1 simple way to make merchant cash management a snap
by Sam Bosch, President and CEO, Peregrin Financial Technologies
Contrary to the wishes of Visa and PayPal, cash payments remain a vital segment of retail purchases. Although it represents a smaller percentage of transactions than card transactions overall, cash still accounts for $2.2 trillion of $10 trillion in sales in the U.S., according to L.E.K. Consulting, and it is expected to remain a significant part of the payments picture indefinitely.
The amount of cash in circulation is now $1.6 trillion and the Federal Reserve predicts that this amount will continue to grow at the rate of 4–6 percent per year. And each year, nearly 500,000 ATMs in the U.S. dispense more than $10 trillion in cash. This cash is not used to purchase pickup trucks or vacation homes — it is used to buy gasoline, hamburgers and six-packs.
For consumers, cash is attractive because bank notes do not require swiping or PIN entry. In addition, dollar bills cannot be hacked, and they leave no footprints. For retailers, cash is attractive because it helps them save money on transaction fees of 1–4 percent and settlement times of one to four days. Plus, there are no chargebacks.
To avoid being charged fees by credit card processors, more and more retailers are now offering incentives for cash transactions, such as discounts of 4–8 cents per gallon of gas. Some retailers are even offering cash discount programs — charging either a 3–5 percent fee on the total sale or a flat transaction fee. For consumers, these actions decrease the attractiveness of plastic and mobile wallet purchases.
But with all these attributes, cash sales do have the disadvantage of exposing the merchant to theft and shrinkage. Cash also comes with costs incurred in the time spent manually separating and counting notes, filling out bank slips, and then finally transporting the cash to the bank — or sending it via courier at additional cost.
However, there are solutions to these disadvantages: smart safes.
Smart safes not only meet the primary goal of safety and security, but also solve the problem off overhead costs. Smart safes have bill acceptors that count the cash deposited into them, print detailed reports for every deposit, and then the next business day, provisionally deposit the cash into the retailer’s bank account.
Though weekend and holiday sales — which account for 50 percent or more of many merchant’s business — are not credited until the next business day, the use of a smart safe still allows merchants earlier access to their money and reduces the number of armored carrier pickups.
Even after paying a monthly fee of $500 to amortize the cost of the safe, and the additional cost of cash-in-transit services, a smart safe can help a retailer save as much as $500–$1,000 per month.
The installed base of smart safes in the U.S. is now approximately 100,000 units, but according to forecasts by the market research firms IHL Group and Celent, the available market for smart safes is 1 million units, twice the number of ATMs in the U.S.
The timeframe for these smart-safe installations is forecast to be five to 10 years. Even with the inevitable advances in products and services, the size of the retail market will not increase much, but the market acceptance of smart safes will accelerate.
As Benjamin Franklin said two centuries ago, "Time is money." Now the goal of the retail cash management industry is to reduce the time delay between a smart safe cash deposit and the crediting of that deposit to the retailer's bank account. Deposits could then be used online to pay bills, transfer funds or earn interest — and to lower the cost for doing so.
Watch this space.
Sam Bosch is founder and president of Peregrin Financial Technologies, a company that designs, manufactures and markets financial transaction products and services for retailers, financial institutions and public organizations. Peregrin has developed self-service gasoline dispensing terminals, cashless ATMs, self-service ticketing terminals and more. Bosch holds numerous patents for cash management solutions.
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