As tech and cash reach a stalemate, Diebold bets on ATM cash recycling

More than ever, banks will be leaning on new ATM technology to not only handle the cash that continues to pour into bank branches, but also to manage that cash flow by recycling its use to other customers, right from the machine.

Though most current research indicates the use of cash is waning, it is still widely used. Merchants may be handling less cash, but they still have to collect it, count it, deposit it and manage its flow to keep their businesses operating smoothly. It creates a scenario for banks in which traditional ATMs may not be as vital to the future as an ATM that can also recycle the cash in use to trim costs and improve cash availability.

"We view it as the last mile of cash automation for banks," said Devon Watson, chief marketing officer for financial services technology and ATM hardware provider Diebold-Nixdorf. "It's an interesting challenge for banks as to where the cash goes next to convert it to digital after a merchant drops it off at the end of a business day. Cash recycling will be a key service."

Diebold-Nixdorf operates under the premise that payments technology does not put a significant dent in the amount of cash in circulation.

"In many markets, cash circulation is up and global withdrawal numbers are in the tens of billions," Watson said. "It is kind of an interesting phenomenon in that … there more [payment] options, but none of them are really going away."

Unlike many banks in Europe that automate the process, U.S. institutions still take deposits in bank branches or through overnight drop boxes, and employees then spend the time to count and validate it.

"I'm talking to a lot of the banks we serve, and they say it is definitely north of 50% — maybe even 70% — of their over-the-counter transactions are small businesses dealing with cash," Watson said. "If a merchant goes in with $500 in mixed bills and wants some cash back in different denominations to have change for the following weekend, a lot of banks are not set up to deal with that in an automated way."

In the next two years, U.S. banks will see that type of automation moving to their ATM channel, Watson added. "Branches will become increasingly cashless, meaning cash is not behind the counter, but in the branch at the ATM," he said.

In the face of increased smartphone use for mobile payments and P2P transactions, Diebold-Nixdorf predicts that cash payments will remain prevalent, though varied by market.

In Spain, Italy and Germany, more than 80% of total POS payments are completed in cash, while France is at 69%. However, the Netherlands and other Nordic countries have fallen below 50% of POS transactions being cash-based, Diebold noted in its recent study on self-service trends in banking.

Recycling the cash already inside of an ATM is a vital part of bank branch transformation because the newer models will take deposits from one customer, convert that cash into digital money in the merchant account, then possibly use that same cash to complete the next customer's withdrawal.

Such a service cuts down on costly cash management at the bank, especially paying the suppliers to bring the armored vehicles to the bank to fill up ATMs with cash.

"The trend for banks now is the ITM, or the Interactive Teller Machine," said Russ Schoper, an ATM industry analyst from Atlanta-based Business Development International Inc. "It bridges the technology with a personal and human touch, and these machines will also recycle cash and provide other services."

Larger banks have adopted this approach and are steadily moving toward recycling cash in their ATMs, but it does take an investment in new equipment that smaller banks are contemplating, but not yet biting on, Schoper said.

Stores like Amazon Go opened with much hoopla about speed and efficiency — much of it based on the premise of not allowing cash. But Amazon changed its strategy on that after pressure from lawmakers in New York and other regions, and began allowing cash transactions in its newest store.

That development supports the belief of companies like Diebold-Nixdorf, NCR and others that handling cash for merchants and consumers alike will long remain a key aspect of the ATM services they offer.

"In the U.S. we often think of ATMs as a one-way street, just that consumers use it to get money out and spend it," Diebold's Watson said. "The U.S. is eventually going to start to look like Europe, where branches have all changed. "The tellers are sellers, and all transactions are handled through the self-service of digital channels … and that is where the U.S. needs to move."