Cash Supply: 4 Strategic Summaries on the Path to the Future

Switzerland is on its way to becoming a cash-light society. The share of card-based and mobile payment transactions is rising rapidly, as it is in all highly developed countries. The Banking Services business unit of SIX takes stock of four things on the path to the future cash strategy.

1. Means of Payment vs. Store of Value

Research conducted by SIX in 2019 on the number of transactions at ATMs in Switzerland has shown that cash will lose its central role as a means of payment within the next five to seven years. According to our “Future of Money” white paper, the predicted decline is 40% to 70%. Analyses from January 2021 not only confirm this development, they actually evaluate the estimates from 2019 as rather conservative after around one year of COVID-19.

 In 2020 alone, cash withdrawals from ATMs fell by around 40%.

At the same time, the importance of cash in society remains undisputedly high. In times of crisis, it serves as a store of value. The Swiss National Bank (SNB) has observed that cash has gained more relevance as a store of value since 2008 again. It attributes the increased demand for banknotes in general to the persistently low level of interest rates, going on to say that the financial market crisis and the sovereign debt crisis have contributed to the increased attractiveness of holding cash. This was also confirmed in the COVID-19 crisis. According to the SNB, after the Swiss Federal Council reported on the impact of the pandemic, cash holdings increased noticeably.

2. Cash Supply vs. Costs

Cash is therefore an important anchor of trust for the population. Unhindered access to cash is a societally relevant task despite its declining importance as a means of payment. ATMs remain the most popular source of cash in Europe. As operators of ATMs, banks face the challenge of operating their infrastructure profitably in the future in view of lower cash transactions. This is because, due to fixed costs, lower transaction volumes lead directly to rising operating costs per transaction.

There are around 7,000 ATMs in Switzerland and Liechtenstein, 6,000 of which are operated by banks, known as Bancomats. Based on the figures mentioned above, the question of a redimensioned infrastructure arises. According to the consulting firm McKinsey, such a project requires a comprehensive view of all locations and consideration of all influencing factors. These include transaction-based costs such as card fees, location-specific costs for electricity, maintenance, and operations as well as for IT and the back end. This comprehensive view is the key to identifying and eliminating the cost drivers in the infrastructure and thus being able to guarantee the security of cash supply with an efficient use of resources.

According to a study conducted by Senozon in 2021on behalf of SIX, 2,160 Bancomats at 1,160 locations would optimally cover Switzerland in terms of ideal distribution. 90% of the Swiss population would be able to withdraw and deposit cash there within a maximum of 20 minutes – on foot or by public transport. The current Bancomat infrastructure could thus be reduced by up to two thirds.

40% 40%
decrease of cash withdrawals from ATMs in 2020.
6’000 6’000
Bancomats are operated by Swiss banks today.
2’160 2’160
would be optimal number of Bancomats to cover all of Switzerland.

3. Decentralized vs. Centralized

Redimensioning is one thing, efficiency is another. Swiss banks, together with SIX, anticipated the rise in transaction costs at an early stage and launched an optimization project in 2017. On behalf of the banks, SIX has standardized Bancomat services by introducing uniform multi-vendor software, thereby reducing IT implementation costs, bundling hardware purchasing for all banks and optimizing value-added services such as ATM monitoring.

SIX has since further developed the concept of centralizing purchasing and service structures, a path that they began following early. In view of the new threat situation posed by logical and cyberattacks on the ATM infrastructure, SIX is currently establishing a central, cross-bank ATM Security Service. Another expansion step will be efficient ATM cash management. The banks would operate their ATMs themselves – and thus remain the owners of the cash – but can use the central ATM Cash Management solution offered by SIX as software as a service. They could also hand over the entire ATM cash management to SIX as part of business process outsourcing. SIX would thus become the single point of contact for the management of ATMs for the banks.

If implemented consistently, this approach could mean that the ATMs belong to an infrastructure provider in the future and are operated centrally in the sense of “ATM pooling” – similar to what is already the case in the Netherlands, Belgium or Scandinavia. In order to develop a solution tailored to Switzerland’s needs, SIX is working with interested banks to examine scenarios at three different levels:

  1. How does the deactivation of redundant ATMs affect a location and its surroundings in terms of cash supply?
  2. How do customers react to the disappearance of the bank’s branding at remaining locations?
  3. How do customers react to bank-neutral branding at existing locations?

It can already be said that a clear commitment from all banks is the basic prerequisite for the success of such a pooling model.

4. Supply vs. Circulation

But securing the future of cash supply requires more than an optimally dimensioned ATM infrastructure and ATM pooling. After all, banks are not the only players in the cash cycle. Maintaining the supply of cash on a national level is a cross-sector challenge that must involve all cash players. What is needed is a modern ecosystem, a “circular cash economy.”

This would mean that a central infrastructure operator would be consistently challenged to look not only at the ATM infrastructure but also at all other interfaces and to check them for optimization potential. This applies in particular to the relationships between retailers and banks. It also includes analyzing the changing demands on cash from consumers, taking them into account in the solution concepts, and handling them adequately.

SIX has taken an in-depth look at the future of traditional commerce and, in its “Future of Brick-and-Mortar Commerce” white paper, has outlined various scenarios that provide orientation in an industry that is transforming itself from the ground up. As the most likely scenario, SIX assumes that a hybrid structure will prevail. In this structure, retailers are present both in-store and online and thus offer their customers special shopping experiences tailored to their personal preferences at all points of contact.

In the future, this may also include consumers going into a store and shopping without a wallet, credit card, etc. They pay with biometric data, e.g. their face, using a virtual safe that can be accessed from anywhere via a secure network. Stores with a self-scanning and self-checkout solution are also a conceivable idea. For retailers, these future scenarios mean that transaction costs for cash handling will continue to rise. In this context, too, a central infrastructure provider can create needs-based offerings that help to reduce costs. This could also include commonly unpopular services, for example in connection with coinage.

Even consumers themselves could be involved in the circular cash economy. Such a crowd-augmented cash infrastructure would enable a further reduction in the number of ATMs without any great loss of coverage and would result in further cost reductions.