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The Australian banking and retail sectors are advancing plans to modernize the handling of cash, with key discussions focusing on reducing the complexities involved in transporting and processing physical currency. These efforts are aimed at addressing the growing inefficiencies and costs associated with moving cash around as its usage continues to decline in favor of digital transactions. Central to these plans are the deployment of advanced ATMs and streamlined delivery routes, which will minimize the need for frequent transit by trucks and reduce double-handling of notes and coins.
Since June, when Armaguard was granted a $50 million financial extension to continue operations until mid-2025, the Australian Banking Association (ABA) has been hosting weekly meetings to develop a long-term solution for managing cash transport in an era of shrinking cash volumes. These discussions include representatives from major banks, large retailers, the Reserve Bank of Australia (RBA), federal Treasury, and Australia Post, all of whom are seeking to adopt policies suited to Australia’s vast geography and population. The goal is to create a sustainable model that ensures efficient cash access, particularly in regional areas, while reducing costs.
Streamlining Cash Transport
The plan includes deploying technology to extend the time that cash remains within branches and retail locations before being recycled back into circulation, thereby reducing the frequency of cash pickups and deliveries. Specifically, smarter ATMs and cash recycling technologies will allow banks and retailers to keep cash in-house for longer periods, minimizing the need to transport it to central depots. The idea is to reduce the reliance on cash-in-transit services, such as those provided by Armaguard and other providers, which have seen costs soar as cash usage has plummeted.
One proposal under review is allowing banks and businesses to move cash directly between themselves, bypassing the need for it to be routed through a central Armaguard depot. This would streamline the logistics of cash handling, particularly for businesses in close proximity to each other.
Another key technological solution being discussed is the introduction of smart ATMs that dispense cash from a blended float. Traditionally, ATMs keep deposited and withdrawable funds separate, requiring frequent replenishment. The proposed machines will mix these functions, reducing the need for regular cash deliveries. These ATMs are especially useful for Australia Post (ASX:APL) branches, particularly in regional areas where access to cash is more critical.
Additionally, the deployment of smart safes within major retail stores is being explored. These safes would automatically credit the retailer’s bank account with the deposited funds, without the need to move cash to a depot to earn interest. This innovation would significantly simplify the custody chain and reduce the need for cash-in-transit services.
International Models and Declining Cash Use
In a bid to understand global trends and best practices, officials from the ABA, RBA, and Treasury visited European markets in May. Countries such as Sweden and the Netherlands have adopted cash recycling technologies, which have substantially reduced the volumes of cash needing to be transported. Sweden, for example, has cut cash transport volumes by 50% using such machines, while in the United States, smart safes have reduced the number of cash pickups by 40-60%. These models are being closely studied to determine their applicability in Australia.
The Australian Competition and Consumer Commission (ACCC) has authorized ongoing collaboration between the ABA, Australia Post (ASX:APL), large retailers, supermarkets, and other key players to ensure the continued provision of cash-in-transit services. The ACCC is receiving regular updates from the ABA regarding the progress of these discussions.
Despite the technological advancements and collaborative efforts, the ongoing decline in cash usage remains a pressing challenge. Cash transactions accounted for just 13% of total payments in Australia in 2022, down from 70% in 2007. This decline has increased the per-unit cost of moving cash, as fixed logistics costs remain high, but the volume of cash deliveries continues to shrink.
Financial Impacts on Armaguard
The financial strain on Armaguard, a key player in Australia's cash transport industry, has been compounded by these trends. Armaguard, which merged with its major rival Prosegur last year, has struggled to offset the rising costs and declining demand for cash services. The merger has not alleviated the financial challenges facing the business, leading to the $50 million funding deal reached in June 2024 to support Armaguard’s operations through to mid-2025.
To ensure the sustainability of cash-in-transit services, the banks and retailers involved are also exploring the possibility of implementing an independent pricing mechanism. This would regulate Armaguard's revenue and profitability, ensuring that it remains viable if it continues to operate in the cash transport business over the longer term. However, contingency plans are also being considered in the event that Armaguard withdraws from the sector entirely. These plans could involve significant restructuring of contracts and cost-cutting measures aimed at reducing the expense of cash services.
Smart ATMs and Regional Delivery Models
The focus on smarter technology is not limited to metropolitan areas. The high cost of servicing remote and regional areas has prompted discussions on more efficient delivery models for these regions. For example, large businesses in a particular town might deposit excess cash at an Armaguard depot, while neighboring businesses would simply order more cash, creating inefficiencies. By enabling businesses to transact directly with each other, without requiring depot involvement, the costs of cash transport could be significantly reduced.
Banks and retailers are also considering standardizing delivery routes to branches in the same suburb or town, serving all locations on the same day to cut down on overlap. Similarly, all retailers in a shopping mall could receive cash services on the same schedule. Additionally, standardizing the way cash is delivered, such as eliminating the need for custom packaging like rolled coins or bespoke tubes, could further reduce costs.
RBA's Role in Cash Circulation
The RBA may also need to revise its policies to align with the evolving cash transport industry. Currently, the RBA pays interest on money held in depots, which incentivizes businesses and banks to move cash to these depots rather than keeping it circulating within the community. If the RBA were to adjust this approach, it could further reduce the need for depot trips and help streamline the cash distribution process.
Banks and retailers are expected to keep the RBA updated on their plans to put cash distribution on a more sustainable footing before the emergency funding for Armaguard expires in July 2025.
As cash usage continues to fall, these efforts represent a critical juncture for the industry, particularly as the costs of cash transport remain high despite shrinking demand. The focus on smart technologies, streamlined delivery routes, and innovative pricing mechanisms could help ensure the future viability of cash services in Australia, especially for regional and remote areas.
