As we have argued previously, continued re-duction in cash payment volumes will re-quire better alignment among variousstakeholders in the payments business. Ear-lier articles have examined the high cost ofcash to merchants (“Mission impossible?The cashless payments proposition for‘small-ticket’ merchants,”
McKinsey on Payments
, February 2008) and suggestedthat banks, merchants, consumer groupsand governments should work together toimprove electronic networks (“FightingCash not SEPA,”
Payments: Charting a Course to Profits
, December 2005).ATMs contribute significantly to the cost ofcash, and we urge banks to target thesecosts side-by-side with cash volumes. Out-lined below are the ATM strategies cur-rently available to banks for this dualattack. The precise strategy any bank fol-lows will vary according to the maturity ofelectronic payments networks and con-sumer payments behaviors in the marketsthe bank serves. To identify a winning strat-egy, banks must understand both theirbranch and ATM costs, as well as the fac-tors influencing their customers’ paymentpreferences. If they act aggressively, banksin Europe stand to reap
11.5 billion in re-duced costs.
Cash is expensive
Reducing cash volumes is essential to lower-ing the economic burden of cash to society.Europe
spends an estimated
60 billion to
100 billion each year processing 237 bil-lion cash payments out of a total volume of313 billion payments transactions. Thisamounts to 0.5 percent to 0.8 percent of Eu-rope’s gross national product (GDP).
McKinsey on Payments
Our analysis in this article includes theEU 27 excluding Luxembourg, theBaltics, Malta and Cyprus and includingNorway and Switzerland.
Based on total costs of cash to allstakeholders, i.e., merchants, consumers,banks, government. These costs includefully loaded direct costs, such asprocessing, theft/fraud, security,transport, time, cost of producing notesand coins, etc. They do not includesecondary effects, such as lost income forthe government due to the grey economy.
ATMs: Complex weapons in thewar on cash
At the very moment when cash payment volumes have started a gradual decline,many countries face an unexpected rise in the absolute cost of cash processing.In 2006, European banks spent a total of
28.2 billion on cash operations, eightpercent more than in 2002. In the same period, cash payment volumes declinedby six percent. This article examines the dynamics driving these divergent trendsin four distinct European “theaters” and recommends strategies for reducingbanks’ costs in the “war on cash.”
Olivier DeneckerFlorent IstaceMieke Van Oostende