Strategically Speaking

Take the Lead with Your Customer Awareness Campaign

 Author: Karen Crumbley, karenc@gladtech.net

Financial Institution (FI) management teams are embarking on the next steps in order to meet the FFIEC’s Supplement to Authentication in an Internet Banking Environment expectations.  The next line item on the agenda after the initial risk assessment is commonly the Customer Awareness and Education component of the guidance.  Whether your FI’s Information Security Officer is the lone soldier overseeing this project or there is a designated committee of individuals from different functional areas to manage the awareness campaign, they are likely in process with reviewing their options. 

Naturally, cost effective control solutions top the list when making a decision on your Customer Awareness and Education Campaign.  According to a recent fraud survey from Bank Info Security, FIs rank increasing and improving staff training just above enhancing customer and member education efforts for the top ten investments they plan to make over the next twelve months.   All signs indicate that FIs are planning to take an active approach to the guidance’s suggested enhancements to customer awareness. 

So, the remaining question is, “how are the funds going to be applied in line with the customer awareness campaign?”  As the guidance states, both online banking retail and commercial accounts holders will need to be educated.  FI management teams should really be strategically looking at three segments to provide training for, consumer/retail customers, commercial customers and internal personnel.  In other words, each category will need to be given information appropriate to their needs.  Consider a multi-dimensional approach to all audiences.  The options for presenting material to the online customers may roughly be broken down into the following three categories:

1. In person (through employee training, lunch and learns, onsite visits)
2. Electronically (websites, eblasts, online training portals)
3. Hard Copies (brochures, statement stuffers, standard mailings)

Given the above list of options, one of the FI’s most significant decisions will be in what delivery channels they choose to roll the training out to customers.  A major concern FIs have is that they do not want to risk alienating customers by asking them to participate in an interactive training course.  Another recurring concern is that FIs want to know what other FIs are doing.  These concerns are clearly valid.  FIs do not want to appear to be unreasonable in what they are asking of customers.  However, a little “hard line” security promotion might just be a plus.  In fact, I strongly encourage FIs to take a strong stance and have a thought leadership approach. 

No need to wait until your auditor or examiner makes a request for enhancements or become overly concerned with what other FIs are implementing.  Think of how you can provide the greatest service for your customers.  The concept is a little reminiscent of JFK’s, “ask not what your country can do for you; ask what you can do for your country”.  Seriously though, providing educational tools and designing an intentional campaign for your customers is a service that you can be proud to promote. Taking the lead and asking customers to assist in keeping their transactions safe is not too much to ask, is it?

Deposits Everywhere…And No Place to Put Them

 Author: Joel Rosenberg, CFA, jrosenberg@profitstars.com

Interestingly, much has been written recently in financial publications about the need to prepare for rising rates and pressure to originate deposits in the future. While planning for eventualities is always a good procedure, many bank and credit union executives must shake their heads wondering how they are going to deploy the current glut of deposits in this low interest rate environment. Most good forecasters, including pronouncements from the Federal Reserve, indicate that the economy will not be experiencing high or even moderate interest rates until at least 2013 and possibly beyond. Also, economic events can always lay well thought out assumptions asunder, but it seems increasingly likely that rates will be tame for a couple more years.  With gyrations in the stock market and a large number of baby boomers and others saving for retirement, lack of deposit flows at this point doesn’t seem to be a problem for most institutions. This is particularly interesting in light of the continued decline in deposit rates. Average MMDA rates have decreased by about 50 basis points from March 2009 through late September 2011 and twelve month CD rates have fallen by about 1.1% during that period.

Using our customized database on community banks based on FDIC data (we exclude most banks over $20 billion in assets, bankers banks, and specialty banks like credit card institutions or foreign entities), average deposits, both total and retail, per community bank have risen substantially since 2008.

Growth in deposits is generally not a bad development, but if there isn’t complimentary growth in loans, the funds are just invested in low yielding securities. This situation can be captured by the loan to deposit ratio which continues to decline from 2008 through 2011.

Financial institutions have plenty of funds, but in many cases there are not a lot of good opportunities to deploy those funds. The last chart shows growth or perhaps lack of growth of loans at community banks.

Should we prepare for a period of deposit shortage, the answer is definitely yes. This may be a time of plenty deposit-wise, but times of plenty can quickly turn into famine. After all, if one examines the first decade of 2000, except for 2002-2004 and at the end of the decade, banks were scrambling for deposits during most of the period. Now is definitely a good time to be preparing for those periods when deposits will be scarce. Bankers need to make sure that their systems and procedures are in place to handle the inevitable need to raise more funds through deposits.

What are some procedures and processes that we should consider? If your institution isn’t taking action in the following areas you need to get started. Below is a short check-list of items a well-managed institution should be initiating.

• Have a Profitability committee that meets at a schedule time regularly;
• Collect market intelligence on competitors;
• Review national and regional market rates and economic information;
• Produce reports on upcoming maturing CDs;
• Have good means to monitor closed accounts; and
• Use a deposit pricing model to understand the profitability of actions taken or to be initiated.

What are some of the procedures and processes you’re thinking about to address this situation?

I Bank at Caribou Coffee

 Author: Brad Dahlman, bdahlman@profitstars.com

This past summer I got a home equity line to remodel our kitchen.  I called a friend of mine that started a small community bank.  Dave (my banker) described their equity line products over the phone and we arranged to meet later in the week at Caribou Coffee.  We enjoyed a fine cup of coffee in a relaxed, friendly environment.  I provided him my most recent pay stub and financial statement.  He called me later in the day with a fast loan approval and then suggested we close the loan at my house.  This was perfect.  He could verify the construction and my wife and I wouldn’t need to find child care for our kids, haul them to the bank or leave them in the construction zone (formerly known as our kitchen). 

Dave understands that many clients don’t find it convenient to come into the bank.  He also understands that to interact with clients that “never” visit a branch, he needs to leave the comfort of his office and meet them at a location that is convenient for them.  Simply waiting around the branch for a client to wander in is just not going to work anymore!

Percentage of client using a branch – According to a recent study by banking.com, 16% of clients “never”  visit a branch and another 17% only visit once every three months.  This means that  only 2/3rds of your customers see you at your location.

The challenge for many bankers is to develop a strategy to connect to these clients and prospects that never (or rarely) visit a bank lobby.  The old adage from the movie Field of Dreams … “If you build it they will come” was not referring to younger, technology savvy professionals coming to visit your branches.  They simply aren’t coming in your doors like they have in the past and the trend is likely to continue given the various distribution channels available to banking clients today.  Over the past five years, lobby traffic has dropped by over 2% per year; and self-service transactions have increased by over 10% per year.  We have done a great job of making it easier for our customers to transact business with us, but one of the side effects is that we don’t have face-to-face contact with many of our clients.

Don’t get me wrong, I am not predicting the end of branch banking.  Branches will always serve an important need for our clients.  This is the primary channel clients choose when they need to process a more complicated transaction like seeking investment advice, financing a major purchase or even opening a checking account.  But there are a growing number of clients that don’t use our branches.

So the question remains… how are you going to reach out to clients that are no longer coming into your branch?  It will require a purposeful outreach strategy to connect with clients, including getting out of the branch to meet clients at a convenient location.   No bank today has enough resources to reach out to every client, so the key is to segment your client base.

Your most valuable clients, those with profits that rank them in the top 5% of your client’s base, should have bankers assigned to their relationship.  Those bankers should make quarterly outbound calls to each of these top clients to stay connected.  Maintaining a strong relationship with these clients is key to reducing attrition in this important segment.  Why not meet them at a local coffee shop that currently banks with you?

For the vast majority of clients, outbound marketing efforts are the best way to stay connected to these clients that don’t visit your branch.  These clients are technology savvy and use self-service channels, so the natural way to market to them is through these channels (mobile banking/ATM/online banking/text messages).  Sending them direct mail or putting a notice in a statement just doesn’t work in reaching this group.  After all most of them probably have electronic statements.

Changing how we approach clients given the exodus from the branch is a challenge, but with creativity and effort it can be done.

By the way, when we got the equity line account this past summer, Dave also brought along paper work to open my checking account, set up Internet banking, direct deposit and even brought starter checks.  The debit card arrived within the week. 

2012: “The Year of the Vulnerability”

 Author: Kyle Cooper, kylec@gladtech.net

In Verizon’s 2012 Data Breach Report published last month, they dubbed 2011 “The Year of The Hackivist” due to the large amount of chaos caused by hacker activist groups like Anonymous and LulzSec. Though we’re only four months into the current year, another trend has already begun to take shape. It looks like 2012 could be “The Year of the Vulnerability.”  Let’s take a look at why.

To start the New Year right, Microsoft released an update for a critical .NET vulnerability (MS11-100) on Dec. 29^th 2011. This vulnerability was considered so crucial that its patch was released “out-of-band,” or weeks ahead of the next scheduled Patch Tuesday, in order to mitigate the threats it posed. There were rumors that the Microsoft Security Team sacrificed their Christmas’s in order to plug the hole as soon as possible. Unfortunately, that out-of-band patch set the stage for the upcoming year.

March brought a patch that piqued the interest of many hackers and researchers alike. MS12-020 was released with a rare “PATCH IMMEDIATELY” severity level. This patch remediates a vulnerability that resides in Microsoft’s extremely popular Remote Desktop Protocol (RDP) service. What makes this vulnerability so dangerous is that RDP is typically implemented to be accessible from outside of an organization’s network, giving hackers at large an easy service to exploit and use to pivot into the targeted system.

But Microsoft isn’t the only vendor with vulnerability problems. Adobe has released five patches in the last eight weeks alone, three of them for its widely-used Flash Player application. Third party applications present a cross-platform target which is operating system independent. Reading a PDF requires Adobe Reader. Watching a video on Youtube requires Adobe Flash Player. Java is needed for running both Java Web Applets as well as numerous desktop applications. Third party applications are a part of everyday life in the workplace and at home, and their tremendous install base makes them very popular targets for vulnerability exploitation.

Apple’s Macintosh OS, long lauded as superior to Windows in terms of security, is just as vulnerable as other operating systems when running the same third party applications; a fact that Mac users all over the world learned the hard way when a mass infection explicitly targeting them was discovered weeks ago. A recent Java vulnerability was responsible for back to back malware outbreaks affecting Mac users. The Flashback and SubPub Trojans were estimated to have infected 600,000 Macintosh computers within the past month, or approximately 1% of the entire Mac user base.

In light of the above examples, it’s important to emphasize how an aggressive patching program can mitigate the threats posed by vulnerabilities. Most vendors fix vulnerabilities before they are detected being used maliciously in the wild. In fact, last year Microsoft’s Security Intelligence Report found that 0.0% of attacks (a number too small to measure) were executed using unpatched vulnerabilities.  Poor patch management is also the root cause for the recent Macintosh outbreak. Patches for the Java vulnerably responsible were accessible and had been pushed to Windows and Linux machines, but Apple had not yet made them available to their users.

So what can you do to protect yourself?  Identifying and controlling the operating systems and third party applications in your environment is a good first step towards developing a strong patch management infrastructure. Likewise, staying on top of the current vulnerability landscape can help prioritize patching procedures. New vulnerabilities will continue to be discovered, but it’s possible to minimize their destructive potential with good patching processes and policies. 

Arm the SMB against the ‘Bad Guys’

 Author: David McDaniel, DMcDaniel@profitstars.com

You know, it occurred to me recently, while watching the original Die Hard movie, that one of the most glaring gaps identified by the FFIEC’s Supplement to Authentication in an Internet Banking Environment is the need to educate and arm the small- to medium-sized business (SMB) customer against the ‘Bad Guys’. Now, I know that a comparison of the BEST action movie EVER to a financial institution governance sounds like a stretch, but stay with me.

It seems every time I turn around, I read a story about how someone surfed somewhere they had no business surfing and clicked something they shouldn’t have. Then, some bad guy broke into their computer and took something valuable (private information, credentials, money, $600 million in negotiable bearer bonds…). Sadly, too often these SMB owners, busy struggling to keep their enterprise afloat, become the weakest link in the electronic payments network by cutting corners. Among other things, they fail to recognize the value in paying for safeguards and reconciling their bank accounts regularly. The results are fraudulent debit transactions going unnoticed until the very narrow commercial ACH debit return window has passed, or funds are illegally wired/ACH’d out to money mules, and ultimately, a bankrupt business.

Somehow, we must take the time to help our customers understand just how easy it is for fraudsters to take advantage of them if they do not take precautions, and just how easy it is to ward off those same fraudsters by simply putting the cookie jar on a higher shelf. If there is one truth here, it is that the bad guys tend to go for the easiest targets, so creating more barriers between the SMB and the villains will shift the bad guys’ risk/reward equation in the customers’ favor. I mean, if Mr. Takagi had put all those bonds in his wallet (where the safeguards = button, silk thread, and a silk pants pocket) instead of in that huge vault (where safeguards = 7 locks, Al-the-Pal, and Bruce Willis), Hans Gruber would have totally gotten away with it!

Even though most small businesses do not typically have hundreds of millions to protect, there are some great safeguards out there to help deter the Hans Grubers of the world from taking their life blood. Products that allow the SMB to review and approve incoming ACH debits, and maintain their wire and ACH credit recipients, all using out-of-band communication channels. These products will help them to do it, but unless these customers begin treating their online-accessible assets with the same care they give their cash, the bad guys will continue to take them down one at a time, and the banking industry, as well as the ACH network, will suffer.

Now, I understand you may still be scratching your head about the whole comparing Die Hard to the FFIEC guidance thing. Especially since Mr. Takagi was killed, the bad guys required quite a bit of convincing to get them to leave (die), and NO ONE wants to be in Holly Gennaro’s shoes, hanging by a wristwatch from a window 80 stories up! But since SMBs cannot put all of their valuable information in a Nakatomi vault, they need to be convinced of the value of safeguarding their private information, being diligent about reconciling their accounts, and taking advantage of the tools that can allow them to protect themselves and the future of their company…because, my friends, the future of their company truly is at stake, and Bruce Willis is just an actor with bad hair (still the best action movie EVER though).

What is your prescription for addressing the needs of the healthcare market?

 Author: Pat True, rtrue@profitstars.com

Vital US Healthcare Statistics ^*

• Healthcare is now a $2 trillion dollar industry, growing at a rate of 6 – 7% per year.
• Worldwide, healthcare is a $5 trillion dollar industry.  (Side note: The US is currently 4.5% of the world’s population and represents 40% of the healthcare industry worldwide.  This is due to higher per capita healthcare consumption as well as healthcare production by US firms internationally.)
• Healthcare expenditures (private and public) now make up approximately 18% of the US GDP.
• The healthcare sector includes about 6,500 general hospitals; 75,000 nursing homes and residential care facilities; 13,000 diagnostic labs; 30,000 outpatient clinics; 220,000 doctor offices; and 150,000 family and social services providers.
• The average family of five spends $15k per year on health insurance.  On average, employers currently cover 75% of that cost.
• Approximately 85% of Americans are currently covered by health insurance.  Approximately 15% are uninsured.
• On average, healthcare spending per person is 85% higher for US citizens over age 65.
• Between 2015 and 2030, the US population of citizens over age 65 is expected to increase by 50%.

*Statistics from First Research and the Organization for Economic Co-operation and Development.

Business Needs

Healthcare related businesses typically demonstrate the same needs for financial services as the general commercial sector, although there may be challenges in meeting those needs due to the complexities of the billing and revenue cycle in this industry.  Some of the more common services include:

• Equipment financing and/or leasing
• Owner occupied real estate financing (or real estate owned by the individual practitioners and leased to the business)
• Working capital lines of credit
• Financing of the private pay portion of the accounts receivable
• Cash management services
• Personal banking needs of the practitioners

Working capital financing in this sector

While many financing requests in the healthcare sector are for leasehold improvements, equipment and owner occupied real estate; a significant number also involve short term notes or revolving lines.  On average, accounts receivable comprise more than 16% of a company’s assets in the healthcare sector.  The daily turn rates for these accounts vary significantly by industry segment, ranging from 20 days to over 120 days.  This is heavily influenced by the nature of the accounts, whether private pay, due from third party insurance, or due from government insurance programs.  Claim reimbursement rates also vary widely based on contractual adjustments with each payer.  In some cases a claim might be reimbursed at a rate of 90%, while in others, reimbursement rates might be 40% or lower.

When attempting to provide short term working capital solutions for their healthcare clients, financial institutions often have trouble accurately valuing the collateral.  In the worst case scenario, they become overfunded on medical claims, having assumed too high a reimbursement rate.  Banks often need a system to determine accurate reimbursement rates on insurance claims they seek to finance and to categorize the claims by payer and by payer class.

Whatever the business need, the healthcare sector is likely to be a significant opportunity for financial institutions in the years ahead.  Do you have a strategy to market to this sector and to address the specific financing needs it involves?  Please feel free to share your thoughts with us.

 

What’s next for the Check?

 Author: Milton King, MKing@profitstars.com

Those of you that have read my blog postings before know that I like to look at a historical view of the topic at hand.  In this case it is the check.  I have to admit, this research yielded some surprises for me too.

Why the historical perspective?  Well, to understand where something is going, it helps to understand where it has been.  The “death of the check” has been around the corner for decades.  Yet the check is still here.  Considering it has survived for over 2000 years, what made us think this time would be any different?

The early forms of what we know as the check (cheque) date back to 321 BC.  

According to Wikipedia - In India, during the Mauryan period (from 321 to 185 BC), a commercial instrument called adesha was in use, which was an order on a banker desiring him to pay the money of the note to a third person.

The Adesha sounds an awful lot like what we would call a check today.  What’s interesting is there are examples of check-like instruments being used all over the world in every century.  It appears to be a natural part of the maturation of any economy.

What we might call the “Modern Era” of the check dates back to around 1770, where the informal exchange of checks took place between London banks. Clerks of each bank visited all the other banks to exchange checks, whilst keeping a tally of balances between them until they settled with each other.

The 1800’s noted the introduction of the pre-printed checks, check books and wide acceptance and usage.  The 1950’s brought in MICR and the use of automation to enhance the exchange process.  Then 2004 was the year of the Check 21 Act.

2004 moved the focus from processing the checks to capturing them.  How do we get as close to the consumer as possible?  The answers:

• Branch Capture
• Teller Capture
• Image ATM
• Smart Phones
• Home Capture

With 24 billion checks still in circulation we still have to ask “what is next.”  We clearly can’t ignore 24 billion “orders on a banker desiring him to pay the money of the note to a third person.” in hopes they will go away.

Some possible solutions of the future:

• Write a virtual check on your smart phone and text it to the recipient. 
• Write a virtual check on your smart phone and text it to an ATM for deposit.
• A drive-through that scans your phone, similar to SpeedPass (a service that allows you to quickly pay tolls; for those of you who do not live in Toll Road areas)
  • You could do your entire transaction in seconds.
• A virtual checkbook on your phone that positions you to take advantage of all of the above and log it in your accounting program.
  • This would be great for small businesses.

Oddly enough, had you asked a group of Check-Professionals the “what’s next” question 15 years ago they would have said things like:

• Electronic presentment   
• Scanning at a business     
• Scanning at the POP          
• Teller Scanning         
• The elimination of the paper check

They wouldn’t have considered large-scale use of image ATMs or smartphones.  They would have frowned at the thought of the consumer doing the scanning.  In fact there are many of you who are still frowning at it.

The point being, just 15 years ago much of what we were doing today was unthinkable.  So, if history is any indication of the future, the future list we create today is probably aiming low.

Whatever the new technology ultimately brings us; it is safe to say, that after 2000 years, the check will still be a part of it.

Five Strategies for Staying Relevant

 Author: Deborah Matthews, debmatthews@jackhenry.com

Staying relevant in the current rapidly changing business environment is no easy task.  Just ask Blockbuster and Kodak.  Once their products were in great demand, their brands universally recognized and respected - today, both are on the brink of extinction.

Community financial institutions are also being challenged to remain relevant.  FIs face unrelenting regulatory pressure and a growing number of legislative mandates that impact revenue generation, escalating competition from large banks and non-traditional providers, an increasingly transient customer base and a frenetic pace of technological advances. This dynamic landscape makes it difficult at best to filter through the noise, to be able to recognize strategic opportunities that support long-term viability and profitability. 

In order to enjoy sustainability, it is imperative to proactively anticipate the future by embracing new ideas, employing new methods and identifying new markets.  FIs must deliver innovative solutions that solve pain points and create value for which customers will pay.  It is clear from recent events that consumers will not easily tolerate more bank fees. FIs must generate new fee revenue from a segment that is willing to pay for beneficial value, increased efficiencies, convenience and improved security.  The answer is the small business market (SMB).

According to the Small Business Association, there are 27+ million small businesses in the U.S., representing a large, lucrative market for FIs. In fact, Dun and Bradstreet reports that the number of small businesses actually increased during the recent recession.   An essential part of the fabric of American life, small businesses generate between 60 and 80% of all new jobs created. 

Many FIs are already focusing on the SMB market, yet most are falling short in meeting the needs of small businesses.  Even though small businesses spend $500 billion on financial products, recent research reveals they are underserved by FIs.  Barely one-third are satisfied with their FI’s online banking capabilities.  Ninety percent use a consumer online banking platform. A mere 25% feel their FI offers adequate tools for managing cash and tracking receivables and payables. Seventeen percent of business owners confess staying up at night worrying about cash flow.

For FIs interested in long-term relevancy, addressing this deficiency is urgent for two reasons: 

1. The National Federation of Independent Business said confidence among small U.S. business owners  in January rose to 93.9, the highest level since December 2007. This means SMB are poised for growth. 
2. SMB are becoming increasingly technologically savvy, with half stating that they would switch their bank in order to access better financial tools.  FIs that fail to offer these tools in order to retain SMB customers do so at their own peril: while the SMB segment represents only 10% to 12% of retail banking customers, they represent as much as 50% of retail bank revenue when taking into account the value of the small business owner’s account.

Here are 5 strategies for launching your SMB initiative:

1. In a recent report, Aite Group recommended that FIs develop a strategy for migrating businesses off consumer platforms and onto systems designed specifically for businesses.  
2. The SMB market is diverse and complex.  Specialize in a few specific vertical markets to gain expertise in their business models and requirements.
3. More than 1/3 of small businesses rank collecting payments as their top priority, and they are keenly interested in improving cash flow and creating operational efficiencies. To win the hearts and minds of your small business customers, position the convenience and ease-of-use of remote deposit capture (RDC) as the keystone of your SMB product portfolio.  Today, only 8% of SMB are using RDC, representing a huge missed opportunity to promote beneficial services to a receptive audience.
4. FIs should further transform strategy into reality by enlisting front line and business development staff to proactively market products and services that deliver significant value, such as RDC.  Branch originated sales leads accounted for less than 25% of all RDC leads. This is truly a case of FIs leaving money on the table. Educate your team on the requirements of your targeted SMB and build an arsenal of winning products and services. Helping your customers achieve success can translate into sustainability for your FI. 
5. Another highly desirable service for SMB is electronic invoice presentment and payment (EIPP).  According to the US Postal Service, businesses in the U.S. spend as much as $35 billion annually on printing and postage for bills/invoices and typically send 48 billion account notices, statements, and bills to customers each year.  SMB spend as much as $11 - $15 to generate a single paper invoice, versus “pocket change” to send an online invoice.  EIPP can also reduce the length of time required for generating and delivering an invoice from 8 days for a paper version, to 3 days for online invoicing. EIPP can make a meaningful difference in collecting receivables and improving cash flow for SMB. 

This is just the beginning.  Once you have identified your target market, mastered your SMB expertise and gained their trust, it becomes easier to cross-sell other products and services, ultimately deriving increased profitability from a now-satisfied customer base.

Beyond the Check-box: Prepping for your Next IT Exam

 Author:Jackie Marshall, JaMarshall@jackhenry.com

When prepping for your next IT exam, visualize the examiner with a pick and a shovel. As you work through the pre-exam checklist, consider what exists behind the check-box; if you don’t, the examiner certainly will. Can you provide specific details that indicate how you are complying with that task item or initiative? How often your IT Steering Committee and management team reviews exceptions, address residual risk and implements updates (technical or procedural), will indicate to the examiner that you are intentionally addressing IT management initiatives and not falling into a “check-box mentality.”

For example, indicating that your IT management staff and Information Security Officer regularly monitor systems for intrusions is considered an important activity for ensuring the security of your internal systems and data from internal and external threats/vulnerabilities. The examiner will also want to see actionable detail that supports specific reports, exception criteria, events to monitor for, and assignment of appropriate responsibilities to manage.  Policy and procedural activities should also include requirements for documentation and archiving as well as reporting and follow-up of exceptions.

Understanding that the simple answer of “internal audit monitors the Core, etc...” may not pass muster in this post-FFIEC compliance environment should draw attention to actionable supporting activities. But, don’t view this “pick and shovel” approach as negative. Your FI likely spends thousands of dollars and many resource hours annually to monitor systems and data. Maximizing the potential benefits of these services, including validation of technology service provider relationships is an important component not just for IT but for the business success of your organization.

Knowing how to spell out strategic detail to your examiner will indicate an intentional enterprise-wide security approach that will speak volumes about your FI’s management team and respect for IT from a business perspective.  

The Best ATM Cash Management is Driven by Process, Not Forecasting

Author: Paul Miniutti, PMiniutti@profitstars.com

Many times when discussing ATM Cash Management the focus of the conversation turns to, “How good is your forecast?” I submit that there is a better question to ask, and that the focus on effective ATM Cash Management should be “How good is your process for reconciling all that money?”

The Forecast

The forecast is one small piece of ATM Cash Management. In most cases, what has happened over the last 30 days at an ATM can provide an effective forecast: simply add up what has been withdrawn for the ATM and divide by 30. That will give you a per-day cash need.

(Total Amount Withdrawn for Last 30 Days) ÷ 30 = per-day cash need.

Depending upon the number of days between cash loads, “pad” the cash order with an extra day or two. For example, if you are cash loading an ATM every seven days and that ATM has dispensed $60,000 over the last 30 days, your forecast for one cash load would be:

$60,000 ÷ 30 = $2,000 per-day cash need.

(7 days x $2,000) + (2 pad days: $4,000) = $18,000 forecasted for cash load.

This is not that complicated and, in most cases, can be very effective.

The Reconciliation

What can be complicated is the process to reconcile from cash load to cash load. We call this the “Cash Cycle.” If we use the above example for our first order of the Cash Cycle, and then have a subsequent cash load of $19,000 (slightly more because our withdrawals increased over the previous 30-day time period), and we are doing cash swaps, the Cash Cycle looks like this:

                                         

  Day 1: $18,000 put in the ATM – Load 1
          Money withdrawn from the ATM

Day 2: Money withdrawn from the ATM

Day 3: Money withdrawn from the ATM

Day 4: Money withdrawn from the ATM

Day 5: Money withdrawn from the ATM

Day 6: Money withdrawn from the ATM

Day 7: Money withdrawn from the ATM

   Day 8: $19,000 put in the ATM – Load 2
                             Money left over from Day 1 (Load 1) returned
          Money withdrawn from the ATM

The reconciliation of this ATM requires deeper understanding:

• Tracking the cash going into an ATM – the cash loads.
• How much money has been withdrawn from the ATM, (including partial day 1 and partial day 8 amounts as the armored company most likely loads the ATM mid-day.)
• The money returned from the ATM – from Load 1.

This reconciliation can get complicated. Without a thorough understanding of the day-to-day activities at the ATM, it is easy for the ATM to “go out of balance.” Many times you are dependent on ATM cash reporting from the armored company. If this is inconsistent, one of two things usually happens:

• A lot of time and resources are spent to reconcile the ATM(s).
• The out of balance is ignored and more cash is ordered—usually more than is necessary—which ultimately increases the costs of running the ATM(s).

Final Thoughts

Forecasting is one small piece of effective ATM Cash Management. The larger process that delivers clear visibility and tight control of the movement of cash from cash load to cash load can “make or break” your opportunity to run efficient, profitable ATMs. Rather than a singular focus on forecasting, a broader perspective and implementation of the detailed analysis needed to tighten the Cash Cycle can help drive greater success at the ATM.