Review of Banknote Distribution Arrangements: Issues Paper 4. The Cash-in-Transit Industry

In the cash distribution system, CIT companies are largely responsible for moving and processing banknotes. Unit costs for cash processing and transportation are increasing as transactional cash use declines, which is putting financial pressure on some parts of the CIT industry. This section examines the CIT industry's role in cash distribution, the changing landscape for these businesses and its implications for cash distribution. For the purposes of this review, CIT companies refer to any cash logistics operator that transports, stores and/or processes banknotes on behalf of a client.

4.1 Nature of the industry

CIT companies form the core of the cash distribution system, where they transport, process and store physical currency. Based on information from an independent inquiry, there were more than 300 companies providing CIT services in Australia in 2015, with about 120 of these doing regular CIT work (Road Safety Remuneration Tribunal 2015). Despite the large number of firms in the industry, most of these are relatively small operators, such that the CIT market in Australia is fairly concentrated with two dominant players. The largest participant is Linfox Armaguard, followed by Prosegur Australia, both of which conduct wholesale cash distribution (i.e. moving cash to and from the Reserve Bank) and service the cash-related needs of financial institutions, large retailers and hospitality venues. These participants together comprise between 70–90 per cent of the CIT industry's market share (Road Safety Remuneration Tribunal 2015; Parliament of Australia, Rural and Regional Affairs and Transport References Committee 2021). Two other CIT companies – Streamcorp Armoured and Brinks Australia – also participate in wholesale cash distribution and processing.[7]

Wholesale distribution requires the ability to reliably and securely move large volumes of banknotes, and so the largest firms generally use armoured vehicles and specialised security guards. They also offer a range of cash management services in addition to transportation, including: vaulting and safes; cash processing; banknote refilling for ATMs and ticket machines; and cash demand forecasting. The larger CIT companies tend to have a broad geographic network of depots and trucks, although this is not a requirement to undertake wholesale distribution. Recently, the two major CIT companies have acquired ATM fleets (discussed further in Section 4.3), making it increasingly difficult to separate out the elements of wholesale and retail cash distribution. Smaller CIT firms tend to use non-armoured (‘soft-skin’) vehicles, typically to undertake low-volume cash transports. Liaison suggests that demand for these services may be increasing, as day-to-day cash use declines. The Reserve Bank has little involvement with these firms as they are not involved in wholesale cash distribution.

Indeed, the Reserve Bank only has access to data on a subset of the cash distribution market – namely, banknotes lodged at approved depots. Accordingly, much of the discussion in the following sections relates to this subset of cash movements at depots operated by approved CITs. This is likely to cover a large portion of cash movements in Australia, but – if firms shift their cash management to smaller firms as cash use declines – the data will become less representative over time.

4.2 Issues facing cash-in-transit companies

4.2.1 High fixed costs and a declining revenue base

Segments of the cash distribution system are likely to be characterised by relatively high fixed costs. A number of activities – such as securely storing, safely transporting and quality sorting banknotes –require investment in specialised equipment and vehicles. This means that elements of cash distribution will tend to be significantly more efficient and cost-effective with higher volumes.

While a significant proportion of the costs of cash distribution is likely to be fixed, revenues tend to be more closely related to the amount of cash that is processed and transported between the Reserve Bank, cash depots, bank branches, ATMs and retailers. The decline in cash used for retail payments has lowered the volume of cash changing hands and so processing and transport volumes by some of the larger CIT companies will have declined. Australia's vast geographic size and relatively low population density also contributes to the costs associated with meeting demand for cash services, such as picking up cash from retailers and the servicing of ATMs, in regional and remote locations. The combination of high fixed costs and lower processing volumes is likely to be having a material effect on the profitability of some businesses in the cash distribution system.

Recent testimony to a parliamentary inquiry indicated that the issues of a declining revenue base and high costs are becoming increasingly acute for at least the larger CIT players (Parliament of Australia, Rural and Regional Affairs and Transport References Committee 2021). One solution could be for these CIT companies to raise the prices charged to cover their costs, including the cost of capital. However, there may be reasons why doing so presents issues. For example, if the increased cash distribution costs were passed on, businesses may choose to use less cash in their operations or no longer accept cash as a payment method, thereby reducing the public's ability to use cash. Also, should the profitability of an individual CIT company fall to such an extent that it exits the market, cash distribution – and with it access to cash – could be disrupted, at least in the short term.

Q4: How have the cost structures and revenue streams of CIT companies changed as transactional cash use has declined? Are there aspects of cash distribution that have costs that are difficult to reduce as cash use declines, and how significant are these?

Q5: Are there factors that prevent CIT companies repricing their services to reflect rising unit costs? If so, what are they?

4.2.2 Underutilisation

Declining cash use for payment transactions has been associated with significantly lower processing volumes at approved CIT depots. This appears to have given rise to excess processing capacity in some parts of Australia's cash distribution network. Reserve Bank estimates of aggregate approved depot utilisation, based on the volume of banknotes processed, suggest that utilisation has declined over the past decade with a particularly sharp decline since the start of the pandemic (Graph 10). These estimates indicate that current depot utilisation may be as low as 50–65 per cent.[8] However, utilisation is unlikely to be uniform across the country, with Reserve Bank estimates suggesting that it tends to be somewhat higher in major cities compared to regional areas.

Graph 10
Graph 10: Annual Capacity Utilisation

Some degree of underutilisation in the cash distribution network serves a useful function. Regarding processing, spare capacity is important to manage the normal seasonal fluctuations in demand for cash, particularly during peak periods such as Christmas. For example, the amount of banknotes processed at depots tend to be 13 per cent higher during the Christmas period than in the six months prior. Regarding storage, sufficient capacity is required to meet both regular demand and as a contingency for periods of unanticipated demand, such as in times of acute economic and financial stress. Overall, some level of spare capacity is important so that cash access is not hampered by an inability to process and/or store large volumes of cash. However, a sustained high level of underutilisation can be costly to maintain and inefficient when looking at the network as a whole.

Low and falling capacity utilisation for banknote processing implies that for some regions and in some time periods, total demand for cash services could have been met by fewer CIT depots. Reserve Bank estimates suggest that in 2020, Australia-wide cash demand could have been met by around 20–30 per cent fewer depots than were actually in operation (Graph 11).[9] While a few depots have been closed in line with falling demand, these estimates indicate that there is a sizeable gap between required and operating depots. This suggests there may be efficiency gains from, for example, consolidation or downsizing of cash depots or even adopting a different business model, particularly if the trend decline in transactional cash use continues.

Graph 11
Graph 11: Number of Cash Depots

Q6: Is there underutilisation in the CIT industry in Australia? If so, how widespread is it (e.g. by region or size of depot)? What is being done, or could be done, to address underutilisation?

Q7: How would you describe the business conditions and issues faced by CIT companies? Are there other strategic issues faced by current or potential participants in cash distribution that have not been covered in this paper?

4.3 Responses to changes in the cash environment

Banks and CIT companies have made some changes in response to the decline in the use of cash for payments. The shift to digital payments and online banking has seen banks close some branches, and invest in improving and expanding digital services. Between 2017 and 2021, bank branch numbers declined by more than 20 per cent (Graph 12). A number of financial institutions also partner with Australia Post to offer deposit and withdrawal services through Bank@Post, which has been an increasingly important method for customers to access cash. The number of ATMs in Australia has declined by around 20 per cent since its peak in late 2016; the number of ATMs per capita, however, remains in line with other comparable countries. Overall, Reserve Bank estimates suggest that Australians generally do not have to travel far to access cash, with around 95 per cent of people living within about 5 km of a cash access point in 2020, broadly unchanged since 2017 (Caddy and Zhang 2021); these estimates do not take account of the possibility of cash access through cash-out facilities at retailers. However, access to cash in regional and remote areas remains vulnerable to any future removal of cash services.[10]

Graph 12
Graph 12: Cash Access Points

Recently, several banks have sold parts (or all) of their off-branch ATM fleets to third-party operators (generally CIT companies), which are looking to operate these ATM fleets on a utility basis where banks can pay for their customers to access the machines on a fee-free basis. In an environment of declining ATM use and where the costs of ATM deployment have been rising, such arrangements could be a more efficient way to sustain a broad coverage of ATMs. This may be particularly important for regional and remote areas where there are often fewer options for accessing cash services. In response to these changes in the industry, and to support broad coverage of ATMs, the Reserve Bank has recently granted an exemption from aspects of the Access Regime for the ATM System (RBA 2021). This will enable card issuers to access other participants' ATM fleets, thereby providing cardholders with wider access to fee-free ATMs.

One way that approved CIT companies have reduced their costs in response to lower transactional cash use is by closing some cash depots, although – as discussed in Section 4.2 – underutilisation remains apparent. The number of approved depots fell by around 10 per cent between 2015 and 2021 to be back around what it was in 2008. The majority of closures during this time were in regions served by multiple cash depots, so were unlikely to have made wholesale cash distribution more difficult. Indeed, in 2020 the median distance between cash access points and the nearest approved depot was around 12 km, indicating that the majority of access points were reasonably close to depots. Moreover, only 1 per cent of cash access points were further than 400 km from a depot.

Another way for CIT companies to reduce costs is by adopting new technologies. One example of this is the use of smart safes, whereby retailers can deposit cash into an on-site safe and the CIT company will credit the retailer's bank account as soon as cash enters the machine. While this shifts some risk onto the CIT company (as it owns the cash once it enters the machine), it reduces the necessity for frequent cash-pickups and allows the CIT company to optimise transport costs against interest revenues that are earned if cash is held at a depot. It is possible that this technology could reduce the market share of the smaller CIT companies, with the new machines offering faster crediting of deposits for retailers, increased security, and improved convenience. The two largest CIT companies report a combined 1,500 such machines in operation currently, and expect the market to grow significantly.

The use of ATMs with banknote recycling capability represents another way for banks and CIT companies to reduce costs. Recycling capability could be of particular value in remote parts of the country where the cost of replenishing machines with banknotes is high. This may allow banks and CIT companies to reduce transport expenditure and the amount of cash processing infrastructure, but with a potential trade-off of having lower-quality banknotes as they are not processed (and quality sorted) at CIT depots as frequently.

Q8: To what extent do the responses described in Section 4.3 assist businesses involved in cash distribution with managing the declining transactional use of cash? What other responses are being, or could be, pursued? Are there barriers to innovation in cash distribution?


Providers of wholesale cash distribution have changed over time. For example, Chubb and Toll Secure provided these services until Prosegur acquired them in the 2010s. Cash Services Australia, partially owned by a number of commercial banks, had a cash management function and was also bought by Prosegur in 2017. In the early 2000s, Linfox acquired Armaguard from Mayne Nickless and Chubb bought Brambles' armoured car business. [7]

There is no publicly available data on actual capacity at each depot. Graph 10 presents an illustrative estimate for capacity utilisation based on actual banknote flows between approved cash depots and customers. A depot's capacity is estimated as the highest level of banknotes it has processed in the three years prior to a particular month. The 50–65 per cent utilisation referenced in the text broadens this assumption to a range of two to five years. [8]

The estimate of minimum required depots in Graph 11 is based on the capacity estimates from Graph 10. Each depot is allocated to a regional area considered to be a local market for wholesale cash distribution services. If a smaller group of depots in a region could have met actual customer banknote processing for the region with their collective estimated capacity, that smaller group is considered the ‘minimum required’. [9]

Cash access points include ATMs, bank branches and Bank@Post. Based on preliminary analysis of 2021 data, cash access has not changed significantly over the previous 12 months in aggregate. However, regional areas are increasingly reliant on Bank@Post outlets. In response to these developments, the government has recently established a Regional Banking Taskforce. It will assess how bank branch closures have impacted local businesses, industries and communities and identify possible solutions. [10]