Cash is still king, as they say, and it will likely stay that way for the foreseeable future. CNN reports that Americans ages 18-24 used cash in 38% of their payments last year, which is more than any other age group. In another sign of the trend, the Federal Reserve Bank of San Francisco reported that, as of 2014, consumers are using cash for roughly half of all transactions valued at less than $50. The same study also found that consumers tend to use cash more frequently than any other payment instrument.
With regards to the card-based category, despite the fact that the percentage of card-based payment transactions in retail is growing, there is still a significant amount of payments made in coins and notes. In fact, according to Planet Retail, the number of American dollar notes in circulation nearly doubled between 2000 and 2010. And according to the Federal Reserve, the average lifespan of a $1 note is 5.8 years, while a $20 note has a 7.9-year lifespan and a $50 note has an 8.5-year lifespan. This of course means that many of those notes put into circulation since 2000 are still in use. On a worldwide basis, MasterCard reports that 85% of the world’s transactions are still conducted in cash. In other words, cash isn’t going away.
Further compounding this trend is that some new technologies are not offering real solutions to help convert cash into digital payments. For example, the “digital wallet” market has become highly fragmented, in large part because no single solution has “rocked everyone’s world.” Also, according to research conducted by the Federal Reserve Bank of Boston, consumers “don’t seem to have as much faith in mobile payments, rating them as the least secure.”
Cash Is Expensive, And Becoming More So
Many retailers are not aggressively addressing the costs of cash handling…perhaps because they’re waiting eagerly for the mobile pay revolution and other alternative payments to displace currency transactions. We aren’t futurists or pundits, so we aren’t pushing against the prevailing narrative that a “cashless society” is coming.
What we can authoritatively share here is that even as the levels of cash usage fluctuate, the predicted steep rise in the cost of labor handling that cash (correlating with the rise of various state laws effectively doubling the minimum wage for hourly workers) means that all cash accepted for payments is going to become costlier for retailers to process, secure and manage.
Four years ago, the Federal Reserve conducted a workshop to explore the future of automation in retail cash handling, and questionable ROI and high costs of implementation were cited as barriers to widespread adoption. The thing is, for retailers that process significant amounts of cash, this is actually a golden opportunity, because the incredibly labor-intensive process around cash handling is now ripe for innovation in the form of automation.
Advantages Of Automating Of Cash Handling
According to the Bank Administration Institute (BAI), cash-handling costs can be reduced by 20% to 40% with cash handling technology (depending on variables in technology and service contracts that are in place). BAI also reported that banks and retailers in the United States spend roughly $65 billion annually on cash handling, with employee wages making up 60% of that. These stats are hard to ignore for retailers, especially when considering that the “cashless society” movement seems to be moving at a slower than anticipated rate.
The technology that automates and improves the process for handling retail cash is referred to as cash recycler solutions. A cash recycler solution consists of essentially “Smart Safes” with the added ability to accept, authenticate, sort by denomination and evaluate the fitness of the currency notes. The machines eliminate human error and catch counterfeit bills, and they do all of this much quicker than a human can.
A cash recycler solution can also add value through collecting and analyzing a veritable treasure trove of data around cash requirements, which retailers can harvest and use for operational efficiencies.
Reducing operational labor costs and achieving efficiencies is always top-of-mind for retailers, and the bottom line is that retailers need to get ahead of tech-enabled innovation if they want to remain competitive in the future. Almost every element of retail is being disrupted, and the forward-thinking leaders in the industry will no doubt recognize that now is the time to evaluate innovations in automation and cash handling solutions.
Joan Brancaccio is managing director and product management executive, global receivables in global transaction services at Bank of America Merrill Lynch. John Van Slingerland is Vice President of business development for G4S Retail Solutions.