The post-COVID-19 recovery, growing geopolitical volatility and global inflation drove a renaissance in cash transactions in the U.K. and other advanced nations, providing cash in transit (CIT) security operators with windows of business opportunity and the associated risks.
Despite an ongoing transition to digitalized payment transactions in modern economies, companies in the CIT security sector are projected to see the global revenue pool grow significantly over the next decade, according to a variety of reports.
One recent report forecasted the ATM security market alone to grow to $32.4 billion by 2032 (from $13.7 billion in 2022), a compound annual growth rate (CAGR) of 9.2%. An earlier report from 2022 suggested that revenue from the wider ‘cash logistics’ industry – comprised of CIT, cash management services and related financial institutions – would reach $46.3 billion by 2030, growing in the 8 year interim at a CAGR of 8.2%.
Any way you slice it, the near future looks bright for CIT security vendors, manufacturers and service providers, as well as the insurance community that helps those companies to manage business risks. Longer term, however, CIT operators face some stark questions about the viability of their business models as global purchasing continues its transition to digitalization.
After a larger than anticipated fall in cash transactions in the U.K. during the COVID-19 pandemic-as the public sought to avoid infection-the latest data suggests the use of coins and notes grew 7% in 2022 as consumers pursued a more dependable way to manage their budgets. Unlike credit, cash almost never gets refused by retailers.
The number of people who lived ‘largely cashless lives’ – those who either use no cash or use it about once a month – fell from 23.1 million in 2021 to 21.6 million in the U.K. last year, reversing a decade long downward trend.
That said, the U.K. remained outside the top 10 cash dependent countries in Europe in 2022, where Bulgaria led the way. Globally, Morocco led the four African countries that topped the list of the most cash dependent nations; Norway led four Scandinavian countries in the global top 10 of cashless societies, according to Payments Industry Intelligence.
Globally, the CIT services sector is predominantly propped up by end users from five business segments: academic institutions; banking, financial services and insurance; hospitals; governmental organizations and retailers.
In advanced countries, cash transactions are more prevalent where the use of immigrant labor (both legal and illegal) is more common, simply because this community often struggles to access bank accounts. The U.S. and Italy are examples of advanced countries where this part of the economy remains cash driven; in the U.S., one report found ‘unbanked’ consumers made up 5.4% of U.S. households in 2019, or roughly 7.1 million people.
Irrespective of business segment or banking status, the commercial use of cash payments has long been used to assess the stability of a country, both economically and geopolitically. In general, demand for cash rises during sudden inflationary economic cycles, periods of political unrest, and where higher crime rates or national conflict exist.
This would appear to indicate that opportunities for CIT security companies grow when countries become less stable, but there are often trade-offs for them within these crises: for example, as stability wains, the risks of employee infidelity and attacks on armored cars and ATMs are likely to rise; and there is often less capital available for governments and private institutions to invest in security services, or to pay the higher premiums for insurance cover.
While losses from ATMs attacks are the most frequent cause of insurance claims, attacks on financial infrastructure are not restricted to regions or times of instability. In the U.S. for example, the number of criminal incidents against ATMs – ranging from machine extractions to fraud and cyberattacks – have grown 600% between 2019 to 2022, according to the ATM Industry Association (ATMIA). ATMIA reported that incidents were up 165% during 2021 to 2022 alone.
However these incidents did not necessarily follow the same criminal methodology across the country. Texas and California had very different crime patterns; one was nearly all ‘smash and grab’ machine extractions, while half of the other state’s incidents involved ‘skimming’, a type of payment card fraud that uses the theft of the cardholders’ personal identity numbers.
Furthermore, a handful of states had relatively high incidences of ‘jackpotting’, a criminal activity which involves exploiting the ATMs’ software vulnerabilities.
In Germany, extraction attacks against ATMs have risen more than 40% since 2019, according to the country’s interior ministry. Raiders stole nearly 20 million euros ($21.9 million at today’s rates) in 2021, when 392 ATM ‘explosions’ were recorded; that number rose to 496 in 2022.
Investigators attributed the recent rise in attacks to two factors: the German preference for cash (60% of the country’s purchases are paid in cash) over cards, and easy access to the Autobahn, where largely unrestricted speeds provide quick escapes and access to borders.
In markets where ATM attacks are on the rise and criminal methodologies diverge, the complex and often fluid conditions need to be reflected in company risk transfer strategies.
Standard umbrella policies for theft and/or asset damages are unlikely to fully cover the gamut of risks that companies face; specialist insurer/broker expertise in everything from robbery and fraud to cybercrime and software security is fundamental to designing policies that can fully transfer the basket of risks faced by CIT security companies.
While pockets of regional economic and geopolitical volatility can generate occasional windows of commercial opportunity for CIT security companies, in general, the global demand for cash is expected to decline.
Even in Germany, a country with a strong historical preference for notes and coins, cash payments for goods and services fell to 58% in 2021 from 74% in 2017. In its latest report, in April, Deutsche Bank, the country’s leading financial institution, said: “This shift is now unlikely to reverse, with the drive for change propelled by the vested interest of financial institutions and their efforts to make digital payments more seamless and user friendly.”
The global transition is also being driven by demographics; young people disproportionately use digital payments at the point of sale and, as they grow older, the number of consumers that remain committed to cash transactions will inevitably decline.
For example, one U.S. based report found that the 18-24 age group of consumers made about 17% of their purchases in cash in 2021 (down from 32% in 2016), while the 55-64 age group used cash for 26% of purchases. As generations ‘Z’ and ‘Alpha’ age, that is expected to widen, weakening the demand for use of cash.
The impact of the demographic driven decline in cash payments will be softened to some extent by banking policies at the national and intra-regional levels; the European Central Bank, for example, is encouraging countries within its remit to maintain healthy levels of cash in their system, in part to maintain payment flexibility, but also to ensure that all socioeconomic groups remain served by the financial sector.
For the foreseeable future, cash is destined to remain a part of the global financial system; and CIT security companies can be expected to add value to their business models and lessen the risks of transporting cash by offering new technologies such as smart safes and trucks, and by embracing other security advances, such as tracking software, GPS and the use of artificial intelligence.
Adding value in this way will help CIT operators to remain relevant even as the global digitalization of payments gathers pace. But there is increasing recognition that the longer term future for CIT operators will depend upon their ability to adapt their business models to a global finance industry that increasingly uses blockchain transactional systems and cryptocurrencies.
For more information on how to protect your CIT business against the complex range of present and future business risks, please contact us.
WTW offers insurance-related services through its appropriately licensed and authorised companies in each country in which WTW operates. For further authorisation and regulatory details about our WTW legal entities, operating in your country, please refer to our WTW website. It is a regulatory requirement for us to consider our local licensing requirements.
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