The current crisis has further enhanced the focus that business organizations have always placed on cutting costs and raising efficiency. This naturally also applies to banks, which are increasingly opting to automate their processes and, in their search for additional savings potential, need support from professional IT providers.
Optimized management of cash streams based on end-to-end cash cycle management makes it possible for financial institutions to reduce costs and improve transparency and security over the long term — especially if cash cycles are analyzed across banking and retail sectors.
This assumption is based on detailed reviews and process cost analyses, which have been updated continuously over recent years. Parallel to the increase in cashless payments with credit and bank cards, the trend for consumers to use cash continues unabated: In Europe, eight out of 10 transactions are handled in cash. The annual increase in euro banknotes, according to the European Central Bank, is 9 percent — EUR 677 billion now in circulation. Set against this, the volume of USD notes in circulation rose 42 percent from 2000 to 2007, and GBP notes rose by 50 percent.
The current global economic crisis has led to forecasts that actually anticipate a progressive short-term rise in the use of cash. This is indicated by the rising volume of cash in circulation and the increase in cash withdrawals from ATMs.
In absolute terms, the use of cash goes hand in hand with a high cost base. A study published by the European Payment Council quotes the cost of cash transactions in Europe at EUR 50 billion. According to Wincor's research, cash transactions showed a rate of EUR 11.9 billion for Germany — breaking down into EUR 4.2 billion in the banking sector and EUR 7.7 billion in the retail segment.
Against this backdrop, the ECB published the European Recycling Framework in 2007 to give banks more scope and flexibility in banknote processing. It allows the cash cycle to be shortened if certain requirements are met — banknotes that are accepted in banking and retail scenarios can be paid out again, provided they pass forgery and fitness tests. This framework agreement is likely to prompt other central banks to follow the example set by the central banks in the United Kingdom and Spain and to phase themselves out of the central cash provisioning process.
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Whereas around 80 percent of the cash in circulation today is still managed at a central point, the plan is to reduce this figure to 50 percent in the future. This reorganization will involve a steep rise in charges for retail banks that choose to let the central bank process their cash. In Germany, the vastly diminished net of Bundesbank branches means that banks will have to expect longer journeys and considerably higher costs for transport, cash processing and interest. The European Recycling Framework disposes that FIs may now outsource their cash handling activities to a certified cash center or handle them themselves with their own staff.
But the personnel costs incurred when internal bank staff handle cash already account for the largest chunk — more than 60 percent — on the cost side, so that automating cash transactions is by far the most effective lever for cutting costs in cash cycle management.
Focus on the entire cash cycle
The cash cycle is a special part of the supply chain, in which the product, cash, has to be made available at the right time, in the right amount using a minimum of resources. On this basis, rationalization measures should start at the point where most of the costs are incurred in the cash handling process: in the branches. The object should be to relieve staff in retail stores and bank branches of routine manual cash handling work. This must focus first and foremost on manual processes, in which cash is counted, sorted and packaged according to the four-eyes rule.
A first and relatively simple step toward reducing costs is to shift personnel-intensive services away from the counter onto self-service machines. ATMs and automated teller safes with a cash recycling functionality that meet legal requirements already implement the core aspect of the European Recycling Framework. They shorten the cash cycle right at the start, a step that guarantees major cost savings. Systems that check deposited notes for authenticity and fitness before dispensing them again to customers allow banks to achieve savings of between EUR 40,000 and EUR 100,000 per branch.
In a project that Wincor Nixdorf handled with a big international bank, deploying systems with a recycling function successfully reduced the number of cash-in-transit journeys by one-third and the cost of cash procurement by 30 percent. Optimization of replenishment volumes and intervals represents another cost lever.
Comprehensive cash cycle management actually goes further than this. It analyzes the entire process chain, including cash provisioning processes across the banking and retail sectors and reductions in the cash cycle between banks and retail stores.
In a project with Shell Germany, cash taken at up to 1,300 service stations was used to pay out money to bank customers at Postbank.
Further cross-sector models and scenarios are conceivable. Cash that is accepted in a retail outlet could be used to replenish nearby ATMs, provided that cash handling is based on intelligent systems that process the cash automatically, generate an audit trail and dispense with the need to re-sort cash holdings manually.
The prime objective of a cash cycle management solution must always be to guarantee transparency, quality, security and reduced costs across the entire cash cycle. Analysis represents the first step in an end-to-end process evaluation in the development of individually optimized solutions. This is the basis for designing individual optimization concepts that, with the aid of appropriate hardware and software and a standardized portfolio of services, manage the cash cycle.
Uwe Krause is the director of marketing for Wincor Nixdorf's banking division. To submit a comment about this article, please e-mail the editor, Tracy Kitten.
