In Part 1 of the Cash As A Service article we introduced the problem of managing and making available cash through the banks’ physical delivery channel.
Now we explore a couple of alternative, possibly complementary, options.
Cash Services Outsourcing
An alternative to providing cash services in the branch has emerged in recent years, consisting of the outsourcing of over-the-counter deposits and withdrawals to the Post Office.
Australia Post has created the Bank@Post agency for this purpose.
Arguably, failure for a bank to continue providing cash services puts the bank at risk of eroding its wider customer base and becoming exclusive.
The elderly population, as well as people who don’t regularly use computers, are the most regular users of the branch channel and they think they deserve access to the services they expect. At the same time, small business owners are usually reliant on depositing their cash earnings regularly and efficiently—and preferably at their local branch because that makes them feel safe and comfortable. Doing their banking at the branch allows business owners to get to know the person they are depositing with, which contributes to a feeling of security about the transaction. For these banking customer segments, access to cash services is an important enabler of financial inclusion.
Another potential threat a bank may face when it stops providing cash services is competition from other service providers, banks or not. The example of Bank@Post mentioned earlier is widely used around the world, as big banks outsource non-core services to other providers who have prominent customer reach and geographical presence.
In Australia over 80 financial institutions are now relying on Australia Post to deliver cash services to customers in the form of withdrawals, deposits, and balance enquiries.
Given that Australia Post is a national postal service, its advantage is that it has a very large representation, as many as 3,500 outlets nation-wide. While this system may seem imperfect—for instance, Australia Post is not structured as a bank and could be vulnerable to security risks—it offers convenience to consumers who are happy to walk over to the nearest post office to fulfil their cash transactions.
AusPost’s message that “your nearest branch might be closer than you think,” is definitely appealing to a large part of the population. It is worth mentioning that the Bank@ Post service now offers the convenience of transacting with cash also to customers of an online bank like ING. Evidently the need to offer cash services appeals to online banks as well.
The post office model is working, and it is being adopted in many countries, including most of Europe, the US, the UK, several Asian countries and South Africa, although, as mentioned above, with some concerns and limitations.
The concerns are mostly around fitness for purpose and security. Post offices are universally undergoing a transformation towards retail stores and, in many cases, struggle to balance their resources (especially real estate) between their mainstream business of handling the shipping and collection of parcels and mail, with the new business lines, which include retail, financial and travel services.
The real estate constraint is affecting not only the outlet’s accessibility for customers, but also the deployment of adequate security infrastructure to support the banking services. The ability to carry out cash transactions is limited, depending on how much reliance the represented institutions are ready to put on the Post Office.
A limit of anywhere between $3,000 and $5,000 per transaction is typically imposed on customers, depending on the bank. Despite this, the vast majority of personal banking customers and Australian businesses are expected to be able to deposit and withdraw cash, pay in cheques, check their balance and get change at a Post Office outlet, if they so wish.
The other concern is around security: security for the post office staff, the customers and the cash handled at the front counter. The limitation on funds handled by the Post Office operators may be a deterrent for robberies, but there are several examples of holdups at hotel and club cash outlets for much less than the transaction thresholds adopted by the Post.
The structure of the Post Office outlets is made to be welcoming, with only a simple physical barrier, the front counter, separating the operators from the customers. In a situation where banks and retailers normally require the deployment of CEN-III-graded safes to secure the cash holdings, the Post Office relies on commercial tills.
All considered, while the outsourcing of some cash services to post offices certainly has merit, it is not a case of cheering on this strategy as a complete solution giving banks carte blanche to no longer provide cash. Instead, this might be better seen as something for banks to pay attention to by looking at it from different angles. After all, Australia Post is essentially a third-party provider of financial services.
As of May 2021, Australia Post is offering its own home and car insurance services. Once this new business profile gets more traction, if a bank’s customer goes to the post office to do their banking, it becomes easy for the post office to also introduce either their own or third-party financial services to this customer.
The possibility for Australia Post to obtain a banking licence may be remote, as the deployment of licensed financial advisors in the outlets is unlikely. However, if customers become disenfranchised with their bank, they could be directed by Australia Post to a competitor bank offering—for example, higher transaction limits or specialist advice.
Whether this system will work in the interest of banks or create a new segment of competition for the banks remains to be seen. An alternative model that banks are starting to consider in Europe and the US is the creation of “financial services hubs”, allowing banks to retain branding visibility and customer interaction in a shared environment.
What is clear is that customers across a wide spectrum want the convenience to transact in cash, and banks ignoring this or focusing solely on the future being digital are missing out on a significant opportunity to serve these customers.
Case Study: Success Via Assisted Self-Service Device
The flagship branch of Your Bank, situated in the centre of a highly touristic part of town, had a very active 24-hours vestibule. Although the transaction traffic was constantly high, the Management was concerned about progressively losing touch with their customer base. As they observed, an extensive use of online banking and banking vestibule self-service machines carried, as a side effect, a disenfranchisement of the local, traditionally most loyal, customer base.
Your Bank was losing contact with its customers.
It was also clear that ATM-based solutions did not deliver the kind of differentiated services their customers sought, as the customer base was more and more unhappy with the restrictions typical of the channel, e.g. deposit and withdrawal limits, security routines, exposure in crowded spaces.
The bank’s goal became to attract more customers back into the banking chamber where they would then be offered extended services. However, the bank wanted to do this while reducing the number of traditional tellers and costs associated with these.
To solve this problem, the bank used technology innovation as a differentiator. The centrepiece of this strategy was the implementation of assisted self-banking terminals. The solution aimed to provide premium teller-like functions in a quasi-self-service environment, while allowing bank staff to engage with their customers and offer a personalised, face-to-face service when appropriate.
The project was a success, as it allowed transactions to migrate away from the tellers, with staff being redeployed toward focusing on sales and advisory activities. The bank made sure its branch staff were absolutely clear about the purpose of the project: the end game was not the transaction but rather the engagement with the customer doing it.
Along with equipping the branch with new technology, each of the employees was also given a mobile tablet, designed to release secure functions on the assisted self-banking system, that would enable customers to do things they could not do using traditional self-service machines. Some of these services included taking out high sums of cash, completing loan applications, lodging official documents, answering enquiries.
Banks hold deposits and lend money as per the customer’s needs. To deny a customer cash, even in light of a rapidly changing world, is to deny a customer one of the most fundamental services they come to the bank for in the first place. While on the surface it might appear as though the question is one of how to slowly eradicate cash, in reality the question a bank faces is about how to evolve both online and offline banking in a way that keeps customer engagement at the fore.
Key Takeaways
- Cash is important not only as the most accessible and popular stored-value asset but also as the cheapest means of payment for the consumer.
- Small business customers are still reliant on the ability to deposit cash regularly and efficiently, preferably at the closest branch of their business bank.
- The use of cash automation in branches remains essential to allow bankers to engage with customers and provide value-add services.
- The economy of deploying depreciating assets vs personnel is a financial no-brainer.