The first use of currency dates back to 3000 B.C. in Mesopotamia and for more than 5,000 years, merchants and banks have been involved in the time-consuming, largely manual cash logistics business.

Whether or not currency will last another 5,000 years is anyone's guess, but talk about a "cashless society" (along with the prediction for a paperless office) has ebbed as it becomes clear that cash and coin is not going away, at least not during our lifetimes. "As a society, we never sunsest a payments system,", says Jim Poteet, senior vice president, product strategy and innovation, U.S., for Brinks. "Instead, we just keep adding new payment methods." Poteet is right: for example, the barter system that came into existence perhaps 100,000 years ago as a way for teh first homo sapiens to exchange goods and services is still in use today.

In an effort to make currency management less of a profitability drain, banks began outsourcing cash and coin transportation to armored vehicle providers - "guns and trucks" - years ago. Cash logistics is a business of scale, explains Bob Meara, a senior analyst with Celent. "Cash vaults are expensive in terms of the building and the physical security. It's difficult to right-size your vault," he says.

In an out-sourcing arrangement, a bank contracts with a cash-in-transit (CIT) provider to handle currency processing, explains Poteet. "Banks will outsource processing work to take advantage of a variable cost model and supply chain efficiency," says Poteet. "Banks are also attracted by the high degree of technology that a third party can provide."

Like cash, which has basically been the same for thousands of years, the CIT industry is not a glamorous or quickly changing business, notes Meara. "It's a market that is well established with a few vendor players competing, often on price, for the same large-bank contracts." He adds, "It's a slugfest at contract negotiation time".

Virtualizing the vault

The CIT providers, which inlcude Brink's, Dunbar Armored, Garda Cash Logistics, and Loomis, began their relationships with banks by offering cash counting, coin wrapping, ATM replenishing, and transporting currency back and forth from bank branches to teh Federal Reserve. Roday, these same providers are trying to deepen these long-term relationship with modernized offerings that include virtual vaults and cash, coin and check capture using smart safes.

Unlike it's name implies, a virtual valut is soundsly grounded in teh physcial world. The vaults themselves exist at hundreds of locations. Rather than transport commercial deposits to teh bank, however, the CIT processes deposits, serving as the bank's repository in areas where the bank doesn't have a physcial presence.

For banks, the virtual vault expands their geographic footprint without having to invest in expensive brick and mortar, says Malcolm Stokes, vice-president of strategic accounts for Garda. Virtual vault is a solution that appeals to a wide variety of financial institutions, from large national institutions to community banks. 

Merchants with many stores or restaurants that previously needed to have depository relationships with multiple banks to serve far-flung locations can consolidate those relationship with a virtual vault offering. "A merchant would normally need an account with a local branch in order to make deposits," explains Curtis Hallowell vice-president and product manager at Cummins-Allison. "With virtual vaults, a bank can meet the needs of their customers even if they don't have a brick and mortar location available."

The reserve is also true, says Stokes. Those financial institutions wanting to reduce their brick and mortar costs can shutter bank branches by moving to a transparent virtual vault solution without impacting their commercial customers. "If you have an excellent relationship with a commercial account, you odn't want to lose the business just because it makes economic sense to close a brick and mortar branch," he says.

"Smart safes" for non RDC crowd

In addition to currency, checks are also getting some attention from CIT providers. Although the number of checks presented at teh point of sale is dwindling as customers increasingly turn to debit cards, for the foreseeable future checks will remain attractive to some consumers and merchants will be forced to deal with them.

While imaging checks at the point of sale with remote deposit capture (RDC) can eliminate the need to courier checks, RDC is not appriopriate for all merchants. For businesses that handle a lot of checks - property management firms come to mind, says Meara - RDC is a "slam dunk." These check-heavy businesses can use high-speed check archive solutions from providers usch as Cummins-Allison, which recently introduced a new desktop device capable of digitally storing 400 checks per minute and then transmitting the images to a virtual vault run by a CIT provider.

But for businesses such as dry clearners that only accept the occasional check, installing the RDC machinery and training emploees to use it is not worth the expense, says Meara.

To address the costly and laborious process of transporting checks, CIT providers offer check image capture witin cash vaults. According to Meara, these smart of intelligent safes located at teh merchant are probably the most interesting development in the cash logistics business within the past few years.

"The smart safe works hand-in-glove with the virtual vault but deposits only need to move to teh virtual vault when the safe is full, saving on transportation costs," says Meara.

For exmaple, Dunbar's Cash Manager Safes sit at the merchant, accept and validate deposits (currency and check) and transmit deposit data wirelessly to participating banks, giving the merchant provisional credit for deposits still physically located within the safe.The safe not only reduces deposit float for merchants but also keeps store and restaurant staff on premises rather making a trip to the bank.

While keeping employees on site may seem like a minor benefit, it can acctually make a huge difference in the merchant's ability to service ustomers. Stokes tells the story of one retaurant that noted that the taste of it's food improved after installing Garda's CashLINK solution because management was always available for quality control.

In addition to keeping money safe, a smart safe also keeps employees safe and well, notes Stokes, since staff doesn't need to carry large amounts of cash on their person.

Some risks of virtual vaults

The risks of virtual vaults are few, notes Jake Aleman, vice-president of advisory services at Abound Resources, an Austin, Texas-based consulting firm, especially if banks contract with a well-known, reputable firm that has invested in processes and infrastructure. What is risky, says Aleman, is not having an audit program that includes onsite visits. "We often see banks dropping the ball. Even though you outsource the vault, you still need to manage the outsourcing relationship and validate what the vendor says, including managing the cash at the vault," says Aleman.

The other risk, he adds, is that since the vendor processes cash, coin and checks on the bank's behalf, the bank may not readily have the information they need to resolve customer deposit questions or discrepancies. "The bank is a bit in the dark, causing a possible degradation in customer service timeliness or delivery," says Aleman.

Growth likely to continue

"We expect to see banks increasing their outsourcing of the entire cash vault network, including virtual vaults," says Garda's Stokes. "Banks tell us that counting currency is not a core function for them. It's also a process that requires specialized equipment, security, and a physical presence."

While treasury management staff view virtual vaults as a way to attract and retain commercial customers without bricks and mortar, operations executives see virtual vaults and outsourcing as an efficent way to reduce costs, Stokes explains.

Poteet adds that the growth of cash vault outsourcing is buoyed by a perfect storm of increased legislation and comprimised revenues that make it even more imperative for banks to reduce costs. "Theres been a huge groundswell of outsourcing in the top five to ten banks in the U.S.," he says, "not just for currency, but for processing all payment types that can drag on profitability."

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