As Branches Transform, So Does the Management of Cash

By David Austin02.16.2015

As consumers’ banking habits and preferences evolve, many credit unions are transforming their branches to incorporate more innovative devices and consolidating personnel responsibilities, all while reducing their footprint. But what does this branch transformation mean for a credit union’s cash management processes?

Older methodologies for cash management are unsustainable for this new branch model. Historically, front-end staff and head tellers have been attuned to their branch’s cash positions and therefore responsible for determining a branch’s cash needs based primarily on their own intuition. This is no longer the case, however, as tellers are taking on more consultative, sales-focused roles, so they are no longer as actively engaged in managing the branch’s cash position.

In response, many credit unions have turned to new hardware solutions to manage their cash, and while these devices can handle the processing, handling and distribution of money, these tasks represent just a few pieces of the cash management puzzle.

Understanding a branch’s cash utilization and demand; submitting cash requests from the branch to the cash supplier; and the oversight and audit of cash are all vital components of cash management that cannot be done effectively through the use of hardware devices. As a result, many credit unions are simply choosing to manage their cash right up to the limit because they have no insight into their actual cash needs. Yet doing so often results in significant cash overages—in fact, financial institutions’ cash levels are typically 30 percent higher than their actual need.

Credit unions are missing the critical opportunity of redirecting this excess cash from physical branch locations to alternative investments and lending. Cash is often a forgotten asset class, but as credit unions are mining their balance sheet, they realize they need this inventory. Additionally, recovering these assets is more important than ever before as credit union’s balance sheets are becoming more “loan-rich” due to loosening credit restrictions.

To survive in this new environment, credit unions need to focus on ways to fund loan demand, and cash continues—and will always continue—to represent the cheapest asset class to tap into for lending opportunities. Credit unions must change their philosophy from managing up to the cash limit to managing down to cash usage, and the key to accomplishing this is to truly understand how their cash ebbs and flows.

Contrary to popular belief, forecasting cash demand is the lowest cost in the cash management cycle. Today’s credit unions have an abundance of affordable analytics and technologies at their fingertips to better align cash inventory with member demand.

Credit unions that manage up to the cash limit rather than down to cash usage will find themselves at a strategic disadvantage in a rising rate environment. As interest rates go up, the cost of funds also goes up, so credit unions should manage their cash more aggressively as opposed to borrowing that money in a rising rate environment. Credit unions that proactively reposition their cash management efforts will be better prepared to meet increased lending demand and uncover new revenue streams, enabling personnel to redirect their focus on their members.

David Austin is vice president of Atlanta-based CetoLogic, a provider of software and analytics solutions for financial institutions and retailers. He can be reached at 678-648-5158 ex. 233 or

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