The evolution of technology brought alternative payment options, like cards, mobile wallets, internet and mobile transfers, and other forms such as bitcoins. However, cash transactions hold a significant percentage of payments and receipts. For this reason, banks face significant challenges in handling and distributing money.
One of the biggest challenges in handling cash includes transit costs, storage facilities, and staffing needs in these transactions. Also, issues like cash-outs, interbank transfer rates, and reserve ratios affect the dealing of cash in the banking sector.
Therefore, keeping a healthy cash flow is essential to keep the customers happy and manage the bank’s operating costs.
Banks can adopt some of the methods given below to optimize cash distribution to their customers.
1. Improving the Network and Effectiveness of Automated Teller Machines (ATMs)
Bank customers visit the banks for various services, including cash withdrawal. This often results in jammed banking halls, which overstretches the workforce and hampers service delivery. ATMs offer a better solution to this problem.
This goal can be achieved in the following ways:
Coverage Based on Locality and Population
Business volumes dictate the need for a more extensive network of ATMs, or other bank facilities. Increasing the number of ATM channels in various locations of towns reduces pressure on banking halls.
It can also be enhanced by installing them in crucial trade points like airports, seaports, farmers’ markets, malls, bus terminals, and higher learning institutions, among other establishments.
Inclusion of Additional Supporting Services
To improve the effectiveness of any system, there has to be an eco-system that provides an inlet and outlet. Services such as deposits, utility payments, and bill payments can reduce the pressure on cash demands. Apart from improving the cash distribution efficiency in the bank, it can also positively affect revenues.
2. Cash Management Solutions for ATMs
ATMs require constant management to serve customers in better and efficient ways. It may include refilling cash caskets, software updates, and any technical aspects that may affect its operation. Cash management, though, is the core service that determines the success of ATMs in cash distribution.
Cash management software for banks, like Perativ (https://www.perativ.com), offer an objective approach to the maintenance of optimum cash levels. These programs can collect data from customers’ transaction histories and project future cash demands.
They can notice high cash demands during seasonal activities, weekends, pay holidays, customer behavior insights, general trends, and other outliers that can affect cash demands. These insights enable the respective sites to give low-level warnings, and also determine the need for bulk refills.
These programs affect banking operations in the following ways:
The higher the cash held in ATMs, the higher the money spent on subsequent cost using those funds. These systems offer insight on optimum cash levels, thereby eliminating idle cash on hold.
Cost of Maintenance
The cost of maintaining an ATM system involves the leasing agreement of ATM hardware, premises housing ATMs, transportation costs, and staffing needs. This software can offer an assessment of all channels and their contribution to the bottom-line of the bank.
Qualitative and Quantitative Approach to Cash Forecasting
Aspects that are qualitative (non-linear) are hard to predict with the human perspective. Missing such instances often results in stock-outs or idle cash—all of which negatively affect profitability.
These include different currency demands for each day and projected demand for the coming days. It also helps in maintaining a healthy mix of customers.
3. Investing in Key and Strategic Partnerships
Banks can’t handle their business needs alone. It’s because cash transactions originate from traders, which later terminate in the banking halls. Key strategic partnerships can be used to offer cash alternatives and solutions that can ultimately reduce the pressure in banks.
Some of the partnerships and programs include:
This is a system where a customer pays electronically for goods and services and receives cash as part of the transaction. It effectively reduces the burden of handling money by traders and service providers.
Banks can recruit traders and service providers in key markets and cities to reduce the pressure on ATMs and extra transport.
Agency Banking System
Agency banking is another way to correctly distribute cash to customers. This kind of agreement involves recruiting independent financial providers, who, in turn, offer banking services to customers.
In areas with a limited number of people or activities to support banks, these agents can fill the gaps and work as lead magnets to other banking products. The key to a successful arrangement is that the banks support the agents with a robust remote network and quality screening process.
If customers can access alternatives to cash quickly, the need for cash reduces. Some companies offer alternative ways to distribute some money through mobile wallets. Banks can leverage these companies to help improve cash distribution.
Mobile-wallets can be enabled by creating gateways, settlement accounts, and platforms to exchange money. The bank can leverage these companies’ cash provisions to reach an even higher percentage of its customers.
These are terminals for completing purchases from customers at the traders’ premises. It involves direct bank-to-bank transactions, eliminating the need to handle cash and other related expenses.
4. Localized Cash Centers
Cash centers are essential in the oversight role played by central banks, and they also enhance the cash cycle. Subsequently, banknotes are counted, sorted, checked for authenticity and circulation fitness, and packaged. The absence of local cash centers hampers the faster transfer and efficiency of cash distribution.
Due to the distances between banking halls and the ATMs, the cash-in-transit costs also increase. Therefore, banks or CIT companies with local cash centers can use them to create a better way of distributing cash.
A bank’s cash distribution usually faces challenges such as cash-outs, high cash-in-transit costs, and customer dissatisfaction. Therefore, some of the tactics that the banks can employ include: investing in a sound network of ATMs supported by a good cash management system, agency banking networks, and merchant acquisition.
Thus, a well-thought-out cash distribution plan is an outcome of critical infrastructures like cash centers, responsive ATMs, and additional vital partnerships.
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