By SAM BOSCH, President, Peregrin Financial Technologies
Information technologies have affected societies worldwide as significantly as the advent of electricity, wireless communication and manned flight. With the use of computers we can now land Curiosity on Mars, confirm the existence of the Higgs boson (“God’s particle”) and control the flight of unmanned drones any place in the world from an Air Force cubicle in the Nevada desert.
In the last decade, computer technologies have become much more functional and much less expensive. If the automotive industry had enjoyed comparable advances, we could now purchase a Mercedes Benz for $2.50 and get 100,000 miles to the gallon.
The payday loan industry has already benefited from computers through improved accounting and email communication.
Computers and the Internet enable an employee at a payday loan store to enter data into a computer and receive — from multiple databases, in a few minutes — information about an applicant needed to decide whether to provide a loan.
But the last frontier for the industry is the handling of cash — the 24 inches between the cash drawer and the customer’s hand.
Store clerks manually count and recount banknotes a number of times before handing them to the customer. Now there is an affordable and simple information technologies solution for this task.
Utilizing the information technologies incorporated in automated teller machines, coupled with Internet connections and unique application software, management can track in real time all payouts and cash balances in addition speed up transactions for staff and customers.
Cash Handling Is Expensive
At this year’s CFSA Conference, John Hecht of Stephens Inc., stated that in 2012 the payday loan industry dollar volume for the 19,000 payday stores was $30 billion.
Assuming $20 notes, the total number of bills “touched” a number of times before being received by the loan applicant was 1.5 billion! This manual task is labor intensive and subject to errors and risks. Historically, there has been no real-time way to measure or control this activity.
Financial institutions have calculated that the cost of handling cash is 1 percent of sales — a small percentage, but the total cost is significant.
To improve the tasks of cash handling and to reduce its costs some banks have invested in the teller cash dispensers marketed by Diebold, Burroughs and NCR. These cash products can dispense four or more different denominations very quickly and often can be used by two adjoining tellers.
Financial institution TCDs can also be linked to the branch’s computer system, but they are not Web-enabled, and they are very expensive — $18,000 to $30,000.
Although some of the features of these products are attractive, their cost puts them out of the reach of payday loan storefronts.
But now, by utilizing the basic technology of ATMs plus innovative software such as the SeguraCash application from Peregrin Financial, payday storefronts can afford TCDs.
Here’s how it works. The clerk is issued a unique mag-stripe card that has a number of parameters assigned to it: the maximum amount of money that can be dispensed in one transaction, say $100 to $1,000; a time-delay between dispenses, say zero to 10 minutes, and the total amount that card can dispense in one day, say $1,000 to $10,000.
These parameters are selected when the mag-stripe card is issued to the employee and can be changed at any time.
At the beginning of the business day, the TCD’s cassettes are loaded with cash. When a payout is desired, the clerk simply swipes the special mag-stripe card into the machine, which is generally located right at his/her station.
Once he keys in the four-digit PIN assigned to that card, the TCD displays up to five pre-selected cash amounts, ones that are commonly used in the course of a day’s business, plus a sixth option that allows the employee to key in a different number if one of the displayed-values is not the desired amount.
If the card number, PIN, dollar amount, and the delay period are all valid, the TCD accurately and securely dispenses the bills at a rate greater than two bank notes per second.
It then prints a receipt with the TCD’s ID number, the date and time of the transaction, the card number and the amount dispensed. The employee counts the bills one time in front of the loan applicant.
In addition to dispensing banknotes at the storefront, a TCD has the important advantage of being Web-enabled. This means that all dispense transaction can be monitored in real time.
A payday loan company headquartered in Houston with hundreds of stores across the United States can with equal ease access transaction activities 24/7 for payday locations in Los Angeles and Boston, or in Vancouver and Montreal if some locations are in Canada.
ATMs are actually specialized personal computers: they have microprocessors, memories, keypads, built-in Internet connections, and displays. Their functionality also includes reading mag-stripe cards and dispensing cash.
Two decades ago, a dial-up merchant-ATM with limited features cost $10,000 or more. Now, because of the advances in technologies and the advantages of high-volume manufacturing, an entry-level ATM dispensing a single denomination can be acquired for less than $2000. Multi-denominational equipment tops out at less than $6000.
Using a TCD incurs a small per-transaction fee but avoids interchange fees, surcharge fees and bank sponsorship fees.
Like merchant ATMs, these TCDs are Web-enabled, which means all cash dispenser transactions are logged and can be remotely monitored from any Web-enabled device — a personal computer in a home office or even a smart phone on Waikiki Beach.
The cash balances in the TCD’s cassettes can also be viewed in real time.
It’s an opportune time to consider modernizing a store front with new TCD technology. Because they are electromechanical devices the cost of TDCs are not expected to come down much further. Future improvements in the software will add functionality, but won’t require new equipment.
Forecasts are that in the near future more than 10 percent of payday loan and check-cashing storefronts will install TCDs that will not only improve the security and efficiency of getting cash handed that last 24 inches across counters, but will also provide important management tools for the payday loan and check cashing industries.
Sam Bosch is the founder and president of Peregrin Financial Technologies, a company that develops and markets merchant- and consumer-activated cash logistics products and services. Contact him at (503) 690 1111 or firstname.lastname@example.org