The old expression that it takes money to make money is certainly true. However, it is equally true for today's banker that handling money costs money.
North America's banking industry has spent billions of dollarscollectively over the last decade developing the capability to handle the demands of the new electronic marketplace. Banks continue to focus expertise, time and, of course, money, competing for customers in a market where electronic payments are experiencing double-digit annual growth.
What has been lost in the drive to electronic banking is the fact that most consumers are still using the greenback or loony in their daily lives. Banks on both sides of the border are sorting, counting and bundling more cash than ever each year.
ADDRESSING INFRASTRUCTURE CONCERNS
Financial institutions face a significant challenge in trying to maintain an infrastructure that can handle the increasing volume of both electronic and hard currency transactions. Customers have grown to expect a transaction processing system that is highly available, secure, error-free, immediate, and cost-effective in whatever mode they choose to conduct a transaction.
However, each form of interface, whether it is paper, electronic or face-to-face, presents a handling cost.
Until there is a complete migration to electronic processing, bankers must be prepared to cater to the needs of every customer.
Banks have addressed processing costs in the realm of electronic banking by turning to outside technology partners. No bank today would consider building its own infrastructure to handle networking, hosting, or security issues for a mobile banking initiative. It is simply more cost-effective for those kinds of services to be performed externally.
However, the same sort of logic has not been applied to the technology and processes necessary to manage currency processing.
BACK OFFICE SAVINGS
Currency processing today is an economies-of-scale business. While most financial institutions are large enough to afford proprietary technology, why would they invest in equipment that may run only one shift per day?
Back office, check and cash processing is also labor and resource intensive. It makes greater sense to partner with an outside vendor that has already made the large capital investment in the latest currency processing technologies such as high-speed sorters and counterfeit detectors.
There are significant gains to be realized by financial institutions willing to re-examine how they handle cash. Most banks can cut as much as 20% of the cost of handling money by taking the expense center out from the bank and outsourcing it to a lower-cost processor.
Turning to an outside service provider can also result in more tightly managed and measured processes, where service level agreements routinely surpass 99% accuracy.
Service level attainment of this kind does not exist in the United States today, where armored car companies conduct the bulk of outsourced currency processing. The armored car companies do not have the process sophistication, scale of operations and daily reporting procedures that banks require.
The marketplace is at a crossroad, and a niche is open for specialized providers with a proven approach that embeds quality into their processes at a reasonable cost.
CORE BUSINESS FOCUS
By outsourcing currency operations to professionals, financial institutions are able to concentrate on core business functions. Having the right infrastructure in place permits a banker to deal with problems and manage change more effectively.
More resources are also available to develop new services, improve customer care and grow the customer base.
Ken Acheson is president of item processing at Fiserv, Brookfield, Wis.
(www.fiserv.com). He has more than 25 years of experience in the financial services industry. Most recently, he was the President of INTRIA Items Inc., a joint venture of Fiserv and the Canadian Imperial Bank of Commerce.
This guest column, a regular feature in Bank Systems & Technology, allows industry executives and experts to discuss a key bank technology topic. If you would like to contribute, please send requests by e-mail to Steven Marlin, BS&T executive editor, at [email protected]