Is the BofA/Garda cash vault outsourcing deal a tipping point?
Earlier this week Bank of America announced a huge agreement to outsource all of its remaining internal cash vaults in the US to Garda. The deal, reportedly worth $1.4B over 12 years, is undoubtedly the most significant in the history of the industry in the US. How does this deal change the market and what are the impacts going forward? Read the rest of this entry »
Cash costs Americans $200 billion a year. Really?
I recently read the September 2013 report from Tufts University that seeks to calculate the cost of cash handling in the US (“The Cost of Cash in the United States”). In the report the authors, Bhaskar Chakravorti and Benjamin D. Mazzotta, identify that cash has digital substitutes and wonder why it has not seen the same level of disruption as other information goods (i.e. “communication, music, movies, and, increasingly, books”). This is a very good question, and one that deserves analysis. However, the headline that gets picked up by the media tends to focus primarily on the cost of cash, like this one from CNBC, “Cash costs Americans $200 billion a year.”
The cost of cash is a very interesting topic and one that has been studied several times around the world. Total cash transactions in the US are estimated to be $1.6 trillion on an annual basis. If the cost of cash is really $200B then this represents 12.5% of the total value paid. This is much, much higher than any other numbers that I have seen (usually less than 1% of total value) and would be a very significant finding.
Lets take a look then at the numbers from the study and see what we can find. We will start by isolating the largest cost components. As shown in the chart below, there are 3 that make up roughly 85% of the $200B (Tax Gap, Retail Theft and Household Time). I have concerns with all 3 of them. Read the rest of this entry »
Retail Cash Recycling Equipment Manufacturers
In my previous post on the Top Retail Smart Safe Manufacturers, I identified the manufacturers of cash handling safe solutions that were for depositing cash only. There is another class of products that are focused on recycling of cash for retailers. These solutions take cash in and also allow for that same cash to be withdrawn from the unit by the end user. All in and out transactions are tracked. A retailer can use these solutions to further automate the cash handling process. Like deposit only smart safes, recyclers come in 2 broad categories; those that are designed to be used at the point of sale (effectively eliminating the cash drawer) or in a back office (automating the retail cash handling room). Read the rest of this entry »
Smart Safe Market Penetration in the US is Less Than 10%
I was recently asked for insight on why the Smart Safe market in the UK was not gaining traction more quickly. I think that this question could apply to almost every country. I’m not sure that I have all the answers, but I would like to at least start to look at what the data (and experience) can show us. A good place to begin is market penetration. Exactly how much market penetration has been achieved?
Let’s start by trying to understand how big the market is. I do not have good data for most countries, but I have a decent set for the US. As a result, I am going to use that market as a proxy. I recognize that this is imperfect, but you have to work with what you have.
US Market Penetration
In the US there are a total of approximately 1.5 million retail locations(1). However, many of these locations are sole proprietors. Read the rest of this entry »
The Top 100 Smart Safe Manufacturers?
I recently had a discussion where an industry insider mentioned that there are now over 100 Smart Safe manufacturers in the world. While the comment was intended to be more provocative than factual, it made me think. I believe that it is fair to say that the “manufacturing” of a smart safes has gotten much easier over the years, and I have seen new manufacturers popping up more frequently. However, I was trying to think of how many I could name and could not come up with anything close to 100. I also tried to locate a list on the internet and could not find anything.
As a result, I decided to start a list here. I compiled a list of companies that I am aware of that are making some type of deposit only smart safe solution for retailers (recycling equipment is excluded here, I will come back to that in a future post). As you will see I wasn’t able to get anywhere near 100. Here they are:
When should banks avoid Smart Safes?
In my previous post, (The progress of accelerated credit for Smart Safes), I described the concept of accelerated credit for smart safes and the role that banks play in that offering. However, when we look around the world, we see banks approaching this product in different ways and enjoying differing levels of success. I have broadly grouped these approaches into 4 major strategies; Avoid, Defensive, Offensive and Strategic.
- Avoid – Not offering the product is by far the most common approach that is currently applied by banks when viewed globally. Banks have many products that they offer and adding new products always represents a tradeoff. Not offering the product allows them to focus their limited resources on other products that hey deem to be more important. Additionally, some banks may view the product as a threat to their traditional money processing business. The downside to this approach comes when others in the market start offering the service. In this case, the bank may lose customers that value the product. Additionally, smart safes are very complex products and those who have detailed knowledge are more successful in the market than those who do not. By avoiding the product, the bank can easily fall behind and have difficulty catching up. Read the rest of this entry »
The progress of accelerated credit for Smart Safes
What is accelerated credit?
In a traditional smart safe solution, the money inserted into the safe is not deposited to the merchant’s bank account until the funds are physically delivered to the bank. With accelerated credit (or expedited credit or daily credit) the funds are deposited into the merchant’s bank account while the bank notes are still in the merchant’s location based on the electronic information provided by the smart safe. “Accelerated credit” is almost always provided by a financial institution working in conjunction with an armored carrier, however some evidence exists that non-banks are beginning offer a version of accelerated credit. There are 2 primary benefits for the merchant: quicker access to funds and reduced need for armored transportation.
Progress
Accelerated credit with smart safes was introduced in the US in 2005 and has grown to approximately 10,000 units in that market. In the early years, few banks were willing to support accelerated credit. However, once market traction was established, most major banks in the US began to offer the product. Today there are more than 100 banks in the US that support an accelerated credit program. Read the rest of this entry »
8 Factors that drive the Smart Safe value proposition
This is a second is a series of posts on the safe smart market.
Retail cash smart safes can provide value to a retailer in 5 primary areas(1):
- Reduce labor – Enables the retailer to reduce the amount of front line (clerk) and/or store manager (cash room manager) labor spent on cash handling.
- Reduce risk – Reduces the cost of losses related to cash handling from internal and/or external theft. Also, reduces the risk of theft events occurring which may lead to injuries and/or negative publicity.
- Improve cash flow – Gets the money in the retailers bank account more quickly. Additionally, gives the retailer better visibility to cash so it can be managed more effectively.
- Lower administrative costs – Reduce the cost associated with managing, administering and reconciling cash transactions and bank accounts.
- Reduce supplier costs – Lower costs for armored car service, banking fees and supply costs (i.e. deposit bags).
While all of these benefits may be present for a customer, they typically vary greatly depending on the retailers situation and the type of smart safe solution that they use. This is most evident at the country level and we can identify a number of factors which will impact the relative benefit of each of the 5 areas. Read the rest of this entry »
How are Smart Safes sold around the world?
Retail cash smart safes(1) represent a growing market. However, while the industry is nearly 20 years old, in many senses it is still trying to find its way. There is also very little public information available about this industry. In an small effort to help the market mature, this is the first in a series of posts that will provide some data that I have been able to collect as well as my thoughts on its relevance. My ultimate goal is to share information to help the industry to live up to its potential and create a rising tide for all boats.
Fred Purches
How are Smart Safes sold around the world?
The smart safe industry was started in the US in 1994. Since that time it has expanded to a number of other countries. It is interesting to see what we can learn from the way the market has evolved in different countries. First some background, smart safes are sold to retailers in 2 primary models. I have named these CIT/Bank and Hardware/Other:
CIT/Bank – In this model the smart safes are sold to the retailer by a CIT company (Armored courier) or a bank. From these channels the product is almost always sold as a bundle which includes hardware/software and services (armored transportation, money processing, etc..). The retailer will normally sign a long term contract (3 to 6 years) with a fixed monthly payment. CIT companies and banks are grouped together because in many cases the CIT company and the bank will partner together to sell the solution (the hardware vendor may also be involved). In these situations, it is a matter of interpretation who made the sale so they are combined.
Hardware/Other – In the second model, the device is sold to the retailer by an equipment manufacturer or technology distributor. In this case, the hardware (and software) are typically sold separately from the other services (except equipment maintenance). The retailer will buy or lease the equipment (through a 3rd party) possibly with a maintenance contract. For all other services the retailer with either contract for those services directly or may not use that particular service (for example, instead of contracting for armored car service the retailer may walk the deposit to the bank).
HarmonicVent 