Retailers are becoming increasingly aware of the material costs of sorting and authenticating cash payments. European makers of cash-handling systems expect cash payments to stay. Although future trends favour sophisticated POS hardware, cashless payments are also making inroads, particularly in the regionwhere shoppers prefer convenience above all.
Elsevier Food international, Vol.8, No.4 November 2005
Joel H.Vega

 

Cash handling involves tedious cycles of counting, sorting, authenticating and other tasks that add up to significant operational costs. From the customer’s viewpoint, timesaving at the point-of-sale is a central issue. Good news for retailers, emerging trends in hardware and software systems offer efficient solutions.

In the retail payment cycle, counting, authenticating, sorting, accepting, dispensing, storing, depositing and reconciling occur repeatedly. The cycle incurs operational costs and the opportunity for error. Some retailers may neglect the issue, but the cost impact is significant or up to five per cent of operating and administrative expenses, based on current industry estimates.

For many retailers the point-of-sale (POS) is a key opportunity to implement effective cash handling, but security issues at POS require effective management. De La Rue, one of the world ‘s leading providers of cash-handling equipment and software solutions, said associated costs incurred are significant. “For a 500-store retailer till skims can cost up to US$3.2 million per year, and completing a spot check per till per day may cost US$2.25 million in Loss Prevention labour per year,” said De La Rue (data represents a typical US retailer with 500 stores, ten register lanes per store, and standard industry practices).

Data entered at the point of sale is the first stage in the retailer's cash management process and De La Rue noted that using efficient systems is crucial. “Accuracy at this stage drives cascading benefits through the retail payment cycle back to the group treasury,” De La Rue noted.

Promise of self-checkout
In payment logistics, which covers float deliveries (coins and bills for start funds and advances), armoured car collections and deposit tracking, cost and security trade-offs can mean additional costs. “Armoured car collections can cost up to US$3.6 million per year across a retail group, and on average each collection costs nine times as much as a day’s return on deposit,” said De La Rue.

Retailers also have to grapple with third party payment management processes, which cover bank processing of bills and checks and manufacturers’ re-imbursement of consumer coupons. In the US, according to De La Rue, a typical retail group may face an annual cost of US$2.5 million for bill depositing and change orders may amount to US$1 million per year.

However, with recent advances in IT and digital systems, retailers are now faced with an array of cash-handling systems that employ sophisticated hardware and software technologies. In previous decades, retailers have shown little interest to improve cash-handling capabilities. But the attitude is changing. Lars Malmgren, marketing manager at Scan Coin Europe, noted that retailers today are keener to acquire cash-handling solutions.

“Retailers are more convinced and eager to learn how they can boost their margins by getting efficient systems,” Malmgren said. He added prospects for cash-handling machines have actually brightened up in Europe since the introduction of the euro. At Cash Coin, Malmgren said there is wide interest for its Retail Cash System, which consists of two parts: Cash Out, where cashiers withdraw notes and coins and Cash In, where the shift’s takings are deposited. “The solution replaces back office manual work enabling the staff to focus on other more important customer-related tasks,” Malmgren said.

Malmgren, however, noted that future trends would be on POS terminals. “ I expect the use of POS terminal for each cashier. Self-checkout will also become a major trend. Most likely, we will also see a combination of both POS and self-checkout. At the same time, some retailers would still have their back-office systems,” he added.

Although self-checkout machines carry a higher tag price than back-office systems, the machines have a quick return on investments (ROI) and tend to pay for itself after a year. “Self-check out systems are already in use in the US. It might take around two to three years for self-checkout to take hold in Europe,” said Malmgren. Swedish retailers, on the other hand, have been using POS terminal systems for the last three years, and for mainland European retailers the use of POS terminals is expected to hit the mainstream within the next five years.

High interest
For manufacturers of advance POS systems there is no lack of enthusiasm from retailers. “The interest is enormous and everybody talks about POS terminals,” said Malmgren. Manufacturers, however, need to win retailers on ROI since with the low retail margins the cost effectiveness of the machines must be clear and convincing.

In September this year, NCR Corporation announced the instalment of 12 NCR FastLane units at Tesco Metro in Cheapside, London. The store has converted 60 per cent of its checkout positions to self-checkout. “Self-checkout has proved very popular with customers in other stores. It will provide busy office workers in Cheapside with a convenient service,” said Jonathan Yelland, team leader for Self-Checkout at Tesco.

“Self-checkout gives retailers on-demand capacity and unrivalled flexibility when it comes to staffing their stores,” said Alberto Camuri, NCR’s vice president for Retail Solutions in Europe, the Middle East and Africa. Tesco currently has self-checkout in 137 stores and plans to extend this to 220 by the end of the year. Tesco noted that in other stores with self-checkout 20 per cent of transactions go through the self-service lanes.

By touch
The other side of the coin is cashless payment, another upcoming trend that saw a successful start in the US. Pay By Touch, first introduced in 2002, is a service that allows customers to pay for purchases using a simple, secure method of finger scanning at the point-of-sale. Eliminating the need to carry cards, cash, loyalty cards or a chequebook, finger-imaging links the individual to an electronic wallet that holds the financial and loyalty programme information. The initial enrolment process takes about a minute as customers put their finger on a reader, enter a code and swipe the cards they want to use.

The manufacturer of the Pay By Touch is quick to point out that finger-scanning technology does not store actual fingerprints, but creates a set of geometric points that allow a secure identity match at POS. Tom Fischer, vice president marketing for Pay By Touch, said the first launch in the US showed that the enrolment rate was markedly higher than in credit card companies. “The system was also used by shoppers in one for every five transactions, a rate that is higher than the use of credit cards,” said Fischer.

“The response (to Pay By Touch) in the UK has been very positive. COOP (UK) would launch pilots and go live by end of this year (2005),” Fischer said. According to Fischer, retailers benefit from reduced fraud and charge back rates because a finger scan is a more secure authenticator than other forms of payments. He said that Pay By Touch enables the retailer to drive payment choice at the point of sale by encouraging their preferred payment method during enrolment or by sequencing payment selections on the system.

“Significant reductions for retailers in transaction costs are estimated to be as much as 60 per cent lower. Aside from the timesaving for customers, it has the convenience of tying the different loyalty cards customers have,” said Fischer.

Concerns over privacy issues or customer profiling does not bother advocates of cashless systems, as they believe that consumers would prefer ease and convenience. Pay By Touch stresses the system is entirely voluntary with customers retaining the option whether to enrol only for payment, only for loyalty cards or for both. The makers of Pay By Touch also assure consumers who are worried about identity theft. “Consumers are completely in control. Biometrics is a way to recognise people and verify an individual's identity,” the company says, adding that biometrics presents a secure payment process that is not perceived to be invasive.

Whether the Pay By Touch variant of cashless payment would elicit more success remains anybody’s guess. Fisher, however, is optimistic that both retailers and consumers are ready for Pay By Touch. “There are no validated reports on ROI from using Pay By Touch, but some estimates run in double digits or million-pound savings,” he said.

Malmgren, however, noted that around ten years ago the Smart Card option entirely flopped in Europe. It was only in Hong Kong where the so-called electronic purse is still in wide use.

Malmgren expects that orders from the retail market for cash-handling systems will grow by around 15 per cent in the next few years. Regarding nascent chip-based technologies such as RFID (radio frequency identification), Malmgren acknowledged that chip-based systems would create their own market. “I expect a slow introduction as the (RFID) technology has to hurdle a few obstacles,” he said, reiterating that prospects for cash payments are bright in the coming years.