Cash, as a percentage of payment transactions, has been declining for years. And during the peak of the pandemic, the volume of cash transactions dropped by about 5 percent according to the Federal Reserve. Many people did not—or could not—leave their homes. Many cash-intensive businesses, such as leisure, entertainment, and gaming, were closed. Other businesses saw a rise in cashless payments as a health and hygiene precaution. Cashless payments are quick, easy, and seem to be on the rise, replacing cash transactions…which raises the question, is cash on the way out?
Before answering, consider that 35 percent of the U.S. population are unbanked, using no banking services at all, or underbanked, using limited banking services with no ability for lending or credit card payments. Also consider that in a recent survey by the Federal Reserve, the age demographics using the most cash or using cash as their preferred method of payment are 18–24 year-olds and those 65 and older. Further, note that cash can be a more cost-effective payment method for businesses to handle when compared to digital payments.
So, the real question is not whether cash is dead (it isn’t, cash remains a critical payment method in the economy), it’s what does the future look like for cash? And how does a smart business equip itself for efficient, effective, and secure cash management?
Where Cash Remains Critical
Is cash truly critical? Yes.
For the millions of Americans who are unbanked or underbanked, cash is their only form of payment. Any limitations or restrictions placed on cash as a form of payment disenfranchises and discriminates against this population. If we widen the lens, cash becomes even more essential as it is the preferred payment method in many parts of the world, especially the non-western world and emerging markets.
In addition, many consumers have a significant amount of distrust around digital payments due to increasing security threats and data breaches. Having the ability to pay in cash is important to customers who value privacy and security.
Cash is also critical to many types of businesses, and nearly every industry. Cash-intensive industries—such as hospitality, gaming, and leisure—are obvious examples where large amounts of cash are transacted and processed daily, but even healthcare and auto industries have a need for cash management. Those visiting a doctor’s office, or other healthcare facility are required to make an insurance co-pay and for those who are unbanked, these payments are made in cash. Likewise, many people use car dealerships for maintenance and repair services and pay those bills in cash. More frequent transaction points, like gas stations, grocery or convenience stores, are further examples of cash-intensive operations where employees handle and manage significant amounts of cash every day.
Greater Need for Cash Automation
Cash is an essential element of business. Without it, both the business and the consumer suffer. However, that’s not the end of the story. Accepting cash as a payment method requires a business to consider its labor and security risks.
Processing cash payments requires more time, about 90 minutes per day on average for a small-format convenience store manager and around 20 minutes per register per day in a large-format grocery or big box store. Some businesses even hire one or more full-time employees to manage the cash operations of the store.
That time adds up, affecting the business’s bottom line and using resources inefficiently. The National Retail Federation notes that the top 100 retailers in the U.S. make 3 percent margin on average. With margins that narrow, changes to any aspect of the business— supply chain, cost basis, labor, etc.—can significantly impact profitability. Cash handling, like any other element of retail operations, needs to be as efficient as possible, otherwise it begins to erode an already slim margin.
That’s why integrated technology platforms that offer cash management softwares and a management service for these activities are essential to improving the accuracy and efficiency of counting cash. Automating cash handling and management processes through the use of intelligent devices allows companies to reallocate costs for cash processing toward tasks that are more strategic and valuable, such as providing customer service.
Handling cash also incurs security risks—all forms of payment do. Cashless payments present threats of data breaches and privacy concerns while cash payments present risk of physical threat or loss of cash. Think of a small convenience store or gas station with one attendant on duty late at night. They are exposed and vulnerable to anyone wanting to rob the store. In addition to concerns for employee safety and outside theft, businesses are also at risk for counting errors and theft by employees.
A study by the NRF found that businesses can expect an average loss of .18 percent of their cash sales. For a business bringing in $2,000 in cash per day, or $730,000 per year, that translates into an expected loss of around $1,300 in cash per year. This is not an insignificant amount of money for any business, especially considering that that number could be significantly reduced or eliminated by using smart safes and cash recyclers. These devices can help protect the security of a business, reducing the threat of theft by external and internal actors and by reducing counting errors.
The Future of Managing Cash Payments
So, given that cash is essential to business, but also presents its own challenges, what does the future look like for cash? And how does a smart business equip itself for efficient, effective, and secure cash management?
The future of cash is one driven by innovation and showcases a lot more automated solutions. Smart businesses who are looking to improve their customer and employee experiences will aim to onboard integrated platforms that will simplify and optimize the outsourcing of their cash management operations. This will further secure and automate cash handling, offering flexibility in payment options without impacting—but maybe improving—their bottom line.
Darren Taylor is the President and Chief Executive Officer of North American provider of cash automation solutions Tidel. He is also the President, Chief Operating Officer, and Global Head of the Intelligent Devices business for Sesami Cash Management Technologies, a cash ecosystem performance and technology company.