Trends in Cash Handling and Evolution of Technology · • After a spike post 2008 recession, cash usage has shown a slight downturn. • Consumers overwhelmingly choose cash for

Fifth Third Bank | All Rights Reserved

Trends in Cash Handling and Evolution of Technology

Brian Downey, CTP

Fifth Third Bank

2 Fifth Third Bank | All Rights Reserved

The Debate: Is Cash Still King?

•Reports of Cash’s Death Are Premature

•The Wall Street Journal Tuesday, December 2, 2014

•Forget Mobile Payments, Here's Why Cash is Still King

•http://mashable.com/2013/07/31/why-cash-is-still-king

•Cash Is King No More As Mobile Payments Soar

•http://www.forbes.com/sites/tomgroenfeldt/2014/10/18/cash-is-king-no-more-as-mobile-payments-soar/

•Cash Is Still King for Small Purchases

•https://www.mainstreet.com/article/cash-still-king-small-purchases

•Why Cash Is No Longer King

•http://insights.wired.com/profiles/blogs/why-cash-is-no-longer-king#axzz3WZ0ekQwJ

http://mashable.com/2013/07/31/why-cash-is-still-king









http://www.forbes.com/sites/tomgroenfeldt/2014/10/18/cash-is-king-no-more-as-mobile-payments-soar/

















https://www.mainstreet.com/article/cash-still-king-small-purchases









http://insights.wired.com/profiles/blogs/why-cash-is-no-longer-king













Key Currency Trends in the U.S.

Key Trends:

• In the 4th quarter of 2013, the amount spent in retail consumer sales was estimated at $1.187 trillion

• Cash is used 40 - 47% of the time for small value transactions, based on generation type

• Cash dominates small value payments, 66% of payments (Under $10) and 45% of payments ($10 to $25)

• Diary of Consumer Payment Choices

• The amount of currency in circulation within the U.S. has shown steady increases over recent periods.

• After a spike post 2008 recession, cash usage has shown a slight downturn.

• Consumers overwhelmingly choose cash for gifts to other people or for food / personal care items

• Cash handling costs are predicted to increase between 2% to 10% annually

• Cash handling costs are roughly 1% of Sales

Sources: Diary of Consumer Payment Choices, Survey of Consumer Payment Choice, and census.gov/retail



Key Trends:

• Cash is the primary source of small high transaction payments.

• 40% of payments are made with cash

•Cash payments represent 14% of the total value of payments

Source: http://www.frbsf.org/cash/files/FedNotes_Evidence_from_DCPC.pdf

http://www.frbsf.org/cash/files/FedNotes_Evidence_from_DCPC.pdf



Key Trends:

• Cash dominates small value payments, 66% of payments (Under $10) and 45% of payments ($10 to $25)

Source: http://www.frbsf.org/cash/files/FedNotes_Evidence_from_DCPC.pdf




Source: Diary of Consumer Payment Choices

PAYMENT PREFERENCE BY GENERATION

Cash is used 40 - 47% of the time for small value transactions, based on generation type



The amount of currency in circulation within the U.S. has shown steady increases over recent periods.



Source: Survey of Consumer Payment Choice

Cash Usage spiked in years after the 2008 recession. More recent updates of Consumer payments indicate a slight downturn in the usage of cash.



Key Trends:

• Cash is the primary form of payment for a large number of spending categories

Source: Diary of Consumer Payment Choices http://www.frbsf.org/cash/files/FedNotes_Evidence_from_DCPC.pdf



Traditional Currency Management

Branch Deposits

In Footprint Deposits

Network Vaults

Value Proposition

• Reduced cash handling exp. • Eliminated need for costly Armored services • Direct Teller interaction and Drop Box access

• Risk of employee safety • Time away from the business • Need for multiple bank relationships • Account and Reconcilement complexity • Delayed receivables – impact to working

capital

• Lower cost option to national vaults services • Safe and secure cash delivery • Limits liability of cash in transit • Keeps employees in the store • Opportunity for same day availability

• Armored is expensive – clients responsibility • Armored Carrier Management • Impact on working capital management

• Reduce armored expenses • Consolidate bank relationships • Complete National Coverage • Keeps employees in the store • Opportunity for same day availability

• Armored is expensive – clients responsibility • Armored Carrier Management • Impact on working capital management • Multiple Armored Relationships

Disadvantages

Value Proposition Disadvantages

Value Proposition Disadvantages


Evolution of Currency Networks

Banks are beginning to strategically align their deposit channels to serve the deposit needs of cash intensive Retailers and Merchants.


The Smart Safe Timeline

2000 2007 2011 2012 2013 2014

Innovation...

Smart Safe Industry provides Retailers with

alternative delivery deposits

Vision...

Expansion into different segments with a managed

services approach

Dedication…

Key Industry players made the right investments to expand the smart safe

technology

CIT and Safe companies develop a solution for Retailers

to allow store receivables in safe via Bill Validator

technology

Bank’s expand business model

with CIT companies to provide next day provisional credit to

Retailers

Providers expand market offerings

working with multiple safe

providers creating an agnostic solution

Device Management Strategy will begin to

revolutionize the availablity of data and

how the network is managed

Market expands to provide recycling

capabilities

Provisional Credit

Safe Technology is transitioning from “Steel Boxes” to a complete currency management solution


Technology Advantage and Value

Save Labor Improve Decisions

Earlier automated currency verification

Improve access to working capital

Optimize in-store currency

Reduce armored pickups

Decrease change orders

Optimize cash inventory

Early automated capture

Transaction logging

Management reporting

Real time transactional data

BAI/Treasury workstation integration

Reduce cash handling during service hours and closing

Eliminate bank trips

Improve floor presence of management

Enhanced customer experience

Improve Deposits Efficient Operations Mitigate Losses

More time on the floor with customers & staff resulting

in an increase of sales

Reduce armored service days by 50% to 75%

Reduce cash losses by 40% to 60%

Eliminate approximately 2.5 days of “dead” cash

Reduces in-store working capital by 25-75%

Spend time on what’s most important to you and your customers, while reducing the cost of

managing currency by 15% to 30%

Retailer Testimonials

Benefits that impact treasury, operations and loss prevention

14 Fifth Third Bank | All Rights Reserved 14

Holistic Currency Solutions

VRU Phone Ordering

Web Tracking/ Orders

Mailing and Tracking

Email and

Fax Reporting

Deposit Only Smart

Safes

Cash Recycling

Smart Safes

Branch Network

Bank Vault Network

Network Virtual

Vaults


U.S. Consumer Payment Trends


Show of Hands

• Pay with cash whenever it is an option?

• Not carrying any cash with them currently?

•Experience where not having cash caused an issue?

•Card swipe down, parking garage, tipping, splitting a meal, etc.


Trend: Carrying Cash

• Roughly eight in 10 people carry less than $50 cash in their wallets on a regular basis

• Almost 50% of Americans carry $20 or less each day

• 9% of Americans carry no cash at all

• 7% of Americans carry more than $100 each day

Source: bankrate.com / http://www.washingtonpost.com/blogs/wonkblog/wp/2014/05/12/whats-in-your-wallet-probably-not-cash/

http://www.washingtonpost.com/blogs/wonkblog/wp/2014/05/12/whats-in-your-wallet-probably-not-cash/














Changing Consumer Payment Trends Impact

Key Trends:

• Financial Awareness / Budgeting Post Recession

•Cash Envelope Budgeting Approaches

•Made popular by financial teachers like Dave Ramsey

•Data Breaches

•Target, Anthem, others

•Consumers wary of data exposure

•Movement to enable cash payments with technology

•According to the FDIC - “20.0 percent of U.S. households (24.8 million) were underbanked in 2013, meaning that they had a bank account but also used alternative financial services (AFS) outside of the banking system.”

•https://www.fdic.gov/householdsurvey/

•PayNearMe – offers a cash network to make electronic payments

https://www.fdic.gov/householdsurvey/

https://www.fdic.gov/householdsurvey/



Key Trends:

• E-commerce Usage is increasing steadily to almost 7% of retail sales

• E-commerce typically not cash related transactions

Source: http://www.census.gov/retail/mrts/www/data/pdf/ec_current.pdf

http://www.census.gov/retail/mrts/www/data/pdf/ec_current.pdf



Key Trends:

• Displacement of some traditionally cash transactions like Taxis.

•Uber / Lyft

•Some people don’t even carry cash (show of hands)

•Taxis never seem to want to take a card (the card reader is broken)

•Adoption by business travelers

•Uber Usage increased from March 2014-2015 from 16% to 47% of business traveler expense reports

•Receipt automatic

•No cash required

•http://www.pymnts.com/news/2015/uber-winning-over-business-traveler-market%e2%80%8f/

•In 2014 New York City alone reported 175 Million taxi trips at an average fare of $13.40 each.

•$2.3 Billion annually in taxi fares in one city. •http://www.nyc.gov/html/tlc/downloads/pdf/2014_taxicab_fact_book.pdf

http://www.pymnts.com/news/2015/uber-winning-over-business-traveler-market%e2%80%8f/











http://www.nyc.gov/html/tlc/downloads/pdf/2014_taxicab_fact_book.pdf

http://www.nyc.gov/html/tlc/downloads/pdf/2014_taxicab_fact_book.pdf



Key Trends:

•Greater regulation and control around cash

•Anti-Money Laundering (AML) controls

•IRS looking to close tax loopholes opened by cash •https://www.frbatlanta.org/banking/feature/110417_portals.aspx

•Cashless Policy

•Delta, Continental, United, AirTran, Virgin America, Alaska, Frontier, and Midwest all are cashless airlines •http://www.nbcnews.com/id/34331231/ns/travel-travel_tips/t/airlines-want-your-money-not-your-cash/

https://www.frbatlanta.org/banking/feature/110417_portals.aspx

http://www.nbcnews.com/id/34331231/ns/travel-travel_tips/t/airlines-want-your-money-not-your-cash/

















32% of Apple Pay customers “forgot” using their phone at a merchant was an option –

InfoScout 73% of Millennials would be “more excited about a new offering in financial

services from Google, Amazon, Apple, PayPal or

Square than from their own nationwide bank –

Millennial Disruptor Index

51% percent of smart phone owners used mobile

banking in the past 12 months, up from 48

percent in 2013 – Federal Reserve

50 million mobile apps are downloaded daily, 95% are abandoned within a month –

SkyHook

56% of customers would adopt a more

complicated transaction for greater security –

Comrade mobile trends

69% would convert to mobile payments if merchants offered

specific discounts – Nielsen

Consumer Confusion

Is my phone

compatible for

mobile

payments?

Does this

merchant

take mobile

Payments?

Is my

information and

payment

secure?

I have too many

apps and

irrelevant offers

I trust my bank,

but they don’t

offer relevant

mobile apps



Apple Pay has not dominated market in its infancy, seeing limited transaction

volume since its launch

Who will drive acceptance &

usage?

Gartner estimates mobile payments will top $720 billion by 2017, up from $235

billion in 2014

Who will capture this volume?

New wallet entries are looking to own the transaction from spend data to

revenue share

What role will Banks hold and

how does it affect their business

model?

Major tech companies (Google, PayPal, Samsung) acquiring payment related

technology increasing speed to market while broadening wallet offerings

What is the strategy of these tech companies’

mobile wallet efforts?


Banks Adapting to Consumers

When Asked: “Which companies are the most innovative”? 1

3 When Asked: “What wallet provider would you choose, if offered”?

Gang of 5 PayPal, Apple, Google, Amazon, Facebook Payment Networks = MC, Visa, AMEX, Discover Mobile Networks = ATT, Verizon, Microsoft, Sprint Banks:= BOA, Wells, CitiBank, US Bank

Graphs & Stats via Javelin , Google, Yankee



• Financial Institutions must leverage their relationships to increase adoption and position themselves in the new payment ecosystem

• Nearly half of all mobile banker users are likely to select their own bank

• Once a consumer designates a preference card, the vast majority of interest/revenue remain with that card

• Habit is a powerful force, and inertia alone can drive longer-term issuers that immediately ascend to top of wallet

• In 2014, “66% of the population has an interest in transacting on a mobile phone” and “84% us their smart phone while in the store”

Graphs & Stats via Javelin , Google, Yankee

Mobile payments at physical merchants are less than 1% of total payment transactions

Yet…



Key Trends:

•Banks are changing how they interact with customers

•Branch Transformation

•Changing consumer needs and competitive pressures to control costs

•Digitally Enabled Branches

•Speed and Efficiency / Deeper Engagement

•More Self Service

•Greater Capabilities at ATMs

•Video Branch Tellers

•Mobile Society

•Greater mobile banking adoption

•Mobile Check Solutions

•Online Banking

•Some Banks are Shifting Focus from Brick and Mortar to investing in mobile •http://thefinanser.co.uk/files/infosys.pdf

•https://www.bai.org/bankingstrategies/article.aspx?Id=32d6c46b-29dd-494a-aea8-0c00e08c3295

•http://www.banktech.com/channels/bank-of-america-will-close-more-branches-with-increasing-mobile-usage/d/d-id/1296790?

http://thefinanser.co.uk/files/infosys.pdf

https://www.bai.org/bankingstrategies/article.aspx?Id=32d6c46b-29dd-494a-aea8-0c00e08c3295









http://www.banktech.com/channels/bank-of-america-will-close-more-branches-with-increasing-mobile-usage/d/d-id/1296790
























Payments Evolution

Payments 1.0

Transaction Transaction

Electronic Data

Transaction

Security

Mobile

Omni-Channel

Analytics

Payments 2.0

Payments 3.0

Pa

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en

t E

vo

luti

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Thank You - Questions

Documents

Trends in Cash Handling and Evolution of Technology · • After a spike post 2008 recession, cash usage has shown a slight downturn. • Consumers overwhelmingly choose cash for