Diebold Nixdorf’s Simon Powley on the integration of physical currency and digital tools
- Cash use has significantly dropped during the crisis but there are still concerns around fairness in a digital society.
- Integrating physical currency and digital tools is an important role of banks now and into the foreseeable future.
As we’ve discussed many times on the podcast, the pandemic has accelerated a lot of digital trends that were already underway before COVID-19 hit. There’s been a big push away from cash and towards contactless but major US cities are pushing back on cashless retailers. So, where will all this lead?
Diebold Nixdorf’s Simon Powley, head of global banking advisory services, joins me on the podcast to discuss integrating physical currency and digital tools. Drilling down, we look at the durability of cash and ATMs as a banking channel. Powley shares insights from his work with major banking institutions around the US about the future of cash and banking, in general.
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The following excerpts were edited for clarity.
What bankers are feeling right now
From a kind of a macro level, there's uncertainty. I think the good news is even for generational bankers, we've been through hardships before with the Great Recession in 07 and 08. So, there's what my mom always described to me as 'a little bit of muscle' built up there in terms of being able to react and understand the environment.
Banks don't traditionally do well with change. I think a lot of institutions either have grappled with or understood that they haven't made the necessary investments or taken on the direction of where they need to go. I think they're feeling a lot of that right now: the anxiety around what to invest in. I think a lot of them are kicking the can down the street a little bit, so to speak, because they haven't really truly realized the impact of this, but they will soon. There's only so long you can keep these loans as non performing assets on your balance sheet before you really have to take some actions.
Consumer habits changing
From the digital side, you've got the change in consumer behaviors. Where are consumers going during this particular time? And what are they going to gravitate to? And what are they really going to do? Because I think a lot of times, you look at surveys -- here's what our surveys are saying, here's what our customers are saying, here's what the ecosystem and all the publications are saying out there. And sometimes what people do is different than what they say they're going to do, right?
Are people going to go back to what we call the traditional behaviors of branches or interacting physically, rather than go down these digital channels? I don't think so. But they'll probably be a little bit of that. So, banks are grappling with this, thinking about what are the hot investments they need to make to deliver on their value propositions. Mid-size banks feel as though they can be a little bit more personalized than the large financial institutions that leverage technology or other other resources to establish a relationship. I think they're kind of scratching their heads, as well. Because when you've got these large institutions that are becoming so technology oriented and investing so much in that, and consumers are gravitating towards that, how do you really differentiate yourself and keep your identity and keep your customer base? And not just the older customer base, the kind that regional banks traditionally have. How do we recruit and get a younger demographic and attract a new customer base at that level? How do we compete with that, especially when things are accelerating the way they are?
Financially modeling the migration to digital
We do a lot of project work with our institutions to not only provide thought leadership, but as they're integrating these services, what are the critical things that they need to do within their institution to really drive adoption to these channels and make them stick? We do a lot of analysis and ROI modeling.
Let's take deposit automation, for example. If you want to migrate users to digital, there's a significant cost associated with upfront development, but there's also a significant cost in doing business that way. By our analysis (I think BofA uses five bucks), we use about $4 and 20 cents. If I was to go in and make a $20 deposit with you Zack as a teller, it costs the bank about $4 and 20 cents. If you can migrate that same $20 deposit to an ATM, let's call it 80 cents, something around that, okay. And, of course, if you go to mobile, then you're down to 15 cents, or maybe even less, depending on scale. So you can see that the ROI gets developed there. There's a tremendous amount of interest in doing that.
The present and future of cash
When you talk to financial institutions and banks like I do every single day, when you talk to the folks that actually deal with cash in the branch, it's still a pain point for them. They still use a tremendous amount of cash. From a digital perspective, I kind of take that as, alright, we're still using a lot of cash out there, because they're talking to us about this in the orders.
The other thing is, I guess it was about a month or two ago, I was listening to some information from the Fed, and they were saying that there's more cash in circulation right now than there ever was. And I mean, significantly more. The Fed is not recycling bills. What I hear from banks is, when they receive cash into their vaults, they're hearing the ink crack because the Fed literally can't produce cash fast enough. When you take some of those data points, there's a lot of cash still in circulation out there and being used.
Cities like Seattle, San Francisco, and New York are really talking more about the disparate impact of a cashless society and how that impacts the less fortunate. We've certainly seen that over in Europe -- there's a real impact to financial institutions and consumers when you don't have cash as a currency or the ability to leverage that.