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Optimizing the ATM channel through sensible cash management

ATM deployers rarely consider the impact tracking and cash-balance optimization can have on their bottom lines. Balancing cash levels with cash-outs can be daunting, but Fifth Third Processing Solutions' Dan Gruber and Peter Kulik explain why deployers should be taking more of an interest.

May 30, 2006

Dan Gruber and Peter Kulik are both ATM experts for Fifth Third Processing Solutions. Gruber, the channel manager for ATM products and services, focuses on the delivery of new ATM products. He has 26 years of industry experience in banking and EFT operations, project management and new-product development. Kulik, new technologies channel manager, is a regular trade-press contributor and industry-conference speaker. He has 20 years of experience in the ATM and banking industries.

Dan Gruber

In this day of rising interest rates, ATM owners are more aware of the impact the cost of funds has on their daily operations. Combined with rising gas prices, fuel surcharges and declining per-ATM transaction volumes in some areas, the economics of ATM operation are certainly changing.

The cost of cash has represented the largest single category of ATM operating expense consistently year after year. KLCI Research Group found cash costs averaged 31 percent of ATM operating costs for all ATMs. And Dove Consulting reported in 2003 that operators spend about $227 per month keeping each of their off-premise ATMs stocked with cash. Unfortunately, tracking and cash-balance optimization at ATMs and branches is often less than desirable.

Across Fifth Third Processing Solutions' customer base, the average amount of returned cash from ATMs (the "rebank level") averages 40 percent for branch and off-premise ATMs.

The central challenge

Peter Kulik

The central challenge facing ATM cash optimization is balancing the cash level with the number of cash-out situations. A 40 percent or higher rebank level may be acceptable, if the goal is to be absolutely certain the ATM never ever runs out of cash. But, if you have one ATM to which you add $100,000 each month and return 40 percent, the annual amount of returned cash is $456,000. An average balance of $40,000 at a 7 percent interest rate costs $2,800 per year. For 10 ATMs, the total cash returned would be $4,456,000, with cash costs totaling $28,000 per year.

Reducing the rebank level to 20 percent would save approximately $1,400 per year, per ATM. Eliminating just one cash-run per month per ATM could save another $1,500, to $2,100 annually per ATM.

The proven approach to optimize ATM cash levels and dramatically reduce costs of cash is to abandon the weekly spreadsheet that most ATM deployers use. Instead, deployers should consider an intelligent system that predicts, plans and forecasts usage.

KLCI Research Group found that the "best in class" ATM deployer used a neural network tool to achieve a 10 percent rebank level with one cash out per year per 100 ATMs. While results may vary, it is not unrealistic for an ATM deployer to achieve a less than 20 percent rebank level without increasing - and quite possibly decreasing - the number of cash-out situations through the use of a neural-network cash-optimization system.

The biggest challenge of implementing such a system is the "training period," which can take at least six months. But once past that initial period, optimizing ATM cash can save deployers thousands of dollars annually per ATM. (One customer saved more than $1.5 million in one year.) Implementing a proven cash-optimization system may represent an ATM deployer's best opportunity for increased profit.