In the Search for Efficiency, Rethink Cash Management

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Despite the rise in digital payment options, cash persists as a payment method in the United States. Between October 2019 and October 2021, circulating currency in the United States increased by $423 billion, according to the Federal Reserve Bank of San Francisco. Also, cash accounted for 20% of all payments and continues to be a primary option for a substantial portion of the population.

Even as cash continues to be a vital payment tool, handling it is a headache for banks. Branch managers manually count, log and balance cash, which leaves banks vulnerable to safety issues and cash leakages due to criminal activity or miscalculations. Bankers must evaluate their cash management processes to save time and money.

What is often overlooked, or taken for granted in the cash management process, is the time it takes a bank to move, count and manage cash. Every time cash moves — from the vault to the teller, teller to teller, or teller to vault — it must be counted and balanced. If even $1 is missing, staff can spend hours counting and recounting.

Cash handling costs are rising and are estimated to account for 5% to 10% of bank costs, even as cash use declines, according to McKinsey & Co. Why? Cash distribution, maintenance and processing require expensive manual labor. Depending on the institution, a single branch will need to handle hundreds of transactions and teller-to-teller exchanges a day and, of course, opening and closing counts of cash. From cash vault to end-of-day tally, the process relies on the precision and accuracy of each count. Say your branch has a counting error. This single error from manual labor can add significant time to your staff’s day. Additionally, manual cash handling is vulnerable to counterfeit currency, tracking errors and theft.

Banks are examining every expense for greater efficiencies as the economic environment potentially turns. It’s critical that they assess the technology budget and balance sheet to ensure their investments go as far as possible. There are a proliferation of cash counting and handling processes that banks implement, but these tend to only oversee one part of the overall cash management process. Banks also often grapple with outdated technology, which is vulnerable to outages or cannot automate simple tasks.

Harnessing technology can eliminate redundancies, automate manual processes, reduce labor expenses and streamline workflows. These changes can also improve staff retention at the crucial frontline level, a huge issue for banks. In a competitive employment environment, eliminating inefficiencies and creating a positive work environment is a priority for banks looking to retain staff. Rather than counting cash by hand or dealing with an unexpected recycler outage, bank executives can leverage solutions that enable their tellers, frontline branch staff, and regional managers to worry less about cash management and focus more on customer experience.

Economic uncertainty means banks need to make tough cost-cutting decisions while thinking about investing in operational efficiency and aligning innovation. To meet employee needs, banks should transform each level of branch operations, especially in the cost centers, such as cash handling. Reimagining branch operations and improving the employee experience and bank operations through automated technologies can help unlock new workflows and solutions.

Fortunately, strategic investments in high-return technology with advanced capabilities can offer immediate benefits. Automating labor-intensive processes and increasing cash visibility at enables banks to save time, leverage scarce resources and focus on creating unique customer experiences, while eliminating pain points and redundant work. As banks further automate mundane tasks, they can optimize staffing levels and maximize profits while serving customers better. By implementing specialized technology to count, dispense and manage cash, banks can improve their accuracy and reduce the costs associated with manual cash handling — ensuring that staff are using both the procedures and technology that best meets clients’ needs with the greatest efficiency.

FinXTech’s Need to Know: Cash Flow

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This article is the second in a series focusing on small business banking financial technology. The first covers accounts payable technology and can be found here.

There are 33.2 million small businesses in the United States. With a looming recession, many may soon be looking for ways to lower their budgets, be it by reducing staff, cutting back on hours or even terminating contracts with other vendors. The median small business holds only 27 days of cash on hand, according to a 2016 study from the JPMorgan Chase Institute — an amount that could be challenged by the changing economic state.

Financial institutions should see cash flow management as an opportunity to provide their small business customers with integrated products and services they used to go elsewhere for.

Business owners decide where, when and how to invest and spend revenue after tallying bills, employee hours and balance sheets. They now have modern tools and ways to leverage third-party softwares to automate their balances.

Banks can provide this software to their small business customers, and they don’t have to start from scratch: They can turn to a fintech partner.

Here are three fintechs that could satiate this software need.

Boston-based Centime launched its Cash Flow Control solution in partnership with $26 billion First National Bank of Omaha in 2019. Centime gathers accounts receivable and accounts payable data to provide accurate, real-time forecasts to business customers. Any bank can integrate the solution as an extension of their online banking or treasury management services.

Banks can profit off of these cash flow products, too. Small business customers have access to a direct credit line through the analytics platform. And in a still rising interest rate environment, expanding the lending portfolio will be crucial to a bank. Banks that offer Cash Flow Control to their business customers can play a strategic role in their clients’ cash flow control cycle, gain visibility into their finances and provide streamlined access to working capital loans and lines of credit.

Centime states that it works best with banks with more than $1 billion in assets.

Cash flow solutions can also provide essential insight into current and projected business performance for a bank’s own purposes. Less than 50% of banks said that not effectively using and/or aggregating their data was one of their top concerns in Bank Director’s 2022 Technology Survey. Data segmented into business verticals could shed light into what businesses need from their banks and when they need it.

Monit from Signal Finance Technologies is another cash flow forecasting and analytics solution available to small businesses. Monit aggregates data from the small business’s accounting software, like QuickBooks, Xero or FreshBooks, along with data inputs from the business owner. The projections are dynamic: Business owners can dive deeper into exact factors that influence anticipated dips in cash flow. They can also model alternative scenarios to find ways to avoid the shortfall.

Using the projections, Monit provides business owners with suggestions for the future success of their business, such as opening a new line of credit or slowing down on hiring.

Accessing business data and the third-party apps that house it is another way to strengthen a bank’s understanding of their business clients, as well as indicate how, where and when to help them. UpSWOT’s data portal could be the right solution for a bank looking to gather better data on their business customers and connect with the third-parties that house it.

UpSWOT uses application programming interfaces, or APIs, to collect data from over 150 business apps and provide key performance indicators, marketing data and actionable insights to both bank and business users. It can even notify a bank about a small business client’s activity such as new hires, capital purchases like real estate or vehicles, payment collection and accounts receivable, financial reporting and tax information.

The upSWOT portal also creates personalized marketing and sales dashboard, which bankers can use to anticipate their business clients’ needs before their balance sheets do.

Essential to every single one of the more than 30 million small businesses in the U.S. is cash. And without the ability to effectively forecast and manage it, these small businesses will fail. Banks can help them flourish with the aid of fintech partners.

Centime, Monit and upSWOT are all vetted companies for FinXTech Connect, a curated directory of technology companies who strategically partner with financial institutions of all sizes. For more information about how to gain access to the directory, please email [email protected]

Capitalism with a Conscience

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In this edition of The Slant Podcast, Julieann Thurlow, CEO of the $691 million Reading Cooperative Bank in Massachusetts and vice chair of the American Bankers Association, discusses the bank’s new retail banking apprenticeship. Like many of its peers in the cooperative banking movement, Reading Cooperative is owned by its customers and was founded in 1886 primarily to help working families buy homes. And there are some interesting parallels between that mission and the work it’s doing today in the city of Lawrence. The bank has been on a years-long journey to establish a branch in Lawrence, where it will offer check cashing services as part of a broader appeal to the city’s unbanked.

This episode, and all past episodes of The Slant Podcast, are available on Bank Director, Spotify and Apple Music.

What to Look for in New Cash and Check Automation Technology

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Today’s financial institutions are tasked with providing quality customer experiences across a myriad of banking channels. With the increased focus on digital and mobile banking, bankers are looking for ways to automate branch processes for greater cost and time savings.

This need should lead financial institution leaders exploring and implementing cash and check automation solutions. These solutions can improve accuracy, reduce handling time and labor, lower cost, deliver better forecasting and offer better visibility, establish enhanced control with custom reporting and provide greater security and compliance across all locations, making transactions seamless and streamlining the branch experience. However, as bank leaders begin to implement a cash and check automation solution, they must remember how a well-done integration should operate and support the bank in its reporting and measurement functions.

Ask Yourself: Is This the Right Solution?
When a bank installs a new cash or check automation solution, the question that should immediately come to mind for a savvy operations manager is: “How well is this integrated with my current teller software?” Regardless of what the solution is designed to do, the one thing that will make or break its effectiveness is whether it was programmed to leverage all the available functionality and to work seamlessly with the banks’ existing systems.

For some financial institutions, the question might be as simple as: “Is this device and its functionality supported by my software provider?” If not, the bank might be left to choose from a predetermined selection of similar products, which may or may not have the same capabilities and feature sets that they had in mind.

The Difference Between True Automation and Not
A well-supported and properly integrated cash automation solution communicates directly with the teller system. For example, consider a typical $100 request from a teller transaction to a cash recycler, a device responsible for accepting and dispensing cash. Perhaps the default is for the recycler to fulfill that request by dispensing five $20 notes. However, this particular transaction needs $50 bills instead. If your cash automation solution does not directly integrate with the teller system, the teller might have to re-enter the whole transaction manually, including all the different denominations. With a direct integration, the teller system and the recycler can communicate with each other and adjust the rest of the transaction dynamically. If the automation software is performing correctly, there is no separate keying process alongside the teller system into a module; the process is part of the normal routine workflow within the teller environment. This is a subtle improvement emblematic of the countless other things that can be done better when communication is a two-way street.

Automation Fueling Better Reporting and Monitoring
A proper and robust solution must be comprehensive: not just controlling equipment but having the ability to deliver on-demand auditing, from any level of the organization. Whether it is a branch manager checking on a particular teller workstation, or an operations manager looking for macro insights at the regional or enterprise level, that functionality needs to be easily accessible in real time.

The auditing and general visibility requirements denote why a true automation solution adds value. Without seamless native support for different types of recyclers, it’s not uncommon to have to close and relaunch the program any time you need to access a different set of machines. A less polished interface tends to lead to more manual interactions to bridge the gaps, which in turn causes delays or even mistakes.

Cash and check automation are key to streamlining operations in the branch environment. As more resources are expanding to digital and mobile channels, keeping the branch operating more efficiently so that resources can focus on the customer experience, upselling premium services, or so that resources can be moved elsewhere is vital. Thankfully, with the proper cash and check automation solutions, bank leaders can execute on this ideal and continue to improve both the customer experience and employee satisfaction.

Real Time Payments and the Untapped Opportunity of Corporate Credit Cards

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credit-cards-11-7-16.pngCorporate credit cards are already a great source of revenue for banks. And there’s a lot of room for growth, both in terms of interchange revenue and value that banks can provide to their business customers. If banks look at how their customers currently use corporate credit cards, they’ll find an untapped opportunity to expand their usage.

Using corporate credit cards for accounts payable (AP) has obvious benefits: Businesses can time their payments to vendors more precisely, take advantage of the working capital extension available through their credit line, and benefit from rewards and cash back programs. In addition, compared to checks—the most common way in which businesses make AP payments—credit cards have very low occurrences of fraud.

The use of corporate credit cards in AP should be an integral part of a business’s cash management strategy, but it is not. MineralTree recently conducted a survey to assess the current state of corporate credit card use in the accounts payable function and uncover reasons why more AP spend is not being moved to corporate cards. You can read the full survey report here.

Key Survey Findings
Over a two-week period in late summer 2016, almost 200 finance and AP professionals completed an online survey exploring the state of credit cards in their business. Some of the most significant findings of the report include:

  • More than one-third of respondents are not using corporate cards for vendor payments.
  • The reasons businesses give for not moving more AP spend to commercial credit cards is varied and plagued with misconceptions.
  • Impacting the bottom line is the number one benefit cited by respondents for moving more spend onto commercial credit cards.

The Shift in Accounts Payable
To truly understand the state of credit card use in AP, respondents were asked which types of payments were made on their corporate credit cards: travel and expense payments, vendor payments (AP), or both. Only 50 percent of respondents use cards for both. More than one-third of respondents only use their cards for travel and expenses.

The chart below shows the number of vendor payments made by businesses who exclusively use their card for travel and expenses. About 80 percent of respondents make 50 or more vendor payments every month. Businesses who make more than 50 payments per month can strongly benefit from AP and payment automation and the ability to easily pay their vendors with credit cards.

For those businesses already using cards, adding AP spend onto cards is relatively simple. Finance policies are in place and department heads know the process for submitting and recording expenses.

These businesses can easily expand their policy to include vendor payments and improve their AP process at the same time. Ultimately, this will increase the “card-able spend” and the finance team will add additional value to the business by bringing in significant rebates. At a modest 1 percent cash back, companies earn $10,000 for every $1 million in card spend. Banks should recognize this as a significant opportunity and start marketing cards for AP purposes. Offering complete, packaged cash management solutions that solve problems as business clients see them will encourage them to move AP spend onto cards. The banks who do this early will find an untapped opportunity for new revenue through merchant fees and use of the card’s credit line.

Max My Interest: Friend or Foe

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Max My Interest, or Max for short, offers a cash management app that enables individuals and businesses to earn additional interest on their checking and savings accounts. The advantage for consumers? Max does automatically what most people are too busy (or lazy) to do for themselves, which is to shop around for the best rate.

Customers do not have to change banks to use Max. They simply link the app to their current bank and create savings accounts at other institutions through the setup process. From there, Max automatically transfers funds as market rates change, always ensuring that the cash in their accounts is earning the maximum yield. Max charges 0.02 percent per quarter on the cash being optimized, for a total of 0.08 percent per year

THE GOOD:
In theory, this sounds great. Max allows users to save smartly and earn a higher rate of interest on cash deposits with minimal effort. Max works directly with the largest institutions, including the likes of Bank of America, Wells Fargo and Citigroup, and uses an algorithm that transfers money between banks automatically. Since Max only utilizes other banks’ savings accounts, customer funds are FDIC insured despite the fact that Max itself is not a bank.

According to the website, the average customer earns 0.70 percent to 0.90 percent more with Max than they do at traditional brick-and-mortar banks, which can be significant–particularly for high net worth clients, who Max estimates keep nearly a quarter of their portfolio in cash. In addition to individual accounts, Max offers services to wealth management professionals, and to businesses.

THE BAD:
Signing up isn’t exactly as easy as 1-2-3. A new user must create multiple savings accounts, one for each bank it wants to be able to transfer funds to, which is time consuming—although once that has been done, everything happens automatically thereafter. We are also leery of products that require the user to give a third party access to their existing bank account because that increases their security risk.

OUR VERDICT: FOE
This is a tough call. Although Max could be considered a potential friend for big banks or banks with high savings account rates, what it comes down to is this: Do they really want aggressive rate shoppers who are always chasing the highest possible yield, which is what Max will bring them. And if you do happen to be a bank that pays out a higher rate, don’t you still want a relationship with the consumer that includes more than just their deposits? If so, partnering with Max may not be the best way to maximize your interest.