How Banks Can Satisfy Customer Demand for Cash
Despite the rise of alternative payment methods, cash was still used by consumers for 26 percent of all purchases in 2018 and 2019. And, even though the demand for cash has seen unprecedented volatility since the beginning of the Covid-19 pandemic, people are still using it with a similar frequency. So, as customer experience is paramount, banks must continue to provide cash where and when their customers want it.
But, providing cash can be quite costly for banks. According to McKinsey & Company, as much as 5 to 10 percent of a bank’s retail budget can be tied up in the cost of supplying this cash. Banks need to find a more affordable way to handle and distribute cash while still satisfying customer needs.
This is a subject Brian Jorgenson, former SVP of Fiserv Cash & Logistics, and current Senior Advisor to Perativ has thought a lot about. Jorgenson led the team at Carreker Corporation that created the first cash forecasting tool, which empowered banks to anticipate the amount of cash demand an ATM or branch would have without having to calculate by hand. Up until that time, only about two decades ago, there weren’t any technological cash forecasting solutions in the market. This was a first-of-its-kind neural net tool used for cash forecasting. It was the beginning of artificial intelligence in banking.
Jorgenson went on to help create the Integrated Currency Operations Manager (ICM) at Fiserv, another cash forecasting tool that was installed in financial institutions all over the globe, and is still being used today in its latest iteration. But, Jorgenson says of all classic forecasting solutions now available, “I think they’re still dealing with the data challenges that a lot of banks have. It’s the daily data feed. It’s not real time data… they’re kind of siloed solutions to where one silo’s not communicating well enough with the others.”
He opines that “if someone could come out…and take advantage…flatten those silos and bring a solution that could say how much cash I have in transit in real time, how much cash I have in my bank, my branches, my ATMs, my vendor vaults and really create a holistic solution, I think there’s the opportunity to significantly reduce cash levels.”
But classic cash forecasting, though advanced, is limited by the data informing it. It may have data from historical dispense amounts and the like, but it’s still constrained by having only data from the device and branch levels, back and forth, as opposed to the entire cash cycle. “So the forecasts at the branch and ATM level, those are really, really good. But, it was [sic] all the cash around that to supply those that I’d say a poor job is done today, in general,” Jorgenson says.
The problem, Jorgenson points out, is a “misalignment of incentives.” In other words, the banks’ forecasting teams are likely only looking at branches and ATMs, not the whole cash cycle. That’s someone else’s department. But, these other departments within the bank become silos which do not communicate properly with one another, thus creating critical data lags. And these data lags, along with idle cash are what keep banks’ cash costs so high.
In addition to cash forecasting, there are three other core functions at the heart of a bank’s cash distribution network: daily cash load compliance, treasury reconciliation and daily bulk cash ordering. Each of these is a silo, interrelated to the others, but not integrated with them. Jorgenson believes that the “more near real time data” that informs each of these systems, the better the opportunity to manage the “rest of the supply chain….And…the more we can get that data near real time and fed to the right systems the better. It’s going to lead to …better and better cash forecasting.”
That’s the beauty of Perativ’s breakthrough cash optimization solution. Its cash distribution network application (SaaS/AI machine learning platform) is a holistic solution that breaks down the silos and eliminates the critical data lags to allow for accurate, real time data and reconciliations. And this automated system continually balances within itself so that banks can know where their money is at all times.
To illustrate, if we begin with the core function of load compliance, normally a silo within the bank, we see how a failure to complete these entries in a timely manner after each CIT visit creates a data lag. This means that your cash forecasting and bulk cash ordering cannot be informed timely about compliance, nor can your treasury reconciliation be done until load compliance is completed. This simply creates more data lags.
With Perativ’s dynamic, AI machine learning platform, load compliance is automated and loads are system matched using a 6 point matching system. It provides daily real time tracking of the amount and timing of each load. Any non-compliant loads are immediately routed for resolution with detailed reports generated by CIT and vendor.
And it doesn’t stop there. With daily load compliance no longer creating a data lag, daily treasury reconciliations are facilitated with 98 percent of treasury items system reconciled. All exceptions are immediately routed for resolution. Vault cash counts are verified against the reported vault balance to identify any issues quickly.
Now, cash forecasting can be accurately informed with real time data from these two core functions. Perativ’s cash forecasting software provides a dynamic AI cash forecast with granular pre-emptive reporting based on on-going activity. It is tailored to the device level and updates every 10 minutes. As Jorgenson points out, eliminating these data lags and informing the cash forecasting with real time data just makes it “better and better.” And, with better cash forecasting, banks will have less cash in transit, both saving money and safeguarding their cash.
This timely, informed cash forecasting is able to predict the optimal amount of cash needed to mitigate idle cash, but still have enough cash. Now banks can order the optimal amount of cash per vault to ensure the cash forecast is fulfilled and idle cash is mitigated. These bulk cash orders are system generated by the Perativ solution in such a way as to control and optimize the idle cash needed for both scheduled and auxiliary loads.
Here, Perativ has created a holistic system that optimizes the entire cash distribution network, not just cash forecasting. Real time data circulates between all four of your bank’s core functions in a system, now in synergy, that is continually balancing itself.
Are you ready to go beyond cash forecasting to total cash cycle synergy?
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