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Cash is still king but it needs to be managed far better

There is a continued acceptance and growth of alternative payment methods but while cash spending as a percentage of GDP is in decline in the developed world, it remains by far the payment medium of choice globally – including in South Africa.

Richard Phillips, MD of Cash Connect, a specialist retail cash management solutions company within the ATM Solutions Group, speaking at the recent Retail Risk 2008 Conference, said it is interesting to note that while the ratio of cash in circulation to gross domestic product in South Africa declined from the 1970s at about 3,8% of GDP to 2,3% of GDP at the start of the new century, it increased to 2,5% of GDP by 2004.

The Reserve Bank attributes this to an increase in informal and so-called 'grey market' transactions, increased social security transfers and wider circulation of the currency in the SADC region.

"Cash is still a massive and leading element of the payments market," says Phillips. "However, because it is such a powerful business enabler, it is also the primary target of crime.

"In fact," he adds, "it is the single most sought-after commodity by the criminal - and represents the greatest single target of blue collar crime."

Cash in circulation is R60 billion today and the projection is that by 2010 this will have grown to about R75 billion. That is a growth of 25% over the next two years.

According to the UK Payments Association, APACS, the breakdown of payment methods in a developed economy as measured in 2004 shows that cash remains the dominant medium of transaction:

Cash = 25 billion transactions.

Automated payments = 5 billion transactions.

Card cash acquisition = 3 billion transactions.

Card payments = 2,5 billion transactions.

Cheques = 2 billion transactions.

The same source records where consumers use cash as the payment medium of choice: household bills 9%; finance 9%; personal bills 10%; petrol 22%; other retailers 40%; tobacco/entertainment/leisure 45% and supermarkets 45%. Cash is also the leading enabler for business. The reasons for this are obvious:

* Cash is accepted without question upon presentation. It does not raise a concern.

* Cash provides immediate settlement and does not require promises to be fulfilled or processes to be followed.

* It is the easiest payment medium. So much so the use of cash can attract a discount.

* It is the easiest instrument to count, reconcile and account for.

* Cash is anonymous. Neither the payee nor the payer needs to be identified.

* Cash is guaranteed by the state.

The cost of cash for retailers

According to Group4 Securicor (G4S) retailers spend anywhere between 0,5% and 1,5% of turnover managing their cash. The variance is dependent on the kind of store as well as the size of the store. The larger the store, the smaller the percentage. The average for the western European market is 1%.

According to Darren Taylor, divisional retail director at G4S Europe, of the amount spent approximately 75% is on the cost of managing cash in store, 15% is spent on cash in transit fees and bank charges, while 10% of the costs relate to discrepancy management.

The consequences of non-existent or poor cash management on a retail business can be catastrophic, said Phillips. It will attract violent crime, displace customers, unnerve staff and undermine the trading environment to the detriment of the business and the brand not to mention the erosion of hard earned profits.

The deployment of cash acceptance devices as part of an end-to-end cash automation service such as Cash Connects SmartSafe solution introduces a new dynamic to streamlining the automation of cash management in store and raising the level of protection of the cash. The benefits that accrue from automation in this way are:

* Reduced risk of armed robbery - increased customer and staff confidence.

* A reduction in time spent counting and managing cash (over 17 hours of management time a week in a small fast food operation).

* The removal of shortages between cashier and store and between store and bank.

* The transfer of risk from the moment the cash is 'dropped'.

* Overall reduction in the cost of managing cash.

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