While I was working on my presentation for the Fiserv forum a couple of weeks ago, I decided to also write a research note on the current state of currency management within retail locations. The idea of retail currency management (RCM) has been floating around for a couple of years and everyone in the industry has been wondering when (or if) it will take off.
Financial institutions have long tracked the amount of currency they hold in cash vaults, at branches, and in ATMs. However, retail merchants have not been able to manage currency as closely as banks. Instead of simply moving cash internally as needed, as banks do, retailers have had to move cash to and from the banks daily to get credit, gain interest for deposits, and maintain the necessary mix of currency denominations. And they have either had to pay costly armored carrier fees or risk the safety of employees carrying large amounts of cash between the stores and the banks.
For decades, products such as controlled disbursement and lockbox have been critical to reducing float on checks. And do you remember when stores had to mail in mounds of credit card slips for processing? Technology has been available for ages to manage all types of retail payments – but not cash.
Enter RCM. New solutions combine integrated safes and in-store cash recyclers to solve this frustrating and expensive problem. Given the increased amount of cash in circulation, retailers are looking for new ways to better manage cash as a payment mechanism. Reducing bank fees, float costs and armored carrier runs, increasing safety, and identifying counterfeits are all big benefits. But why would a bank or carrier sign on to something that would reduce income? The short answer is long-term loyalty and profitability. The current business model is for a bank or carrier (or partnership between the two) to offer integrated safe technology or cash recyclers to their customers as a service. This binds the retailers to the banks and carriers for the long term and who can argue with long-term revenue right now?
On a separate note, conference season is in full swing. I will be at the ATM, Debit and Prepaid Forum 10/18-10/20 and the IFSA conference on 10/21. My next post will be a recap of both conference events. I hope to meet some of you in my travels!
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{ 2 comments… read them below or add one }
I agree that CIT participation is a gating factor, but the gating is simply one of “who gets what piece of the revenue/profit pie. The major CIT’s all support these solutions today, and until recently at least one of the big 4 owned/designed/manufactured it’s own RCM solution.
I’m not sure I buy the ‘loyalty’ issue, but agree that there is extreme stickiness for the FI in the solution, particularly if the FI charges the customer inside their normal bank account fees (as opposed to an additional outside purchase item or rental/lease.)
The CIT’s win by gaining market share that otherwise never opens to them – creating route efficiencies, adding revenue. If they can win “remote vault” business from the bank as well, even more revenue flows their way.
The big question is: can the FI’s price the service such that they at least break even on the baseline costs of the service?
Seems to me that from the cash logistics provider level, broad-based financial institution participation is neither necessary or desirable.
Once a critical mass of mid to large banks are onboard, the
additional systems integration and coordination effort
required to bring on additional banks see rapidly diminishing
returns. Because RCM is a closed-loop service requiring cash
logistics provider participation, the willingness and ability of
the four primary US armored courier companies to expand
financial institution participation is a gating factor. Banks
simply can’t act independently as they can with most
products.
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