How cash-in-transit ensures a resilient cash cycle

The consequences of climate change, geopolitical tensions, and very different economic development trajectories are creating uncertain times around the world. In such situations, cash takes on an outstanding significance, because in crises and phases of upheaval, a stable supply of cash plays a central role in the continued functioning of the economic system. This was impressively demonstrated by Gerhard Rösl and Franz Seitz in their study On the Stabilizing Role of Cash for Societies.

For the continuous supply of cash to take place, a resilient cash infrastructure must exist that is characterized by four key features:

• Access: Access to cash is the basic prerequisite for its use. What is not available cannot be used. If access is restricted, this has a massive impact, especially in the event of unforeseen, crisis-related events. Elderly or disadvantaged people, people without a bank account (so-called "un-" or "under-banked people") and the population of rural and remote areas must also be able to access cash without difficulty.
• Authenticity: Another key prerequisite for cash to exert its stabilizing effect is that people trust it. This is only the case if there are no doubts about its authenticity. If trust in cash is lost, crises repeatedly show that people look for alternatives: be it switching to foreign currencies or to non-cash payment methods.
• Availability: The availability of cash must also be guaranteed in crisis situations. If, for example, the demand for cash increases in the wake of a natural disaster such as a flood, it must be served quickly and in a targeted manner in the required quantities and with precise regional distribution. At the same time, a proper cash mix is needed to ensure smooth payment transactions and provide retailers with sufficient change.
• Acceptance: Cash must continue to be accepted across the board in the retail sector. The basis for this is that it remains cost-efficient as a payment method for retailers.

Use "breathing" technology

Through their services for retailers and financial institutions, cash-in-transit companies can make a decisive contribution to a resilient cash cycle, for example by influencing the acceptance of cash. If they offer their customers attractive and cost-effective cash management solutions, cash payments will continue to be accepted and remain a widespread payment method - in normal as well as in crisis times. In making their processes and services more efficient, they are helped by greater automation and digitization as well as "breathing" cash technology.

Such technology is fail-safe and makes it possible to adapt to changing conditions in the cash cycle. This includes, for example, the use of modular banknote processing systems in cash centers that can be flexibly expanded in response to changing demand. It also includes intelligent maintenance, whereby machines are no longer serviced on a rotational or corrective basis, but only when necessary. In this way, cash-in-transit companies can avoid unplanned downtimes in cash processing and reduce the risk of their systems coming to a standstill when more processing capacity is needed due to certain unforeseen events. In addition, buffers help to maintain the cash infrastructure so that, for example, if one cash center fails, another can take over processing. The same applies to the entire vehicle fleet of a cash-in-transit company.

Cushioning the cash paradox

In addition to "breathing" technology, further automated and digital solutions ensure more efficient processes in banknote processing. This improves utilization of the existing cash infrastructure, makes operational processes smoother, and reduces costs in the medium term. With efficient processes and planned, data-driven capacity utilization of machines and the vehicle fleet, cash-in-transit companies are better equipped to respond to potential crises and their effects on cash demand. In this way, the effects of the so-called cash paradox can be cushioned. It describes the fact that in past crises, the amount of cash increased, but not necessarily the number of cash transactions, because people often use cash as a store of value in times of crisis.

During the pandemic, the number of cash transactions actually decreased because lockdowns limited the ability to spend cash. If cash-in-transit companies design their processes efficiently, it is easier to smooth out such fluctuations in the amount of cash to be handled.

Protect cash infrastructure comprehensively

Last but not least, comprehensive protection of the cash infrastructure, above all the cash centers, is important for the resilience of the cash cycle. When taking appropriate precautions, cash-in-transit companies should not only consider potential threats from criminal operations, but also take into account the risks of critical events such as floods or severe storms. The same applies to cyber security: IT security should not only be able to fend off hackers, but should also be equipped against threats such as blackouts through backup systems. Ideally, cash center protection should be designed to take account of the above-mentioned risks and thus provide security against cash supply failures.

As a rule, business continuity plans are in place for such situations in order to maintain operations in crisis situations or to be able to return to normal operations as quickly as possible. CIT companies achieve an even higher level of protection if they not only continuously monitor potential risks, but also trigger alarms when critical thresholds are exceeded and set the appropriate plans in motion. Exercises help to be prepared for emergencies, to train automatisms that reduce the risk of human error, and to uncover potential weaknesses in the plans and correct them in good time.

Fill ATMs according to demand

If the rising demand for cash has to be met as quickly as possible in a crisis situation, cash-in-transit companies can make a decisive contribution to maintaining the supply of cash by filling ATMs in a targeted manner. Software solutions help them to connect all serviced ATMs across the board, evaluate them and forecast when which ATM needs to be filled. As a result, cash-in-transit companies can approach and replenish ATMs in line with demand.

Normally, ATMs are serviced on a rotational basis: cash-in-transit companies drive up to them at fixed times and are paid by the banks to do so. In order to be able to respond adequately to fluctuations in demand and to maintain a continuous supply of cash, the model of more flexible, demand-driven replenishment would be suitable. However, this model would require closer cooperation between commercial banks and cash-in-transit companies. Settlement systems would have to be adapted to the more flexible service and the cash-in-transit companies would have to be adequately remunerated. Commercial banks, in turn, could thus ensure that their customers receive optimal service. In addition, it can be analyzed which ATMs are of central importance so that they can then be prioritized in crises.

Resilience meets efficiency

Closer cooperation between all relevant players in the cash cycle is a key factor in ensuring the system's resilience in the face of changing conditions and their impact on cash demand. But not only that: it also helps to resolve the tension between resilience and efficiency in cash management. This is illustrated by the following examples of potential collaborations:

• Cash-in-transit companies support each other in logistics. If vehicles break down at one company, another steps in. This creates buffers and backups without having to maintain additional infrastructure.
• Cash-in-transit companies could also support each other in processing cash and make arrangements in the event of a crisis. By leveraging each other's capacities, they are able to achieve greater resilience together without further investment in their infrastructure.

These forms of cooperation between commercial players in the cash cycle open up a wide range of possibilities for increasing efficiency: from jointly operated service organizations and joint fleet management to logistics centers with standardized transport containers and multi-bank cash centers, which would bundle cash volumes from several banks and thus achieve higher levels of automation in processing.

In addition, deeper collaboration with central banks would improve the resilience of the cash infrastructure as well as make cash management more cost-efficient.

For example, in coordination with the central bank and commercial banks, banknotes could no longer be banded and bundled but transported loose in standardized, sealable trays and delivered to cash centers. These trays would make distribution between the cash-in-transit company and the central bank more efficient and cost-effective by eliminating process steps on both sides. The addition of a digital twin of the tray also increases security. The elimination of disposable packaging materials also helps to conserve resources.

In some countries, it has also become apparent that cash supplies to remote, rural areas can no longer be achieved cost-effectively or in an economically viable manner for cash-in-transit companies. In these cases, close cooperation with the respective central bank, up to and including a stronger commitment on the part of the bank itself, could open up new ways of ensuring cash supply. These forms of cooperation have also proved successful when it comes to achieving nationwide access to cash via ATMs.

More sustainability through cooperation

Closer cooperation among stakeholders in the cash cycle not only has the potential to resolve the tension between resilience and efficiency, but also that between resilience and sustainability. In principle, it is a major concern of the players in the cash cycle to contribute to greater sustainability. However, the pursuit of greater resilience can stand in the way of this. One example of this is the aforementioned business continuity plans of cash centers, which, for example, rely on diesel generators in the event of blackouts or maintain a duplicate supply of certain infrastructure components. Such unavoidable measures counteract the idea of sustainability. In contrast, the cooperation options outlined have a positive effect on both aspects: They make the duplication of infrastructure components superfluous, save transport routes and reduce disposable waste and plastic waste.

Key design principles of the cash cycle

Resilience, efficiency, and sustainability are key design principles of the cash cycle. Technical innovations and close interaction can help all players involved not only to make their processes more efficient and sustainable. They also help them to respond quickly and effectively to changes in the framework conditions that influence cash demand. It is therefore important that the players — from the regulator and the central bank to commercial banks, cash-in-transit companies, and technology providers sit down at a round table, bring their requirements together, and jointly find solutions to create a resilient, efficient and sustainable cash cycle.