Tackling the Cash Management Challenge

The Cash & Payments Sustainability Forum™ included two sessions dedicated to the cash cycle. The first heard from the UK’s Cash Industry Environment Charter (CIEC) group who explained how they had come into existence, how they are organised and progress against the charter objectives. This was covered in the white paper ‘Cash: A Roadmap to Sustainability.’ 

The second included presentations by Loomis, FedCash® Services, G+D and Koenig and Bauer Banknote Solutions (KBBNS). These presentations addressed today’s cash management challenges.

Context of the cash management challenge

KBBNS suggested that it is not cash, the product, which is facing major challenges today, but the banknote ‘service system.’ The presentation described three different cash cycles: 

• High-velocity cash cycle where there are more than 300 transactions per banknote per year

• Mid-velocity cash cycle where there are more than 200 transactions per banknote per year

• Low-velocity cash cycle where there are less than 200 transactions per banknote per year.

As the number of transactions reduces, the cash infrastructure, the number of cash management intermediaries and priorities change. While access to cash is the priority for a high-velocity cash cycle, cash efficiency is the priority for the mid-velocity and cash sustainability for the low-velocity scenarios. The costs of circulation rise steadily across the scenarios. This is an interesting way to think about the challenge which perhaps deserves more thought.

KBBNS suggests that the friction, which drives the cost of the cash cycle, comes from a range of historic sources that are not changing to reflect the new reality. Amongst these are a lack of shared data networks, a fragmented industry, central bank clean note policies and recycling regulations, centralised cash centres etc.

The answer KBBNS put forward is to use change enabling technology, largely around the use of data, and for cash community collaboration to deliver the needed sustainability in its broadest sense as well as reducing the environmental impact at the same time. It has recently published a white paper on this topic.

The hard reality of cash in transit

Loomis has 23,000 staff in 20 countries. It consumes 54 million litres of fuel driving 263 million km each year. As such it creates 259,554 tonnes of CO2 and uses 1,267 tonnes of plastics. Unusually, its Scope 2 emissions are much bigger than its Scope 1 emissions.

Loomis is focusing on reducing emissions and single use plastics, using green energy and collaborating with others in the industry to allow further changes. Loomis has issued a sustainability bond ¹ committing it to reducing its sustainable targets by 20% compared to 2019.

To reduce CO2e by 15% by 2024 relative to a 2019 base year, Loomis is exploring three alternative fuels and a range of other initiatives. In addition to hybrid vehicles, electric vehicles have been introduced. Their utility is limited because the range/payload limitation of electric vehicles means only 17% of routes in the UK are suitable for their use. Charging infrastructure is also a major issue, both the ability of the electricity grid to meet demand and the availability of charging points.

Today battery life and emissions also have an impact. The background technology is changing and advancing fast. With a vehicle life of eight years, nobody wants to buy a vehicle that is likely to be obsolete within that period. In the medium to long term Loomis sees hydrogen FCVE vehicles as the likely solution.

Biofuels are limited to 10% in the UK because vehicle warranties are voided if more is used.

As part of this initiative, Loomis has introduced solar panels on the roof of vehicles to charge the non-vehicle batteries used for other systems, which means the engines don’t have to be run to charge them. The move to smaller 3.5 tonne vehicles has led to a 22% increase in fuel efficiency. Telematics have led drivers to increase their fuel efficiency by 6.1% overall, although some drivers have achieved 10% increases. Loomis has an optimisation tool that has allowed the fleet to be reduced by 12% while, at the same time, services have increased by 14%. The optimisation tool looks at vehicle utilisation, stem mileage and route efficiencies.

Separately, Loomis is also looking to use renewable sources of energy. All countries in Europe have been evaluated for the installation of solar panels. In 2023 the UK plans to produce 57% of its own electricity.

And to reduce its use of plastic by 30% by 2025 Loomis is working to increase the use of recycled materials so that bags contain at least 30% of recycled materials. It wants closed loop recycling in all cash centres, reusable internal cash bag transfers, smaller cash bags (which would reduce plastic procurement by 10%), introduce reusable seals (reducing plastic procurement by 80%) and to work with the CIEC on packaging and industry standards.

Loomis Europe is carbon offsetting all production and associated transportation of plastic bags. In 2020 over 600,000 kg of CO2e was offset through three projects.

US sustainability initiatives

FedCash® Services described its environmental work including what it is doing with disposing of shredded banknote waste and its e-manifest service, part of its Cash Visibility program, which replaces paper-based systems with electronic manifests. It has also started a project to look at what to do with its plastic waste.

FedCash uses process changes, partnerships and technology to increase the sustainability of the cash cycle. The goal is to increase sufficiency, resilience and sustainability of the cash cycle, recognising that cash usage is changing. Currently the focus is on disposing of shredded unfit banknotes well, supplies, paper and transportation.

In terms of dealing with shredded notes, the volume of these is significant. While 2020 and 2021 saw relatively low volumes, usually about 5,000 tons are disposed of each year.

Only two of the 28 cash offices send unfit notes to landfill, and this is because they don’t currently have locally available alternatives. 42% of notes are burnt with energy recovery and 42% are composted.

A further 15% are disposed of through a variety of routes including being used in road surfaces (cement curing) and spray insulation.

As for sustainability within the broader cash cycle, in addition to its introduction of its e-manifest system, which is based on the GS1 standard, FedCash has now started work on reducing plastic usage in the cash cycle.

This year it is doing work to understand the challenges and options with the intent in 2023 to develop and run a pilot which will allow the recovery of plastics for use as composite lumber or biofuel or for local partners to recycle the plastics for their own use.

Green Cash Cycle Initiative

G+D’s Green Cash Cycle proposes to reduce the impact of the cash cycle by:

Focusing on cash processing

• Less power consumption through automation in cash management, higher machine throughput rates, using Notatracc™

• Less waste by using NotaTray to reduce bundling and packaging waste

• Less service travel through knowledge transfer delivered remotely through training platforms, remote servicing using Eco-Remote and Visual Support and Smart Maintenance derived from machine data delivering condition-based and predictive maintenance.

Focusing on cash distribution

• Less transport emissions enabled by using network forecasting to right-size and correctly locate the sorting infrastructure along with multi- bank cash centres.

• Standardised packaging and transport

Final word

Cash circulation is where the biggest environmental impacts take place, and the cash cycle presentations demonstrate at both the organisational level and when stakeholders co-operate what is possible. They also underline just how challenging all this is. No short cuts but attention to detail and painstaking work will, and does, bring results.

1 - Sustainability Bonds are fixed-income financial instruments (bonds) where the proceeds will be exclusively used to finance or re-finance a combination of Green and Social Projects and which are aligned with the four core components of the International Capital Market Association (ICMA) Green Bonds Principles and Social Bonds principles – Sustainability Bonds – Wikipedia.