According to historians, the oldest known stamped currency is the electrum stater coin, dating back to the 7th century BC. The coin was a currency of Lydia, a kingdom in Asia Minor where Turkey is now located. Coins became the norm for payment, until paper money was introduced in China during the 11th century, bringing the trend to Europe in the 13th century. For much of history, cash was king ― the only way to pay for anything, short of barter. That’s been changing, as bankers already know. The number of Americans who use cash for all or most of their purchases is declining at a rate of 14.3% annually. In 2022, 41% of adults said they don’t use cash in a typical week. In 2024, cash will likely fuel 16% of transactions, down from 20% in 2021. Even so, cash remains the third most-used type of payment, behind credit and debit cards.That leaves community financial institutions (CFIs) in a bit of a tough spot. Cash transactions are very much in the minority, but it’s far too soon to count cash out. Paper money (and coins) pose acquisition, security, and storage challenges: how much does a CFI need, how will staffers keep it safe, and where will they put it? Financial institutions will ideally have enough cash for their needs: not much more than they require, and not so little that they are caught short when (for instance) customers stop by the branch ATM to get cash.Strategies for Cost-Effective Cash HandlingThe costs of handling cash at your CFI’s branches can add up, and that’s often regardless of how many cash transactions you process. From maintenance and electricity for ATMs to security measures on vaults, the costs of keeping your CFI’s cash safe are about the same, no matter the frequency of use. Here are some strategies to help make your CFI’s cash handling more efficient and budget-friendly.
- Predict demand for cash. Surplus funds sitting unused in ATMs and CFI branches create unnecessary holding costs, as well as a temptation for thieves. An empty ATM, on the other hand, is an unnecessary frustration for CFI customers. Advanced forecasting tools can use real-time data to help CFIs analyze the patterns in their demand for cash, respond to fluctuations in demand, reduce costs, and make sure that only the cash they need is available to customers at their locations. These can also predict peak withdrawal periods, like seasonal events and economic uncertainties when individuals prefer to have cash on hand.
- Outsource cash optimization. Outsourcing cash handling to specialized service providers offers bank branches a strategic way to reduce operational costs while maintaining high standards of security and efficiency. These providers bring advanced technologies and expertise to streamline processes, minimizing the need for extensive in-house resources and reducing the risk of errors or theft. By outsourcing, branches can also shift the responsibility of regulatory compliance and secure transportation to professionals, allowing employees to focus on core banking activities. This approach not only optimizes cash handling operations but also ensures a seamless and secure experience for both staff and customers.
- Process cash efficiently. Manual sorting and reconciliation are time-consuming and error-prone. Outsourcing the task is one option. Another is a cash recycler, also known as a teller cash machine or TCR. It accepts and dispenses cash, automatically counting and authenticating bills that a teller deposits into it. It stores the cash until the teller needs it. A smart safe is a similar product, though it doesn’t make the cash available to be re-dispensed. But cash recyclers and smart safes are bulky and can be complicated to use, which is a stress busy employees don’t need. They also have limited operational speeds and storage capacities.
- Leverage technology solutions. Automation that’s fueled by either software as a service (SaaS) or cloud-based applications is another possibility. These can automate bill counting, which increases accuracy, speed, and efficiency. CFI cash management costs go down and staff are free to do higher-value (and more interesting) tasks. Advanced automation software features can also help CFIs spot bills that are torn or worn out and identify counterfeit currency. That can help minimize a bank’s financial losses and give extra assurance that daily cash counts are correct.
- Coordinate with cash providers. Software integration can help you accurately schedule cash pick-ups and drop-offs so that you’re not caught with too much or too little cash. Getting just the cash you need on a predictable schedule also lowers the amount you’re paying to store and protect surplus cash, as well as your transportation and delivery fees.
Consider the Risks and Trade-OffsWhile automation and outsourcing can cut costs, they also pose challenges. Outsourcing cash handling shifts control to third parties, raising concerns about vendor reliability, compliance risks, and service disruptions. Automation tools like cash recyclers require upfront investment, integration, and staff training, which may offset savings if not carefully planned. To mitigate these risks, CFIs should evaluate vendor agreements, assess long-term ROI, and ensure smooth staff adoption.Additionally, reducing manual cash handling can limit teller-customer interactions, impacting service in relationship-driven branches. CFIs should focus on enhancing customer service through responsive digital platforms and in-branch interactions that prioritize personalized financial advice. By demonstrating a clear understanding of individual customer needs and offering tailored solutions, banks can strengthen trust and loyalty while optimizing their operational models for a cash-light future.
