global cash report - Cash Management Solutions

© Cash Management Solutions | Q4 2014
GLOBAL
CASH
REPORT
www.cms-cashmanagement.com
CHALLENGING TIMES FOR IADS
OPERATION CHOKE POINT
CARD TECHNOLOGY AT THE ATM
Guest columnist Eric de Putter
Managing partner & co-founder, Payment Redesign Ltd
RISING
INTEREST
RATES
The cash industry faces its biggest challenge yet.
Are you prepared?
EDITORIAL
Rising interest rates are an existential threat
and businesses need to prepare now
It may not feel like it sometimes, but low interest rates have
created a benign operating environment for the cash industry.
The years ahead will not be so easy and failure to prepare
now could see many cash businesses go to the wall.
Low interest rates aren’t just about a reduced cost of holding
cash. They have also contributed two positive factors to the
cash industry. Firstly, by encouraging cash hoarding, they
have underpinned cash demand, with cash in circulation rising
by 6-10% a year in many Western economies. This has
helped to create a false confidence in cash. We forecast that
demand for notes going forward will be impacted negatively
as higher interest rates reduce the allure of cash hoarding and
alternative payment techniques continue to gather momentum.
Secondly, by reducing the need for armored car visits, low
rates have created spare capacity contributing to lower prices
and higher service quality. So, higher interest rates may see a
falling demand for notes and a higher cost of note distribution,
with potentially devastating effects as businesses are caught
in a “pincer movement” of lower income & higher costs.
In such conditions, strategies for survival will include a drive for
economies of scale and we can expect further consolidation
in the industry. All businesses will need intelligent and innovative
strategies to survive and, in this issue, we address the latest
thinking to help your planning processes. First and foremost is
a need to stress test your operating model against higher costs
of holding & moving cash. The results are illuminating, with
typical out turns showing profits impacted disproportionately.
These simulated tests can then be used to make preparations
for dealing with future threats before they materialize. This is
an existential threat. We will return to this topic next quarter,
with examples of practical solutions now being implemented
globally by CMS clients to meet these challenges.
Best wishes,
Brendan Doyle
CEO,
Cash Management Solutions
IN THIS ISSUE
THE LONG GAME
Is the US Federal Reserve on the right path with interest rates?
RISING INTEREST RATES
The ticking time-bomb for ATM cash management.
CHALLENGING TIMES FOR IADS
How much longer will the “I” in IAD remain?
DON’T GET CHOKED
What IADs need to know about Operation Choke Point and
how to mitigate risk.
CARD TECHNOLOGY AT THE ATM
Time to review?
THE CASHLESS STREET
Valuable Experiment or Shameless PR Stunt?
WINTER TRAVEL
Will Euro weakness lead to a boom for the slopes?
CASH CALENDAR
Upcoming dates in the cash industry.
CASH STATS THIS QUARTER
How do cash habits differ in seven industrialized countries?
SPECIAL REPORT: The cash industry faces its biggest challenge yet.
THE LONG GAME | Q4 2014 | 3
THE LONG GAME
Is the US Federal Reserve on the right path with interest rates?
In the United States, all eyes appear to be on Janet
Yellen and the Federal Reserve looking for any hints
of when they will ‘push the button’ and increase
interest rates. After the flood of positive economic
data on the US economy throughout 2014 so far,
Wall Street is starting to ask if the Fed is waiting too
long and whether a rate rise should come sooner
than seems to be planned. While all stakeholders
are speculating, nobody wants to second guess the
Fed. However, one thing is clear; Janet Yellen and
the Federal Reserve have a well-thought plan and
they’re not afraid to stick to it.
With every Fed briefing or meeting minutes released,
there seems to be another step in the direction
of rate increases – however, it is clear that every
step is part of a carefully thought out strategy. The
center-piece of that strategy was always the Fed’s
quantitative easing bond buying program – QE3. When
first announced in September 2013, it earned the
nickname “QE-Infinity” due to its seemingly
open-ended approach. However, now that QE3
has come to an end, just how long will the Fed
wait to hike rates? It’s at this point that there seems
uncertainty about what strategy the Fed will go with.
Will the Fed feel the economy is ready to take a
rate increase almost immediately? Will they give the
economy 3-6 months without QE for themselves to
assess the situation? Or, will they wait even longer?
Given this uncertainty, there are competing schools
of thought. Based on the Federal Open Market
Committee’s (FOMC) September meeting, the
minutes gave light that a clear majority (14 of the 17
participants) feel that 2015 will be the appropriate
period to increase rates - as figure 1 shows. A
recent interview with the Dallas Fed President Richard
Fisher appeared to give the hint that the rate rise
“lift-off” will be early in 2015, and there are many
commentators who agree with this timeframe.
Interestingly though, a recent Reuters poll of the
primary bond dealing firms on Wall Street saw the
majority of these state that they didn’t expect a rate
rise until at least H2 2015.
Despite the difference in opinion on when the hike
will come, one thing is for sure – any organization
needs to be ready for whatever action the Fed
decides to take, whenever it decides to take it.
Those whose operations will become more
complicated through interest rate increases, need to
be prepared even more so in order for the negative
impact to be minimized. This latter group of
organizations, of which the US cash industry is
included, face uncertainty as not only is the timing of
when such a rise will come unknown, but also the
extent of it. The longer the Fed waits may in theory
mean the more rapid the increases could come
once they begin.
Furthermore, there seems to be no consensus on
what FOMC members feel should be the appropriate
rate come 2015. In the September meeting
participants selected the appropriate target federal
funds rate for the end of 2015 at varying rates
between the current level of 0.25% to as high as
3.0%. Only time will tell if the Fed were correct to
hold out for so long, gradually tapering QE3 and
ultimately stick to a strategy that they had put
in place.
Author Details
2014
2015
2016
Figure 1: Federal Reserve FOMC September Minutes - The number of
FOMC participants who judge that, under appropriate monetary policy,
the year in which the first increase in the target federal funds rate
(base rate) will occur.
Scenario Stress-testing
Despite the uncertainty surrounding when
tightening of monetary policy will occur,
businesses should be prepared for every
scenario. How will your business operations
fare, and differ, if the rate rise comes 3, 6 or 9
months from now?
Simulating each possible scenario is the way to
start preparing. Stress-test operations in order
to see how they will be impacted for each
potential scenario and the influence this will
have on revenue and costs – profitability is
at risk.
“Now that QE3 has come
to an end, just how long
will the Fed wait to hike
rates?”
BOTTOM LINE
A hike to 3% may not sound much relative to
long-term rates, but it will see underlying interest
rise by a factor of 12. The cash industry needs to
understand the implications of this. In the next article,
Tracy Jeffries addresses a number of the practical
implications of rising rates. The message is clear,
you need to stress test your operations now
and prepare.
Dr Andrea Donafee, Managing Director
Cash Management Solutions
e. [email protected]
Source: US Federal Reserve
3
SPECIAL REPORT: The cash industry faces its biggest challenge yet.
4 | Q4 2014 | RISING INTEREST RATES
Rising interest rates will be a strategic issue in cash
management over the medium term. Tracy Jeffries
looks at the potential impact on your business and
what you can to do prepare.
There are still mixed signals on the future of
short-term interest rates and with this uncertainty,
there may be a natural inclination to put preparations
for increases to one side. While understandable, this
attitude would be wrong. ATM cash management
has operated in benign conditions for six years now
as the financial crisis resulted in unprecedentedly low
interest rates that reduced the need to worry about
excessive cash stocks. However, there have been
two consequential impacts that have had an
equally positive effect and these may also unwind
once interest rates rise.
“ATM deployers will be
caught in the middle of a
pincer movement between
supply chain strains and
demand reductions.”
Supply Chain Strains
Firstly, the demand for armored transport services
in the banking and retail sectors has reduced
significantly as bricks and mortar retail occupancy
has dropped. Armored transport services are
typically capital intensive businesses with high fixed
costs - hence excess capacity results in reduced
pricing and improved service quality. This has
certainly been the experience in a number of
Western economies in recent years; the CMS
Armored Transport Service Quality Index (figure 1),
shows how general service levels have increased
since 2006 throughout the period of sustained
record-low interest rates.
However, while the industry is generally able to cope
well with short-term demand and supply mismatch,
prolonged periods create systematic strain. The
industry has made great strides to reduce costs by
investing in new technology and more flexible working,
but ultimately there has had to be a reduction in
capacity. This will be difficult to unwind, at least in the
short-term, if demand starts to increase again, which
it will once end-users realize the benefits of moving
cash out of their networks rather than holding on to it.
Reduced Demand for Notes
Secondly, record-low interest rates appear to be
the main answer to central bankers’ puzzle over
the apparent division between reducing cash
transactions and increasing cash in circulation.
Earlier this year, the British Retial Consortium
(BRC) reported a 14% reduction in the use of cash
over the past five years. During the same period, cash
in circulation has been growing at 6-10% per annum
in many Western economies with low interest rates.
This implies that cash is being hoarded. An aging
population suggests long-term structural reasons
for this, but cannot explain the sheer size of the
difference.
4
RISING INTEREST RATES
The ticking time-bomb for ATM cash management.
The answer is simple, there’s little incentive to keep
short-term cash deposits in current accounts rather
than under the bed, especially when the solvency
of banks is being questioned. It would therefore be
sensible to assume that rising interest rates, and the
regaining of trust in our banks, will see at least some
of this hoarding unwind.
Cash withdrawals, which are already under attack
from new technology, may therefore decline. Why
does this matter so much for cash management?
Simply because high volume of cash withdrawals
enables natural cost efficiencies and a reduction in
this volume therefore increases the cost per note
dispensed.
Within any typical ATM cost model, cashmanagement
accounts for roughly 30% of costs. A rise in interest
rates to 3% hardly suggests a crisis but, in
reality, in the US for example, it would mean a
twelvefold increase in interest costs.This, coupled
with increased armored transport pricing,
declining service quality and a reduction in the
volume of demand promises a “perfect storm”.
By simulating the impact of changes in various
factors on operations, including interest rates and
changing supply chain strength, businesses can
make the necessary preparations in advance and
take first mover advantage. Such “stress tests” could
be the difference between success and failure of
many deployers in the years ahead.
Actual
Forecast
Figure 1: The CMS Armored Transport Service Quality Index, Q1 2006 - Q3 2014 (Actual), Q4 2014 - Q4 2016 (Forecast): Service levels are highly correlated
with interest rates, due to the impact it has on demand. Service levels have rose significantly during the period of reduced demand and sustained record-low
interest rates.
BOTTOM LINE
When interest rates rise, ATM deployers will be caught in the middle of a pincer movement between supply
chain strains and demand reductions. This increases the importance of comprehensive cash management
and efficient operations. It is important to “stress test” your operations now in order to prepare for
the inevitable.
Author Details
Tracy Jeffries, Head of ATMs
Cash Management Solutions
e. [email protected]
CHALLENGING TIMES FOR IADS | Q4 2014 | 5
CHALLENGING TIMES FOR IADS
We look back at the ATM &
Mobile Innovation Summit
ahead of the National ATM
Council Conference in Las
Vegas.
After attending September’s ATM & Mobile
Innovation Summit held in Washington D.C., the
future of alternative payment methods continues to
be filled with many options.
While it is interesting to see the wave of potential
choices, such as Bitcoin for digital currency and
mobile payment initiatives like Apple Pay, they will
ultimately jockey for position in the already crowded
arena. The impact of this could slow down the
pace of mainstream adoption as multiple options
cannibalize each other as opposed to one becoming
an out-and-out market leader. Meanwhile, cash will
continue to be the dominant payment choice due to
its situational advantages.
What is clear for ATM deployers, be they IADs
(independent ATM deployers) or banks, is that there
are several forces acting on the industry. Not only
is there the wave of innovation coming from new
technologies that present competition, challenges
and hopefully opportunities, this is coupled with
increased compliance and security regulations. It
is clearly a time of change in the industry and this
will put pressure on operating models and profit
margins.
The toughest choices of all will come for IADs, which
begs the question:
As independence becomes tougher, how much
longer will the “I” in IAD remain?
IADs are facing a future with increased operating
costs and lower revenues. Customers are demanding
quicker transactions with more available features yet
issuers are expecting these transactions take place
securely. If IADs aren’t prepared from both a financial
and time standpoint, they face the prospect of
consolidation with a bigger deployer or worse;
closure.
Don’t Underestimate The Costs
Associated With EMV Migration
The costs of EMV migration will come in several
forms, not only are there hardware and software
costs to contend with but the further burden of
compliance certification to prevent the liability shift on
fraudulent transactions from the issuer to IADs. IADs
should (if not already) have a migration plan in place
which includes conducting a network inventory
to evaluate what needs to be upgraded and/or
replaced and the associated costs in order to be
prepared in time for the October 2015 deadline.
Contactless Payments
NFC (Near Field Communication), QR codes,
Biometrics. There is no denying that we are moving
towards a cardless payment method at the point
of sale and for access to cash. While contactless
payments allow customers quicker and more
secure access to their cash, they offer limited
additional revenue to the deployer. This will lead to
a situation where any cost of upgrading may not be
recuperated, however it could be only a matter of
time until customers are expecting such technology
on an ATM as standard.
Incremental Revenue Opportunities
Will Become Necessary
In order to maintain a profitable operating model,
incremental revenue opportunities could become
an important, if not necessary, approach of
offsetting increased costs. DCC (Dynamic Currency
Conversion) is the option most commonly
referred to due to the relatively strong revenue it can
provide with low initial capital expenditure. DCC
allows the deployer to make the margin on the
currency exchange of a foreign cardholder
withdrawing US dollars.
Cost Control
As operating costs increase, especially due to
one-off costs such as EMV migration, it becomes
essential to audit and assess the current operating
costs attached to your network. While there are a
number of fixed costs for an IAD, the cash supply
chain isn’t one of them. Studies indicate that IADs rarely
change the volume of cash or the frequency of delivery
nor are the costs associated with cash supply and
delivery regularly evaluated. Through outsourcing,
IADs can achieve significant savings of 30% or better
on the cost of supply by more intelligent forecasting,
scheduling and supplier management. Managing all
of the elements of the supply chain in-house may not
provide IADs the results desired as they may lack the
time and the tools.
Overall, there are a number of challenges for IADs
in the future, and in order to remain independent,
current operating models need to be stress tested
for the challenges that lie ahead. Until now the
environment for IADs has been relatively favorable
and has led to the expansion and increased
success of the industry. While technology, costs
and regulation changes have always presented
challenges, never on a level like this. IADs need to
ensure they can successfully adapt and be prepared
to face these challenges in what will become a much
different, more competitive industry landscape.
The limitation of this is that it only becomes a viable
option for ATMs deployed in areas where there may
be foreign card usage; tourist areas, airports and
ports will benefit the most, leaving the remainder to
look elsewhere.
While other options won’t provide as strong a margin
as DCC, there are possibilities to take advantage of.
The idea of the ATM as a ‘financial products vending
machine’ is something that can be toyed with – the
inclusion to enable the purchase of pre-paid cards
and pre-paid cellular credit. Where this falls short
though is the potential scale required to generate a
sufficient return.
Author Details
Mike Plante, Head of Business Development
Cash Management Solutions
e. [email protected]
BOTTOM LINE
The challenges affecting IADs are risking their
independence. Actions need to be taken in
order to ensure smaller IADs in particular are not
squeezed out of the industry. Aggression is key –
both top-line revenue growth and cost-cutting is
required to keep up. Taking no action could make an
IAD become a sitting duck.
5
6 | Q4 2014 | DON’T GET CHOKED
DON’T GET CHOKED
What IADs need to know about Operation Choke Point and how to mitigate risk.
Operation Choke Point has the potential to become
a major issue for independent ATM deployers (IADs).
IADs need to ensure that the potential threat is fully
understood and actions taken to mitigate the risk.
What is Operation Choke Point?
Operation Choke Point was first initiated by the US
Government’s Department of Justice in 2013. It aims
to investigate US banks’ dealings with organizations
deemed to be of ‘high risk’ for fraud, money
laundering and terrorist financing activities. This leads
to banks cutting ties with such organizations or face
investigation. Without the capital from the bank, the
organization is essentially ‘choked’ and, dependent
on the options they have, may be forced to fold.
Why are IADs involved and what are
the risks?
The primary ‘targets’ for Operation Choke Point
appear to be payday loan companies and payment
processors, along with suspect industries
including pornography and dating agencies. With the
emphasis therefore being on companies that handle
significant amounts of cash, it appears that IADs are
being brought into the fray.
This ‘guilt by association’ stance appears to be
banks and the Department of Justice exercising prior
restraint – guilt imposed on the IAD industry before
any wrongdoing has actually been evidenced. This
creates significant risks for IADs ability to continue
operating. Such risks could entail an IAD being
unable to hold a bank account and therefore a line of
credit, which would result in an inability to continue
operating or having to open a more expensive line
of credit.
Further to this, the business’ partnerships will
come under scrutiny. A large number of IADs have
outsourcing arrangements with financial institutions
and retailers. These organizations will now be forced
to scrutinize the IADs they have partnered with and
the respective contracts. Their major concerns will
be that they have partnered with an organization
tarred with the Operation Choke Point brush or lose
the ability to offer ATM services to their customers
– some may take action to end such partnerships.
What actions can IADs take?
From an IAD perspective there are numerous actions
that can be taken to ensure individual businesses
are not ‘choked’ by Operation Choke Point.
• Transparent Operations – All business
operations need to be made visible to the bank
or lender. This includes not just what third-party
partnerships are underta en but how such
partnerships are contractually structured.
• Smart Operations – Operating efficiently as well
as transparently can not only assist in risk mitigation
but also reduce costs. Effective cash management
has the potential to create cost savings and
balance reductions that could reduce the amount of
credit required from the bank – decreasing the bank’s
perceived risk of your business.
• Reporting – Sufficient documentation that details
oversight, accountability and monitoring across a
range of metrics.
“Effective cash management
has the potential to create
cost savings and reduce the
amount of credit required
from the bank.”
• Foresight – Future strategy and planning that
details how the business will operate going forward
while complying with regulation.
• Involve Industry Associations – Due to the
competitive nature of business, industries rarely
come together. However with an issue such as this
the industry needs to be heard as one – industry
associations are able to get this voice heard. The
National ATM Council (NAC) and the ATM Industry
Association (ATMIA) are the two major associations
dedicated to supporting the continued success of
the ATM industry.
• Go Public – IADs should ensure that it is detailed
in public material that transparency and regulation
is taken seriously. This will maintain both customers
and partners’ confidence in the individual business
and wider industry.
BOTTOM LINE
The consequences of Operation Choke Point will
undoubtedly lead to a reduction in the supply of cash
for IADs. This will mean shorter lines of credit and
a higher overall cost. An IADs cash management
therefore needs to be run at optimal efficiency to
maximize sales and minimize costs.
How aggressive is Operation Choke
Point?
As it stands only one action by the Department of
Justice for the breach of Operation Choke Point
has been made public. In April this year, Four Oak’s
Bank based in North Carolina settled with the
Department of Justice for processing almost 10 million
transactions with payment processors who work
with payday lenders and other high risk businesses.
Nevertheless, the threat of investigation itself seems
to be enough for many banks to take action and
terminate banking services.
6
Author Details
Brendan Doyle, CEO
Cash Management Solutions
t. +44 (0) 1925 412 904 | e. [email protected]
GUEST COLUMN
CARD TECHNOLOGY AT THE ATM | Q4 2014 | 7
CARD TECHNOLOGY AT THE ATM
Time to review?
One of the oldest challenges in the ATM industry is
the security of the cash inside the ATM as well as the
guarantee that the withdrawer is genuine. Whereas
magnetic stripe has been used globally for a long
time, EMV Chip + PIN is now commonplace for
withdrawals in Europe. The fact that EMV is not
truly global as yet means that particular frauds can
continue to take place.
Retail Banking Research (RBR) reports that almost
100% of all European ATMs are EMV, but only 60% of
the ATMs throughout the rest of the world. This means
that fraudsters can still copy the magnetic stripe of
European cards and withdraw cash at magnetic
stripe ATMs when they compromise the PIN. This
is typically achieved through adding so-called
skimming devices to ATMs in conjunction with a
small camera focusing on the keyboard.
The European ATM Security Team (EAST) reports
€240M annual losses for European issuers in
regards to skimming, with typically 90%+ through
the previously mentioned approach; skimming
European
cards
and
using
counterfeited
cards in non-EMV ATMs. EMV endorsement in the
US has resulted in global liability shifts, allowing
card issuers to charge back fraudulent use of
“skimmed” cards, which will reduce Europe’s
annual skimming losses.
At the same time, the industry needs to be mindful of
other attacks and compliance processes.
• Scientists at the University of Colorado found that a
thermal photo can reveal the PIN up to 45 seconds
after card usage, simply through transferring body
heat while keying in the PIN. As shown in figure 1.
• Various sources also identify “card trapping” as a
means for fraud. Where fraudsters manage to retain
the card at the ATM and return it to themselves.
Figure 1
Figure 2
Mobile technology has a set of advantages over and
above NFC.
However, to get to this point there are some
challenges ahead:
• As smartphones have screens and on-board
communication methods, the ATM user could
actually start the transaction while queuing.
• The card payment industry has so far looked at
NFC and mobile to substitute cash, rather than to
increase security. Changing this mindset may be a
significant task.
• By the phone user authenticating themselves
through the phone (fingerprint/password), any
attacks relating to PIN interception (camera’s/terminal
prints) become anywhere between increasingly
difficult to totally impossible.
Not just security but also increased
convenience
The ATM industry can start to benefit from the
banks’ drive to use new technology (figure 2).
The majority of cards in the UK will soon be EMV
and the take-up of mobile banking is high. With the
arrival of Zapp, consumers will become increasingly
familiar with using their phones for payments. Both
technologies also offer more convenience and more
security for ATM transactions. It seems obvious
that the ATM industry can benefit from those new
technologies. Anti-skimming and card trapping
solutions may no longer be required once EMV, NFC
and mobile technologies are mainstream and global
(expected by 2020).
• While it appears that NFC and mobile can increase
security, the industry needs to be aware of any
backdoors; NFC still uses the PAN (primary account
number) and there have been sufficient (successful)
attacks on smartphones. The banking and mobile
industry will need to step up to deliver better security.
• Last but not least, there are no standards as yet
outlining how an app would interface with an ATM. It
seems that standards are a short term requirement
to ensure that the industry can benefit from NFC and
mobile payments.
BOTTOM LINE
With the lack of any concrete end dates for magnetic
stripe, the ATM industry would do well to look
beyond EMV and assess the suitability of mobile
and NFC as security methods Both offer great
improvementsto convenience. The hurdles on the
road ahead include; changing the mindset that NFC
and mobile can be used beyond POS transactions
and are genuine security solutions for the ATM
industry, increase mobile security and develop
standards on how smartphones and ATMs
can interact.
Technology alternatives
There have been various pilots with NFC and mobile
technology. With reports that during 2013, 450 million
NFC cards were shipped and that the current 800
million mobile banking user base will double within
5 years, alternative technologies are emerging. The
benefits from NFC are immediately clear; not having
to insert a card means not only faster transactions
but also:
• No opportunity to skim the card’s magnetic stripe
• No opportunity for fraudsters to retain the card
Guest Columnist
Eric de Putter, Managing partner & co-founder
Payment Redesign Ltd
e. [email protected]
7
8 | Q4 2014 | THE CASHLESS STREET
THE
CASHLESS
STREET
Valuable Experiment or
Shameless PR Stunt?
Earlier this year, an experiment on a local street
in Manchester, England transformed it into the
UK’s very first ‘cashless’ street. For one day only,
many of the stores and businesses stopped
accepting notes and coins, forcing customers to
pay with credit or debit cards. The experiment was
organized by card payment provider Handepay to
see if the UK is ready for a cashless society. The
experiment was met with a mixed reception
from the businesses in Manchester. While many
backed the scheme, most still gave customers the
option to pay in cash, for example, cash receipts at
the Horse and Jockey pub were only 10% less than
normal. Others didn’t really see the point of it as they
admitted that they would never turn away customers
with cash and several retailers refused point blank to
get involved.
Despite the mixed reception, the real question
that should be asked of the experiment is who –
if anyone – really benefits?
Customers
A key principle in economics is choice, and this can
be applied to payment methods. Customers face a
trade-off when they pay for an item between using a
card and using cash. There are certain goods where
customers would prefer to use one payment method
over the other – for example customers may prefer
to use a credit card for expensive purchases so that
they don’t need to carry that much cash and can pay
it off over time.
On the other hand, cash will likely be the preferred
choice for small purchases, due to the freedom and
convenience it offers, and for those who want to
better manage their finances and spending. By
removing the option to pay by cash you are giving
the consumer no choice at all and removing an
alternative payment method should card systems
go down – as recently experienced in the UK.
Furthermore to make this lack of choice worse, the
experiment actually limits the choice to the least
preferred option for UK consumers – according to
the latest annual payments report from the British
Retail Consortium (BRC), cash transactions made
up 52% of all UK transactions in 2013.
Benefit? None.
8
Businesses
The experiment doesn’t make a great deal of sense for
businesses on two fronts. Firstly, following on
from the choice principle, if businesses restrict
customers to only purchase by card they
are losing out on those customers (and the
revenue they bring) that want to pay by cash.
For some businesses this could include large
proportions of certain demographic segments
such as elderly people who generally prefer cash.
Secondly, as well as reduced revenue, there is a
huge disadvantage for businesses in terms of the
costs associated with cards.
According to the BRC annual payments report, it costs
retailers 40.9p (67.4 cents) on average to process
a credit card transaction, 8.8p (14 cents) for a debit
card transaction and only 1.3p (2 cents) for a cash
transaction. The sheer scale of these differences could
have a major impact on the margins of any retailer,
however for some, particularly small businesses,
restricting customers to only pay by the most
expensive payment type could risk profitability. While
the opposite argument could be that it streamlines
business operations by ensuring there is no need
for the operational infrastructure of accepting cash,
there are very few businesses where this would
outweigh the negatives.
Benefit? None.
Credit Card Payment Providers
Finally a winner? There is no denying that a cashless
society will benefit credit card payment providers.
By removing cash from the payment decision,
consumers have no choice but to use cards. This
results in these companies receiving a fee from the
business after every swipe.
Benefit? More transactions means more profit –
but it comes at the expense of the retailer.
Experiment Outcomes
Irrespective of the outcome of whether a cashless
society functions (which seemed to be a resounding
no), the experiment was brought under significant
question given that it was organized by a card
company – the only stakeholder who stood to
benefit from it. Fortunately, this did not go
unrecognized;
Alicia Herhenteris from the independent Café on
The Corner, said:
“We were completely opposed to it. When we saw
it was sponsored by a card company we decided it
wasn’t something we wanted to be a part of.”
Finally the experiment was also unnecessary as it
was very clear beforehand that we are not ready
for a cashless society. With 52% of all transactions
being in cash, an aging population and an increased
pressure on high-street businesses post-recession,
removing cash from the economic landscape
would have a significant negative impact. However,
regardless of being ready or not, we should really
be asking why we would want a cashless society?
BOTTOM LINE
By only having the option to pay by card, we would
be removing our privilege of choice, forgoing the
greater freedom that cash gives us and putting local
businesses at risk.
Author Details
Lee Williamson, Research Analyst
Cash Management Solutions
e. [email protected]
WINTER TRAVEL | Q4 2014 | 9
WINTER TRAVEL
Will Euro weakness lead to a boom for the slopes?
A study conducted by the UK-based publication,
The Telegraph in 2008 revealed that travelers were
starting to take into consideration the comparable
exchange rate for countries when holiday planning.
Six years on and this is more relevant than ever.
Following the recent recession within the global
economy, the tourism industry is once again on the
rise; after three years of decline, demand for travel is
booming once more.
The Global Role of the
Exchange Rate
As exchange rates become a bigger factor to
travelers, the relative exchange rate of various tourist
destinations will become important in determining
where this extra demand for travel will flock.
A study released by Austrian economist Martin
Falk in 2013, demonstrated that locations such
as ski resorts are more likely to be affected by the
exchange rate than city breaks. City destinations
are often considered more of a necessity for
business purposes, while ski resorts would
almost always be deemed a luxury product. The
study, based primarily on the Swiss Alps between
2008 and 2011, concluded that the appreciation
of the Swiss Franc had a considerably negative
effect upon tourism within the region. This
appears to extend to other winter-sports destinations
as data from 116 alpine resorts in South Tyrol,
Brida and Risso, showed price elasticities of -1.05 in
the short run, and as high as -4.36 in the long run,
representing a strong correlation between a change
in price and demand.
Further research regarding the demand for hotel
rooms in Hong Kong on the other hand, showed
that changes in relative price brought about by an
appreciation of the exchange rate resulted in
negligible changes in demand.
Europe to Benefit?
While a savvier traveler may not necessarily be
a good thing in the long-term due to the possible
pressure on general margins; Europe could benefit
in the near-term if consideration is given to
exchange rates. Recently, EUR has been near five-year
lows against both GBP and the USD, which could
increase the numbers of travelers from the UK and
the US to Europe.
It also provides a large opportunity for winter
destinations to benefit, as the material cost of a
second break is lower than in previous years and
at a time when the UK and US economies are
showing growth. The possibility for a greater differential
in exchange rates is very much open; with the UK
and the US being on a similar interest rate schedule
– both expected to hike rates from their record lows
at some point at the end of 2014 or early 2015 –
and the European Central Bank (ECB) on a delayed
schedule due to volatility across the region.
Author Details
BOTTOM LINE
FX demand is proven to be highly sensitive to price
and the volatility of the Euro/Dollar exchange rate
has been rising. This will lead to some interesting
consumer behavior.
“The relative exchange
rate of various tourist
destinations will become
important in determining
where this extra demand
for travel will flock.”
Adam Shackleton, Head of Analysis
Cash Management Solutions
e. [email protected]
9
10 | Q4 2014 | CASH CALENDAR & ECHANGE RATES
CASH CALENDAR
EXCHANGE RATES
Upcoming dates
AUD
November 2014
2nd – 5th
Money20/20 Conference, Las Vegas, Nevada, USA
3rd – 6th
CUNA Community Credit Union & Growth Conference, Las Vegas,
Nevada, USA
6th
ECB Governing Council meeting and press conference,
Frankfurt, Germany
5th – 6th
Bank of England Monetary Policy Committee November meeting,
London, UK
1 AUD in USD
EUR
10th – 12th
Filene Research Institute’s big.bright.minds 2014, Tucson, Arizona, USA
11th – 14th
BAI Retail Delivery Conference & Expo 2014, Chicago, Illinois, USA
18th – 20th
National ATM Council Conference 2014, Las Vegas, Nevada, USA
19th
Bank of England Monetary Policy Committee November meeting –
Minutes released
1 EUR in USD
GBP
December 2014
3rd – 4th
Bank of England Monetary Policy Committee December meeting,
London, UK
4th
ECB Governing Council meeting and press conference,
Frankfurt, Germany
8th – 11th
ICCOS Americas – The Cash Cycle Seminar, Miami, Florida, USA
1 GBP in USD
USD
16th – 17th
US Federal Reserve Federal Open Market Committee meeting, Summary
of Economic Projections and press conference by Federal Reserve Chair,
Janet Yellen, Washington D.C., USA
17th
Bank of England Monetary Policy Committee December meeting –
Minutes released
1 USD in EUR
10
CASH STATS THIS MONTH | Q4 2014 | 11
CASH STATS THIS QUARTER
How do cash habits differ in seven industrialized countries?
Card Transactions
Australia – A sign of things to come
Canada, France, Germany, the Netherlands and the United States.
Austria and Germany are the two economies out of the seven in the
With Australia having the highest interest rate out of the seven
It collates the data from various payment diary surveys conducted in
study where cash transactions exceed 50% of the total transactions
economies in the study, it can be seen as an indicator for what trends
the countries from 2009 to 2012.
by both volume and value. In the other five economies, cash
may occur in the other economies once interest rates rise. In Australia,
payments by volume stands at 45-65%, however this reduces when
cash payments by volume are relatively high at almost 65% - very near
evaluating by value. This shows that cash is being used for many
the levels of Austria and Germany. However, the average amount kept
transactions under a certain value, however when the value starts
in an individual’s wallet and the amount withdrawn from an ATM are
to increase consumers in these countries have a preferred payment
significantly lower. A key driver of this may be the high Australian base
method, most likely credit or debit card.
rate of 2.5% relative to the Eurozone’s 0.05%. The impact of this is that
This recent study published by the Federal Reserve Bank of Boston
compares cash usage across seven countries; Australia, Austria,
Key Findings:
• Cash is still an important payment option in all seven countries
• Cash is strongly correlated with transaction size – it is most
while cash is still used, it is stored in banks for more prolonged periods
commonly used for lower value transactions
of time (as opposed to wallets), in order for the interest to be earned.
This could be a trend seen across the other economies as a rates rise
• Other factors that impact the usage of cash include demographics
leads to a reduction in cash demand. It is this trend which supports the
and point-of-sale characteristics such as merchant card acceptance
need for comprehensive cash management and the need to prepare
for what will be the cash industry’s biggest challenge yet.
Cash Payment Share by Volume
Cash Payment Share by Value
Average Cash Kept in Wallet (USD)
Average ATM Withdrawal Amount (USD)
Australia
Austria
Canada
France
Germany
The Netherlands
United States
Source: Federal Reserve Bank of Boston
11
© Cash Management Solutions | Q4 2014
Global Cash
Management Experts
Cash Management Solutions (CMS) is dedicated to optimizing the
management of coins and notes. Our cash management consultancy
and fully managed services are used by a diverse range of companies
globally including financial institutions, ATM deployers and FX retailers.
CMS is completely independent and rather than rely on standard
forecasting techniques or basic software, we combine advanced
site-by-site modeling with our team of highly qualified mathematical
analysts to create maximum value throughout the supply chain.
@CashManage
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