event — everything from the city that hosts the Super Bowl to a dangerous hurricane. Once cash handling is automated to a certain degree, retailers can build algorithms to capture and analyze data on cash flow. Predictive analytics can help dictate the optimal cash inventory (i.e. right amount, right denominations and coins, and importantly, no over-abundance in cash).
The Need For Cash During Natural Disasters
Another use-case illustrates the benefit of having a real-time window into cash inventory positions across an entire geography. Optimization and automation of cash handling enables retail chains to prepare for and react to unpredicted cash inventory needs — for example, in the face of storms and disasters.
During the aftermath of Hurricane Harvey, retailers in the Houston area that were able to remain open served a crucial function for the recovery process and, for those retailers (many of which were unable to rely on the routine physical transportation of cash to and from the bank vaults), on-site cash recycling solutions enabled them to continue to make transactions and support the members of their community.
Cash handling, in short, doesn’t have to represent a cost-center or even a burden for retailers. Automated cash handling solutions, already in use in thousands of retail locations worldwide, are proven to increase operational efficiency, while maximizing working capital.
Joan Brancaccio is managing director and product management executive, global receivables in global transaction services at Bank of America Merrill Lynch.