At The Future of Cash conference in April in Paris, Currency News interviewed Graham Levinsohn, the Regional CEO of G4S, following the release of a major new study by the company into the relevant cash cycles in 28 countries.
The European Cash Report seeks to answer both what drives cash in Europe, and why it remains so popular.
First of all, can you provide some personal background?
My career with G4S has spanned 22 years so far. My first task was to build the UK cash centre business from scratch, and after the Group 4 and Securicor merger in 2004 I switched from the UK to run the Nordic business.
I became Group Strategy Director in 2008, after which I moved to the Group Executive committee. In 2013, I was asked to ‘fix and run’ Europe by our CEO Ashly Almanza, which I continue to work on today.
What led to the creation of the European Cash Report?
It is the third cash report released by G4S.
The first, a study of cash within the Netherlands released in 2011, was produced in part due to the increasing talk of electronic payments and the subsequent ‘death of cash’. It was felt at the time that there was concerted action occurring to reduce cash use in the area. G4S felt that a voice was needed within the industry and subsequently produced the report.
A second similar report was issued in 2013, focussing on cash use within Belgium. In 2015 we decided to study the cash impact across Europe as a whole. The growth of electronic payments is creating a lot of interest and many reports on the subject have been released. Yet little research regarding cash is available and we felt this was key to contribute to the cash debate.
A study was created with the intention of identifying the role of cash in a changing landscape, looking at Europe at a macro scale as well as individually for each of the report’s 28 European countries. It looks at the range of cash cycles and central bank models that exist throughout Europe, as well as the cross-country trends.
What are the key findings of the report?
Cash is growing. Cash in circulation (CIC) has significantly increased during the past five years, averaging 13% pa. When looking at ATM withdrawal data as an alternative proxy for cash usage, we found that it had grown by 15% across Europe during the same period.
There is a lot of talk in the media regarding the growth of new payment methods, such as contactless or mobile payments. Whilst they are indeed becoming more accessible, in the UK, for example, there were fewer than 3% of transactions made using a contactless card during 2015. Across Europe, this figure was just 1%.
When I first became involved in Europe’s cash market in 2004 there was much talk about the shelf life of cash, with people thinking that it would eventually disappear. There has, however, been a paradigm shift in thinking and today it is generally considered that cash in Europe will remain, albeit with a reduced requirement. We have gone from a ‘cashless’ to ‘less-cash’ way of thinking.
Why is the change to ‘less-cash’ occurring?
Access to cash is shrinking due to the decreasing number of branches offering payment services.
North-West Europe has notably reduced their cash usage, with Scandinavian countries being particularly aggressive. They have reduced cash supply by the continued reduction of ATMs, and commercial banks appear to be working together to limit cash supply and consumer choice. We heard recently that Sweden’s Sveriges Riksbank has called for action against commercial banks who have been promoting an anti-cash campaign, citing the importance for all consumers, particularly those in remote areas, to have access to a cash payment system and not be solely reliant on electronic solutions.
I believe the Nordic experience demonstrates that central banks have a key role to play to ensure that cash remains available. Commercial banks should not be free to pursue purely commercial goals to the detriment of consumer choice.
What are the current cash trends throughout Europe?
The report looks at the individual cash trends of each of the 28 countries, as each has its own unique challenges. But the general trend across Europe shows a shrinking National Central Bank (NCB) footprint, whereby services are being delegated to commercial banks.
There has been a consolidation of the retail banking infrastructure, resulting in fewer branches. Across Europe there are 15% less bank branches today compared with five years ago. Belgium, the Netherlands and Ireland have seen a 20% reduction.
60% of payment transactions across all 28 countries are in cash, used mainly for low value payments. Where supply restrictions have not occurred, countries show that cash use thrives.
What can we expect from cash in future?
We know cash will not keep growing at the same extent that it has done historically. There is slow growth in Europe, with ATM usage growth approximately 3% pa and projections for the next five years falling to 1-3% pa. Cashless payments are predicted to grow much faster.
Whilst cash is expected to have a reduced share of the payments market in future, the absolute decline of cash is not anticipated.
Stakeholders of the cash industry say that cash is expensive to process. How can this be reduced and focus averted from alternative payment methods?
G4S believes there is a significant opportunity to streamline the cash process, thus reducing the cost of cash for stakeholders. The cash cycle today is very fragmented and needs modernising, simplifying and automating.
Cash within a cash cycle is usually counted between 7 and 9 times, but we have seen this occur up to 17 times! Much improvement can be made to improve such inefficiencies.
There is too much movement of cash and not enough local cash recycling. To achieve this, bank branches and retailers need to incorporate automation into their processes to shorten the cash cycle and ultimately obtain same-day-value – a key point for the future of cash.
G4S is doing a lot of work with banks and retailers in this area, resulting in the creation of CASH360™.
What is the CASH360 solution?
CASH360 is a unique end to end cash management solution that provides a way to manage cash, improving cash processing efficiency and – when offered in conjunction with a bank – can facilitate same-day-value to retailers. It significantly reduces retailers’ cash processing time, enabling them to concentrate on better serving their customers and running their businesses more efficiently and profitably.
The system significantly reduces the number of times cash is counted. The first count occurs when cash is deposited by a teller into the retailer machine. It then has a second count when processed at the cash processing centre, and at this point the cash goes straight into ATM-fit stock. Subsequently only two counts are required, resulting in big cost savings for retailers.
It’s a simple process whereby cashiers pay cash into an ‘intelligent safe’ installed at the point-of-sale (POS) and/or in the back office. Tellers remove their floats from the machine, whilst paying in surplus notes gathered during the working day. That’s it. The machine counts the deposits and tells us its value, allowing G4S and our partner banks to provide same-day-value to the retailer.
It allows G4S to start to identify and analyse issues for the retailer in terms of their cash. When there is requirement for surplus cash to be collected from the retailer, or if replacement cash stock is needed, we are notified and can remove or replace the cash, ensuring we only visit when necessary rather than at pre-agreed times, which can often be inefficient and costly.
By using CASH360 as an inventory management tool, we can take 20-50% of cash stock that resides at a retailer out of their storage and effectively put it straight into a bank account. This allows the retailer to run on a significantly lower float level as the whole process is automated, resulting in 1) reduced costs for the retailer due to lower cash stocks, 2) same-day-value, and 3) increased management information. We’ve recently rolled out the system in the US for Walmart, working with Bank of America. By using the CASH360 system, Walmart has been given an additional day of value in its US corporation, which is very significant for a predominantly cash-based business.
Is the CASH360 hardware and/or software multi-platform?
The software is multi-platform. We have an equipment and systems manufacturing company located in South Africa, called G4S Deposita, which creates our own hardware. However, CASH360 software can work with hardware from a number of other equipment manufacturers, such as Glory Global Solutions and Tidel’s Revolution system.
What’s your view on the current high denomination debate?
It’s a complete red herring. Around the world, the euro is considered to be the second reserve currency next to the US dollar and, typically, €500 and €200 notes are used as a store-of-value. Only 0.5% of the value of €500 banknotes in circulation is being questioned as to whether it is being used illicitly, yet we are talking about taking it out of circulation. I don’t believe it will make a lot of difference, there are better ways to manage this.
And your view of the claimed link between cash and criminals?
When comparing the amount of criminality per billions of banknotes against billions of cases of reported electronic crime, cash comes out very positively.
There is a lot of electronic payment crime being reported at the moment, be it debit or credit card fraud, contactless fraud or internet fraud. When comparing electronic payment crime with cash crime, cash comes out really well, presumably due to security features now found in banknotes.
Cash crime within the CIT industry in Europe has significantly fallen once again in 2015. We have modern technology, such as the glue boxes we use in the UK, that have proved to be a very good deterrent against criminals. Across Europe, G4S reports that the number of attacks on cash vans has fallen by 80% since 2009.
People talk about the fact that cash is anonymous and is therefore used in crime, but look at the statistics regarding credit and debit cards and internet banking; they are significantly higher.
In your view, which country has most improved its cash management recently?
That’s difficult to answer as it depends on the challenges faced by an individual country.
It’s concerning that central banks have to manage the transition away from commercial banks being so involved in the cash cycle. Central banks need to step up and do a lot more in that space. I don’t see any country which is doing this to great effect at the moment.
However, central banks have different challenges. The Bank of Greece and G4S did a tremendous job keeping the cash economy going when there were capital controls in place recently. Central banks are facing unique challenges. But my one plea to them all is to manage the payments cycle and cash, whilst making sure that commercial banks don’t just pursue their commercial self-interests to the detriment of society as a whole.
How can the industry modernise and automate the cash process?
Each sector of the cash industry can take steps to improve and automate the cash process.
Starting with retailers, I feel that they are beginning to understand that they need to automate the process. I’d like that pace to be faster as it would make a significant step change in the cost base of cash as well as the efficiency of the cash process, and show that cash is modernising.
Commercial banks need to embrace professional cash handlers to perform the role of being a cash supplier in remote locations where few, if any, branches are available to the public. This can be achieved by having either a permanent, mobile or or pop-up branch (where shop space is utilised for a certain period of time, or cash services are periodically supplied within a post office). They need to be braver in tackling the availability of cash in that market space.
I think the drive to automate is happening in the top-end bank branches but, again, it needs to happen at a faster pace and there needs to be a clear segregation between the bank’s selling activity and the cash part. They should look at professional cash handlers to do this because they clearly don’t want to do this themselves.
With regards to central banks, I think they have to manage the relationship and involvement of commercial banks within the cash cycle more actively. A more hands on approach is needed and less of a ‘the market will do what the market does’ attitude. This is because, in an unregulated or unmanaged way, the commercial banks will go to the area which gives them the most profit, which is not necessary in the public interest.
I also think we have learned some lessons. Banks are under intense financial pressure since 2008. They are also facing challenges from fintech start-ups challenging their traditional payments space. We can help them by being productive partners, both by jointly developing solutions such as Cash360 that demonstrate the value of cash as a means of securing deeper banking relationships, and by driving the cost of their cash handling down through efficient cash cycle management.
In terms of the cash centre marketplace, there’s an inevitability to drive the lowest cost so that you have less operators in the marketplace. Whilst competition authorities believe it’s good to have a plentiful variety of choice, I actually think it’s in the public interest to have less players because then you get economies of scale and subsequently lower cost.
This is something we are advising constantly; to do things which drive the lowest cost to the retailer and the banks, yet still allows consumers to access cash. If that means you end up with concentration of supply, then that’s the best solution – even if it challenges the competition authorities.
The European Cash Report can be downloaded from www.g4scashreport.com
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This article was originally published in Currency News