ATM cash planning requires a delicate balance of having enough cash on hand to satisfy consumers but not so much that banks can’t put extra cash to work. Models can help, says TSYS Deputy Director General for Moscow Andrei Povarov in a recent interview with MPD CEO Karen Webster, but they often miss the one critical element that can make or break ATM and bank profitability. Povarov’s and TSYS’ experience in the cash-intensive Russian market reveal the importance of including economic indicators in ATM cash planning.
KW: Let’s start with the basics, before we drill into the unique aspects of the Russian market. What happens if cash planning in an ATM environment is handled poorly?
AP: First of all, every organization that has ATM networks needs to have some strategy for cash planning and those who already have one need to optimize it. It may seem strange for those who don’t know this, but the whole point is if you have too little cash in the ATM, cardholders won’t be able withdraw, which will reflect poorly on banks. But if there is too much, banks are missing the opportunity to use it elsewhere. In countries like Russia, cash planning becomes more complicated.
KW: The Russian market, in particular, is very cash-intensive. Some have said that cash represents about 30 percent of the country’s GDP. Is this the only reason that it’s a good market for looking at cash planning?
AP: That’s correct. Another reason why cash planning is important is because Russia is a developing country, so there are always political and economic events that can impact currency exchange rates. Cash planning has become further complicated due to sudden changes in those things.
KW: The Russian consumer seems very savvy when it comes to currency in exchange rates, which makes sense in such a cash-intensive economy. But that seems like a strange concept to people outside of Russia. Has it always been that way, or is this a recent phenomenon?
AP: Yes, it’s been this way for many years. At different points in time, there are different views among consumers on how to use their different cards. The problem is not new, but it is becoming more acute.
KW: Let’s talk about cash replenishment. ATMs are used to dispense cash in Russia, but aren’t they also used to receive cash for bill payments and settling e-commerce transactions? Does this make cash planning easier or more complicated?
AP: Definitely more complicated, because at some stages, depending on economic forces, people may be more or less willing to bring cash to ATMs, for example depending on interest rates. In some stages, people may more eagerly bring cash to ATMs. If an economic indicator has changed and the bank doesn’t notice, ATMs may suddenly be overloaded with cash and banks would be losing the opportunity to use it elsewhere.
KW: What are the tools that banks can use to help them make better decisions about cash planning? Are there models or data sources that they can use?
AP: There are several methods available for banks to use, some are simpler (but apparently less secure) than others. One shortcoming at the moment is that almost all methods overlook economic indicators – they are more adapted to a static environment where things are not changing so radically in the economy. In developing economies like Russia, this isn’t the case.
What financial institutions in developing markets need to take into account economic indicators and enhance their currently used methods of cash planning by using these indicators.
KW: TSYS is developing a white paper that offers more insight into some of the models and reasons that economic indicators are important. What are some of the key takeaways from the paper?
AP: The report explains the importance of accurate ATM cash planning, and also explains the existing methods of doing this. It may be useful for those financial institutions that have yet to think about these methods. But the report goes far beyond this, introducing economic indicators that are often overlooked, and lists the risks that banks have with cash overload and its implications. It also shows which indicators can be most disruptive, and recommends considering these indicators when cash planning in efforts to significantly improve bank profitability.
Deputy Director General, TSYS Moscow
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