Five strategies for ATM vault cash management
Increasing economic pressures are making it more difficult for IADs to manage their ATM portfolios. Here are five things to consider when it comes to maximizing the profitability of an ATM network.
Use other people's money
Partnering with a vault cash vendor can help an ISO get out of the business of managing cash inventory and get back to what it does best: growing its network.
"If you are using your own capital to supply your ATMs, you are foregoing other uses for that capital," said David Crossan, sales and marketing executive with Wilmington, Del.-based Cash Connect, a provider of vault cash services. "By putting other people's money in your ATMs, you can optimize your own working capital and accelerate business development."
Beyond freeing capital, third-party vault cash providers can leverage their funding to secure more money from correspondent financial institutions than any small to mid-sized ISO could on its own. Having a higher, accessible flow of cash also allows vault cash providers to cut costs associated with cash cycles.
FIs have long been interested in predictive management tools that help them reduce cash costs. On the ISO side, interest is just beginning to pick up. And there are a number of reasons for the shift.
For one, fluctuating interest rates have until recently been at decade highs. Second, ISOs use a mix of replenishment tools; some are armored or with a cash carrier provider and some are merchant-filled. And third, regardless of how low the price of cash goes, ISOs will still watch their use of cash closely, because transaction volume is low and profit margins continue to drop.
"As ISOs merge, and as they focus more on cutting costs, you're seeing more of them focus more on their overall cost of ownership," said Brian Jorgenson, director of product management, cash and logistics for Fiserv.
Cash Connect's president Tom Stevenson agrees. Total cost of ownership, he says, revolves around ISOs outsourcing as many of their back-office operations as they can to a third-party provider.
According to Stevenson, a small ISO may pay $3,000 up front and another $10,000 a year in licensing fees for software that the company is already using.
"A larger ISO may pay $30,000 a year in licensing for that software. And my gut tells me even a small ISO has at least three people in the back office to manage some of that. This is a huge opportunity for the industry to cut expenses. We can't afford those kinds of redundancies," he said.
Optimizing the load schedule
Knowing how much cash is enough, or too much, to keep in a branch vault or an ATM is not always easily defined, said John Morris, vice president of cash operations for San Francisco-based Wachovia Corp.
"It's hard to prove to yourself that you actually need less cash, especially when you're in the cash business," Morris said.
Chip Clifton, who manages Cash Connect's client operations, said it requires IADs and vault cash providers to have historical information about transaction volumes at each of their locations to help gauge the peak hours for transactions and seasonal variations.
"There are options," Clifton said. "For instance, if a customer has a group of ATMs that are particularly volatile or seasonal, we will set up a special vault for them at the armored carrier, so we have a reserve for replenishments in an emergency. We may leave $20,000 at the armored-carrier office, for instance, and allow the IAD to activate those funds 24/7."
The advantage to outsourcing, Stevenson said, is that IADs don't have to maintain, develop or purchase forecasting software.
"Even if you aren't filling all of the ATMs with your cash — you have a merchant-fill — you'd have to have some way to manage and track your system," he said. "So even if you're a smaller IAD, you still have to have pretty sophisticated back-office software to monitor your network — and that gets expensive and time-consuming."
Outsourcing cash services can play a role in reducing theft exposure and reducing insurance costs. Vault cash providers pay less for insurance because of their cash-handling expertise and the sheer volume of cash they're insuring.
"If an IAD [operator] is putting his own money into the ATM, it's not typically insured," Stevenson said. "So if they lose that money or if it gets stolen, if the ATM gets broken into, it could result in a loss of $25,000 — money that the IAD won't get back."
Dealing with those types of issues has led some IADs to outsource cash management, leaving it up to the vault cash provider to determine the minimal amount of cash each ATM needs, as well as advise the deployer about ways to work with the insurers.
Monitoring the ATM also is important. Mechanical-lock manufacturers build in features that allow vault cash providers and ATM operators to remotely monitor who accesses their ATMs' vaults and when.