News

Cut costs: Replenish your own vault cash

April 7, 2005

ATM outsourcing has become an attractive alternative for many financial institutions for a number of reasons. Outsourcing helps FIs extend their ATM networks and eliminates the need for staff to spend time servicing and maintaining ATMs. But some banks and credit unions are finding ways to make their outsourcing agreements more cost-effective by providing and replenishing their own vault cash.

According to the 2004 Dove Consulting ATM Deployer Study, ATM deployers spent about $180 a month for vault cash replenishment and about $75 a month for the funds themselves. On average, deployers spend almost $2,000 a month in operating costs, and vault cash is a substantial chunk of that.

Bob Colabrese, executive vice president of Nationwide Money Services, a Ponte Vedra Beach, Fla.-based deployer, said about 70 percent of the FIs his company works with provide and replenish their own vault cash. By doing so, he added, they save about 75 percent to 80 percent on outsourcing their networks.

Deployers pay between 5 percent and 7 percent for vault cash, based on the prime interest. For $1 million ? enough vault cash for about 70 ATMs ? the cost is approximately $7,000 annually.

For Nationwide, which operates more than 3,300 ATMs in its national network, the cost of vault cash alone would be exorbitant, Colabrese said.

John Clatworthy, vice president of sales and marketing for Newark, Del.-based cash supplier Cash Connect, a division of Wilmington Savings Fund Society, said most independent service organizations don't want to tie up capital for replenishment. "Most ISOs are smarter than we are; they know how to make more than 6 percent on their money," Clatworthy said.

Colabrese noted that since banks and credit unions aren't subject to the prime interest rate, having them take care of the vault cash makes sense. "They're in the cash business," he said. "Because they're a bank or credit union, they use their own cash, and it really doesn't cost them anything."

Roseland, N.J.-based ADP Credit Union signed on with Nationwide in October 2004. Now Nationwide owns the machines and provides first- and second-line maintenance and service to the credit union's network of 10 ATMs. ADP replenishes the ATMs' vaults as a way to cut down on outsourcing costs.

For ADP, which has only 18 employees, the arrangement is a logical one, said Juliet Jaremko, ADP's chief executive. "The advantage for us is that we still have some control," Jaremko said. "Since we use our own money, the fees are reduced. Nationwide doesn't send us that money to use. Even though we outsource our ATMs, we still are able to see the daly activity at each of our machines."

Nationwide keeps up with non-member transactions, she added, which also has reduced significantly the amount of time her employees spend handling settlement reports.