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EXECUTIVE SUMMARY

Booz & Company

Banks currently pay 80 percent of the bill to provide cash. In Europe, for example, this is worth about €84 billion annu- ally. With rising fuel prices, traffic congestion, and increasing safety standards, this cost is forecast to increase. In addition, cashless payment is a fast-growing trend, which in some countries, such as the Netherlands, is already forcing up the cost per transaction.

In response, there are three waves of cost reduction that banks around the world are taking to reduce their cash costs.

The first wave is optimization of internal bank operations. Through more sophisticated cash planning, intelligent moni- toring of ATM incidents, and rationalization of the ATM footprint, banks can cut their total cost of managing cash by as much as 10 to 15 percent.

The second wave is outsourcing. Transferring cash operations to third-party providers can lower costs, as outsourced pro- viders typically achieve greater economies of scale. Contracts of this nature often give banks savings in the range of 15 to 20 percent, along with higher or equivalent service levels. However, outsourcing can lead to market consolidation and resulting price escalation and single-point-of-failure risk.

The third wave of cost reduction is the establishment of multi- bank cash utilities. By collaborating on cash processing, distribution, and machine management, banks can cut costs, manage outsourcing risks, and gain greater buying power with third-party providers. This approach has proved highly successful in Australia, Austria, and Finland, with reductions of 20 to 30 percent in the cost of cash operations.

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