Cash is the lifeblood of financial institutions (FIs) and our economy, but when a bank or credit union carries it in excess, cash can end up being an idle, non-earning and deflationary asset, with a high cost of carry. While FIs strive to minimize reserve requirements, they must also optimize cash inventory levels and reduce the following four underlying costs of cash related to poor branch branch cash management and logistics:
#1 Behind the ScenesCash is the lifeblood of a financial institution and must be carefully managed, end to end, through unified policies and procedures across the bank or credit union, with adequate thought given to:
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Cash Policies and Procedures |
Depending on the size of an FI, its cash may be managed by either a single point-person or a small team. So the first optimization opportunity is making sure your bank has well thought-out and streamlined policies and procedures for branch cash management, with cash managers properly trained on how to manage cash. branch branch cash management should not be an ad hoc word-of-mouth hand-off from whoever did it before, and definitely should not involve guesswork! |
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Cash Planning |
An FI must have definitive answers to the following questions: How does it decide how much cash each branch should carry? Does it know exactly how much cash it has at each storage and use location? Does it have a Cash Order process? How does it decide when to order more cash, how much and how frequently? Are cash orders placed consistently, through well-defined channels of communication. |
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Managing Cash Vendors |
To ensure continuity, cash managers should not rely on independent relationships with cash vendors but should enter into proper contracts. |
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Cash Controls |
FIs should have proper cash controls with an independent system of checks and balances, full accountability and dual controls for receiving and counting cash. |
#2 Hoarding Cash 
For banks and credit unions, hoarding excess cash is a cardinal sin, yet many do it. Unused cash deprives the bank of earnings and must be deployed to the full extent possible. Banks and credit unions must, at all times, know how much cash they have and where it is, what their customers might need on any given day (by logging and analyzing daily usage patterns throughout the year), and how much cash they need for supply various repositories, such as Cash Recyclers. FIs must use this ‘intel’ to make sure ATMs, cash trays, and recyclers carry optimal amounts of required denominations for that day.
#3 Technology
FIs already recognize a cost reduction opportunity in the use of technology, ATMs, ITMs, CDMs and Cash Recyclers. For instance, Cash Recyclers can dramatically improve teller productivity by speeding up the acceptance, authentication and validation of bank notes. Alas, Recyclers are often unused or under-used merely because staff aren’t trained on their usage or they are located in spots where it isn’t efficient for a teller to use them. And while customers are now comfortable with ATMs, ATM locations are not often reviewed for usage. ATMs are placed in low usage areas where they hold cash and are regularly serviced but do not see too many transactions. Or an ATM is located in high traffic location and continually runs out of cash. FIs should review ATMs locations and usage to increase customer convenience, avoid long lines, and improve the overall customer experience.
Another common underuse of already implemented technology is Cash Deposit Machines (CDMs). A lot of in-branch teller transactions involve cash deposits by small businesses, with depositors having to wait in lines at the end of the business day. Customer angst and teller workload can easily be avoided if banks step up their use of CDMs, or any device, to deliver a more convenient and speedy banking experience.
#4 Cash in transit (CIT)
Finally, evaluate opportunities for cost reduction and efficiency improvement with Cash in Transit (CIT). For starters, there’s the base cost of transport which is usually in the form of a contract with a CIT vendor or armored car company. Such contracts include a pre-agreed delivery schedule and overage charges for additional deliveries when banks and credit unions need cash outside the set delivery schedule.
Pre-set delivery schedules are often set-up for recurring weekly deliveries and do not reflect real-time cash needs. Consequently, FIs end up receiving cash regardless of whether they need it or not, and have to hoard it – with excess idle cash hurting the bottom-line. In contrast, when the branch really needs cash, emergency or on-demand shipments cost more than scheduled deliveries. The net result is that FIs end up paying more for services that they don’t really need and conform their branch resupply schedules around when the CIT company can service their locations.
CIT contracts may also include cash replenishment at ATMs on pre-set schedules, and that could result in ATMs bearing more cash than is needed to meet customer withdrawals for that day.
When branches are uninformed or rely on gut feelings about their cash inventory at each location (such as the amount of cash in Recycler machines), the CIT vendor managing those machines may just take cash out of one machine (say an interactive teller machine) and replenish another machine (a different ATM) with it. The end result is that FI ends-up paying people to come to the branch to simply move stacks of cash from one machine to another – a mere shuffling of cash without any replenishment – because the branch does not understand or does not have the ability to find out about what is happening within their machines. Think of wasted CIT expenses as paying for an annual gym membership when you only use it for a few months in the year.
To address this, branch staff must be given access to and trained to review cash inventory at each cash location so they only order CIT services when needed. Moreover, automated banking solutions provide cash inventory dashboards (so there is no need for physical counting by staff) and automatic alerts for cash replenishment ahead of time based on usage and cash levels. If cash is effectively tracked and managed, FIs can use this information when renegotiating their CIT contracts to tailor them in favor of the FIs needs and only pay for services they use.
In addition to the direct cost savings from addressing these top four costs of cash, banks and credit unions can reap indirect benefits such as greater cash transparency, improved staff productivity and better controls for governance and risk compliance.
