A version of this article first appeared in the March BAI Executive Report on Branches: Adapting for the modern customer. Inside the issue, you’ll find coverage on middleware upgrades to connect ATMs and branches to evolving digital platforms, smarter branch footprints overall and key considerations for branch staff management.
Capturing operational efficiencies is a leading banking priority this year, financial services leaders reveal in the ProSight Banking Outlook:2025 Trends. That goal extends to finding smarter solutions for servicing and upgrading increasingly interactive ATMs and the expensive-to-handle cash they distribute.
Cash poses unique challenges when serving a banking public showing increased interest in digital payments, namely customers more likely to tap their phone at a point of purchase than pull out a twenty for the cashier.
Yet as banks and credit unions well know, their customers and members who desire cash even periodically want convenient access to bills on demand and in flexible denominations. And select customer segments remain loyal to cash. It’s a distinction perhaps determined by age or how readily they have access to a full slate of financial services, as well as frequency of their person-to-person transactions. For certain, small- and medium-sized business (SMB) banking customers want higher-service branch, ATM and cash options because their own establishments deal with a mix of check, paper currency and digital transactions.
How strong is demand for cash?
Cash use in the U.S. has been steady to slightly higher over recent years, in part because the number of total transactions is greater. That means even as cashless payments find traction and the frequency of cash changing hands may not be as strong as it once was, cash as a slice of a larger overall payments metric is holding up.
For instance, according to the Federal Reserve, consumers in 2023, the latest year for published data, continued to hold more cash than they did before 2020 as both a store-of-value (up 53%) and in their pockets, purses or wallets as a backup payment instrument (up 23%).
The findings also show a growing generational divide among those using cash versus electronic payments. Consumers younger than age 55 used cash for 12% of payments in 2023, compared to 22% for those age 55 and older. Cash activity as a share of all payments is tracked as part of the Federal Reserve’s annual Diary of Consumer Payment Choice and currency in circulation figures are available regularly on the St. Louis Fed’s FRED economic data hub.
Who is using cash the most? SMBs for one
Banks and credit unions understand their vital role serving communities and the business opportunities in meeting the needs of a variety of consumers, all the while mindful of operational outlays in a lingering high cost-of-funds environment.
“Cash continues to remain a critical service for certain demographics, particularly older generations, but also, from a banking point of view, the lower-revenue segments of a local economy where individuals are more cash-dependent and there can be a lack of banking infrastructure and limited access to digital services,” says Jodi Neiding, vice president with technology provider Diebold Nixdorf, who helps lead its Americas Banking Portfolio.
For the financial services industry, there’s a hard reality to physical cash, however. It is heavy in bulk, costly and time-consuming to handle. Banks and credit unions must right-size staffing in branches and in service of ATMs as they balance labor costs and compete for talent.
Determining demand for cash by need and location only gets more challenging as customers split their allegiance between digital operations and wanting cash in hand, to insert in a graduation card on the day of the party on the way to the party, for instance. A negative experience if a familiar ATM location fails to deliver can have ripple effects on reputation.
Growing reputational standing with SMB customers in particular can hinge on their access to cash, the experts stress.
Neiding said 70% of cash coming into banks comes from SMBs, but she’s found that many are frustrated in part with a branch experience. They link this frustration to branch wait times when they’d rather transact via ATM self-service and because they are concerned about delays in deposited funds availability.
Neiding said her company’s research shows 75% of polled SMBs are willing to use self-service devices to deposit business funds, while cash recyclers are better able to handle these large deposits from businesses.
Cash recycling creates savings, security
Key for financial institutions, according to Neiding and other transaction-focused experts, is to allow technology to make cash distribution more efficient. For instance, when cloud-linked ATMs alert with timely functional outage information, a remote solution may be the fix, or if needed, an organization can dispatch targeted in-person troubleshooting. And, when on-site cash recycling, an extension of ever-smarter ATMs, allows a branch location to replenish especially high-demand denominations in near real-time without reliance on off-site processing it creates cost savings and improves customer satisfaction. Plus, with staff less focused on the details of ATM cash fulfillment and maintenance, skills can be redirected toward other high-touch services.
Such technology, for instance via Internet-of-Things (IoT)-enabled ATMs that generate roughly 100 data points that help predict and prevent ATM downtime, cuts total cost of an ATM’s operation by up to 20%, according to Neiding. And the cash replenishment features save roughly 75% of traditional cash-in-transit (CIT) expenditure, which historically has meant collecting and shipping cash to and from locations.
Greater cash-recycling options allow banks and credit unions to be creative with footprint size, relying for instance on more stand-alone ATMs or well-placed ATMs inside retailers or partnering businesses. Full-service ATMs, which may allow a user to engage with a teller by video, plus a recycler, can be a lower-cost option in neighborhoods traditionally underserved by branches.
“How technology enables all this as a critical touch point can be really transformative, and the ATM is certainly there in a hub-and-spoke model,” Neiding says.
With fraud costs and its long-run reputational risk top of mind for the banking industry, ATMs and their recycling features can also leverage technology in the fight against counterfeiting, deepfake ID abuse and more.
For one, cash recycling includes proprietary recognition technology that determines the condition of bills and their legitimacy, what is known as “fit, unfit or counterfeit media.”
“The technology is validating the notes and with almost $70 million known counterfeits in circulation, recyclers help reduce losses on this front as well,” Neiding says. “Plus, you are lessening errors as this technology cuts down on incorrect bill cassette loading more common with the legacy technology and customers are receiving much higher-quality notes and that satisfaction is turning up in net promoter scores.”
Rachel Koning Beals is Senior Editor with BAI.
