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ICCOS Asia and Newton’s 3rd Law of Thermodynamics

Presenting recently at the ICCOS Asia conference in Malaysia, I was asked to talk about the changes that retail cash automation is having on other stakeholders in the cash cycle: the banks, the ATM deployers, the security industry and also the central banks.

In some parts of the world retail cash automation is very much in its infancy or indeed non-existent. Where this is the case, the process still relies on cashiers counting every note and coin every day, by hand and usually multiple times. Drawing on our global experience, I was able to point to examples from segments and countries that show that the idea is taking root and driving tangible business improvements.

Retail margins are notoriously thin, perhaps even thinner than in the past since the arrival of specialist discount retailers and more shopping taking place on line. Customers appear to be ever more demanding – they have more choice after all. As such being able to direct staff to spend more time with customers and less time on non-value added activities like counting cash - ideally doing this at a lower cost than before means retailers win twice: growth for the top and bottom lines is possible.

However this does have an impact on other parts of the cash cycle. With smarter processes and technology, retailers are better placed to reduce collections and shipments of cash. They are more likely to be able to restock their ATMs with sorted currency, they may also offer cash back services and provisional credit for funds held in-store becomes feasible all of which potentially reduce the need for traditional cash-in-transit services.

The central bank concern with this local recycling is clear: fewer notes returning for inspection and notes possibly circulating longer than in the past. The Bank of England suffered from the so-called “tatty fiver” (poor quality five pound notes circulating) and dirty notes are easier to counterfeit than beautiful crisp, new ones. As such we are seeing more regulations and guidelines being considered or implemented – both in terms of fitness and authentication - to guide how cash should be recirculated.

What we have been learning from this is that when there is automation in one part of the cash cycle, there are ramifications elsewhere: there’s something almost Newtonian in this – every action has an equal and opposite reaction - but by looking at the whole cycle we have been able to identify opportunities to manage that action or reaction for improved efficiencies and cost reduction.

The emergence of local recycling of cash in the retail environment is not so different from previous changes in the cash cycle such as the arrival of ATMs, the introduction of banknote fitness standards and branch recycling devices (TCRs) or indeed the introduction of a new currency designs and, more recently, substrates. Managing this change is something the industry has done and will continue to do because as the 300 or so delegates at the ICCOS event agreed in a final poll - cash is going to be around for a long time to come.

The challenge remains the same as it always has - managing it as cost effectively, as securely and as efficiently as possible.

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Comments: (2)

Robin Nandi
Robin Nandi - Atom Bank - Durham 18 November, 2015, 14:11Be the first to give this comment the thumbs up 0 likes

The law you refer to is Newton's third law of motion / forces. Third law of thermodynamics is completely different.

I would characterise the effect more like squeezing an infated balloon where by changing one part of the system we inadvertantly affect other parts due to the interconnected nature of the system.

Cash is expensive however you cut it.

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 19 November, 2015, 10:08Be the first to give this comment the thumbs up 0 likes

Cash is the cheapest payment option for the merchant. Since I wrote  Cash in Hand Is Worth More Than Card In Bush, UBER has introduced cash as a payment option in India; MERU is phasing out POS terminals from its cabs; customers are complaining that cabbies of other new age cab aggregators (e.g. OLA) are refusing mobile wallet payments and are insisting on cash. Obviously, this is in response to the realization that cash alternatives too have hidden costs, which are conveniently ignored by middlemen with vested interest in cashless options.