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In this issue:

Cash and Next GenerationPayments, Can They Work inUnison or Is It Too Late?

Going Cashless ­ PoliticalMonetary Machinations or theWIll of the People?

Innovative Security Leadership inMalaysia ­ ATM Ink Protectionand the Impact on the CashManagement Industry

Industry Appointments

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TechnologyEmerging innovations, including the

much­touted Internet of Things andblockchain, will significantly transformthe overall payment market landscape,with data becoming a central componentof payments. Mobile payments,connected devices, and media willconsiderably increase non­cashtransaction volumes. In the next fiveyears, experts anticipate that more than15 billion machine to machine (M2M)and consumer electronic devices will beconnected. Numerous mobile walletsand person to person (P2P) paymentsschemes are being trialled on blockchaintechnology. It is probably that many ofthese will be widely adopted in the nearfuture.

Further growth in mobile paymentswill spurred by changes to the userexperience, including alternativepayment methods such as contactless,wearables, and augmented reality. Inparticular, wearables and smart phones,retailers’ branded mobile wallets, andmobile wallets launched by credit cardissuers/financial institutions willsignificantly extend the reach of mobilepayments and disrupt the overallpayment marketplace.

According to Capgemini’s 2017 WorldPayments Report, electronic and mobilepayments are forecast to make up asignificant share of total global non­cashtransaction volumes (~32%), with ananticipated Compound Annual GrowthRate (CAGR) of 10.5% from 2015 to2020. This growth will likely be impactedby new payment innovations based onbiometric data and artificial intelligence(AI).

By 2019, Capgemini estimates thatapproximately half of all globaltransactions carried out using a credit ordebit card will be made either online orthrough a mobile phone. Electronic andmobile payments constituted about31.2% of total card transaction volumesworldwide in 2015 and are estimated to

Cash and Next GenerationPayments, Can they Work in Unisonor is it Too Late?Huseyin Memis

Continued on next page

Electronic and mobile payments are on therise now and in the immediate future.

ACMA Currency Notes2

increase to 45% by 2019.Retail customers will drive the spread and

uptake of these next­gen payment methods,with governments and central authoritiesensuring a level playing field throughregulation and other initiatives. Collaborationamong all stakeholders in alternativepayments is a must if the challenges andcomplexities of adoption and uptake are tobe avoided.

CashDigital payments are steadily emerging as

a competitor to cash and cash use appearsto be declining in some markets. Forexample, as the International Monetary Fund(IMF) notes, fewer Nordic banks are usingcash in their branches, India’s recentdemonetization effort scrapped 86% of itsbanknotes, and South Korea plans to stopminting coins by 2020. Digital payments arebecoming ubiquitous and progress towardsthe cashless society seems inevitable.However, digital payments are notcompletely overtaking cash and levels ofnon­cash uptake vary greatly betweenregions.

Millennials, in particular, in addition tothose in higher socio­economic strata, are

most comfortable paying with digitaltechnologies such as card or mobile. At thesame time, cash remains king in manydeveloped jurisdictions such as Germany,Japan, and Switzerland. While the steadyuptake of digital payments is a trend thatshows no sign of abating, low­value cashpayments remain robustly popular. As PeterSands, former chief executive of StandardChartered Bank, notes, you don’t needelectricity, Wi­Fi, cellular signals, or evenbasic literacy to make cash work.

A 2016 study, “Consumer Cash Usage: ACross­Country Comparison with PaymentDiary Survey Data,” showed that cash isfirmly entrenched in advanced economies.According to the survey data collected fromseveral central banks, cash still accounts formore than half of all transactions by volumein six of seven reporting countries. The totalshare was a remarkable 82% in both Austriaand Germany. Interestingly, all reportingcountries noted that cash use decreases withincreased education and income. Why wouldindividuals from lower socio­economicbrackets use cash more? One reason amongmany is that cash use, as opposed to digitalpayments, allows households on tightbudgets a simple way to monitorexpenditures.

Continued from previous page

Is this the end of hard cash?South Korea intends to stopminting coins by 2020.

Cash payments are said to trigger more positive emotions.

Continued on next page

Digitalpayments are

becomingubiquitous and

progress towards thecashless societyseems inevitable.

However,digital payments are

not completelyovertaking cash

and levels ofnon­cash uptake

vary greatlybetween regions.

3Volume 1 | Issue 2

According to the researchers whoauthored the 2014 Deutsche Bundesbankstudy, “The Usage, Costs, and Benefits ofCash—Revisited,” cash payments triggermore positive emotions than paying bycard. Another way to think of it: “It’s more

satisfying to give a child a crisp newbanknote as a present rather than a giftcard.”

Cash can take on different meaningsfor different members of the population.Some see cash as a tangible expressionof social standing, while others view it asfunctioning tool of democracy and

individual freedom, in essence a defenceagainst an all­digital surveillance statethat traces citizens’ movements through atrail of electronic payments.

Discussions at the 2017 ACMA Annual General Meeting.

RecentACMA Events

ACMA WORKSHOPHELD AT THE ASIA CASHCYCLE SEMINAR INBANGKOK ON 11 SEP 2017

Part I: Industry Legislation,Attacks and Losses

Part II: Cash Services ­Crafting of a Master ServiceAgreement

ACMA ANNUALGENERAL MEETINGHELD AT THE ASIA CASHCYCLE SEMINAR INBANGKOK ON 11 SEP 2017

This article continues in the next issue of ACMACurrency Notes, with a look into the future ofcash in the face of technological innovations.

Continued from previous page

First part of the ACMA Workshop, led by Scott Forster, at the Asia Cash CycleSeminar in Bangkok.

Second part of the ACMA Workshop, led by Charles Wink, at the Asia Cash CycleSeminar in Bangkok.

ACMA Currency Notes4

Going Cashless ‐ Political monetary machinationsor the will of the people?Tan Jit Kent

Today governments around the worldlook – albeit to varying degrees – to

cashless payments as the way forward.Despite certain drawbacks, including riskof payment system failure, additionalcosts of handling electronic payments,and disenfranchisement of the poor, thepowers that be remain keen on goingcashless. Writing in The Spectator,author­journalist Ross Clark dissects themonetary motivations for this and itsimplications for the people at large.

In times of financial crises andrecession, interest rates are slashed topromote spending in an effort tojumpstart the economy. Clark elaborateson the UK’s 2007 experience where theinterest rate fell from 5.75% to 0.5% in18 months, and explores what wouldhappen if another recession were to takeplace while the rate was already at a low.And the answer is that interest wouldcertainly dip well into the negatives –people who put away their money inbanks would return only to find that theirsavings had shrunk. Such a scenario is

sure to rouse outrage, particularly inmore frugal circles. But there is amitigating measure here: cash. In timesof negative interest, account holdersembark on a mass pilgrimage to ATMs –emptying their savings and stowing the

money in personal safes, jam jars, underthe mattress, virtually any refuge theycan find from negative interest. In hisarticle, Clark illustrates this by citing theUK’s 30% surge in banknote value,which rose from £36 billion to £48 billion,during the banking crisis of the lastdecade.

So what would happen then, if therewere no more cash?

Clark adds on that in the absence ofcash, savers would be at the mercy ofcentral banks’ monetary policies. With noway to safeguard their savings, theywould be helpless while their fundreserves effectively serve as bail­outs forless prudent borrower­spenders. This, hesays, is the reason why Britain proposedin 2015 to become the world’s firstcashless economy by 2020. And it isn’tjust in Britain. Kenneth Rogoff, formerchief economist of the InternationalMonetary Fund, has also proposedabolishing cash to help set negative

Much of the world's currency in circulation (CIC) increased in relation to GDP over the last 10 years, as indicated by green zones on the map.Image from IMF, John WIlliams, and Claire Wang of the San Fransisco Federal Reserve.

Key

CIC expanding faster than GDP

CIC declining

No comparable data

Old but gold: Physical money presents arobust medium through which savings canbe protected from the effects of negativeinterest rates.

Continued on next page

5Volume 1 | Issue 2

interest rates. If this were allowed to happen,argues Clark, savers would be made to quiteliterally pay the price each time a financialcrisis rears its head – a crisis they played nopart in creating.

Fortunately for the frugal, cash appears toshow no signs of dying out – as published intwo November 2017 reports by the FederalReserve Bank of San Francisco. The first ofthese reports, Reports of the Death of Cashare Greatly Exaggerated, shows that barringSweden and Norway, currency in circulation

grew in relation to GDP in much of the worldover the past 10 years. In a separate report,data from the Federal Reserve’s Diary ofConsumer Payment Choice (DCPC) indicatethat cash remains the top paymentinstrument by transaction volume, with wideusage across age groups and income levels.The report also notes that demand for USnotes is growing, particularly for high valuedenominations. The Federal Reserveconcludes that cash remains resilient due toits appeal across demographics and itsdependability in times of crisis.

Innovative Security Leadership inMalaysia ‐ ATM Ink Protection and theImpact on the Cash ManagementIndustryAnthony McAndrew

Further reading:

1. Ross Clark's article: Politicians want to move us towards a cashless world. It would be a disaster

2. Federal Reserve Bank of San Francisco: Reports of the Death of Cash are Greatly Exaggerated

3. Federal Reserve Bank of San Francisco: Understanding Consumer Cash Use: Preliminary Findings

from the 2016 Diary of Consumer Payment Choice

In the journey from developing to developedeconomy the financial sector is faced with

plenty of challenges; as the socio­economiclandscape changes the legislators need toconstantly revise their controls for the market.No area is perhaps more contentious,captures more press column inches andevokes stronger public emotion than thosethrown up by crime­combating programmes.

It therefore requires both the vision toanticipate the necessary actions to be takenand no small degree of courage to seethrough the resultant plans, not least becausecriminality is so often unpredictable and thesteps taken can often seem disproportionatewhen viewed as a snapshot.

The central bank of Malaysia, BankNegara Malaysia (BNM), offers an interestingexample of long­sighted policy­making with

their policy on and steadfast commitment toink staining protection, including the enforcedintroduction of the technology onto apercentage of all Self Service Terminals(SSTs) in the country by the end of 2019.

The exercise was originally launched bythe publishing of BNMs Guidelines on DyeStained Notes in 2013. This heralded thestart of a lengthy consultation and proof ofconcept exercise with the commercialbanking community, SST manufacturers, lawenforcement bodies and the Cash in Transitproviders.

This innovative step from the central bankwas a proactive measure to combat a rise inphysical ATM attacks, which become aconcern for the regulating authority. Thevalue of their far sightedness may have been

Continued on next page

Cashremains the

top paymentinstrument

by transactionvolume, with wideusage across age

groups and incomelevels.

Continued from previous page

As the country continues todevelop, Malaysia faces quite achallenge in revising its legislativecontrols for the financial sector.

6 ACMA Currency Notes

The central bank ofMalaysia, Bank

Negara Malaysia(BNM), offers an

interesting exampleof long­sighted

policy­making withtheir policy on and

steadfastcommitment to ink

stainingprotection...

proven by the reduction in ATM attacks evenduring the limited and lengthy trial period,from late 2015 to 2017.

Naturally there have been some problemsand setbacks during the proof of concept trialphase but overall the results were adjudgedto be sufficiently positive to enable BNM tomark 2017 as the start of the implementationphase of the programme, with a target of 5%of the nation’s SSTs to be converted to InkBank Note Staining (IBNS) by year end.Another 10% are to be converted by the endof 2018 and a further 10% by the end of thefollowing year.

Looking beyond the impact on crime, whatlessons has this regulatory decision broughtto bear for the industry participants?

Firstly, the value of consultation andreview has been proven. There was aneffective consultation period conducted bythe central bank and the Association ofBanks of Malaysia and involving all parties,including the CIT operators from early 2015to 2016. Out of this came the finaldetermination that IBNS would only bespecified for in­machine protection. This wasa critical decision, limiting investmentdemands and simplifying the task ofimplementation to the wider industry.

Secondly, with the early decision theextended trial potential ink­protectionvendors have had time to showcase theirproducts and a number of the larger banksand CIT companies have cut their teeth onthe IBNS technologies without the pressureof high attack rates, increasing the chancesof success after deployment.

Thirdly, the selection of IBNS providersdoes require careful and balancedassessment, and the international vendorsneed to understand the local requirementsfor their products. Each market has its owndynamics and influencing factors and insome cases these render the standardproducts inappropriate. Strong productdevelopment capability, provenmanufacturing reliability, open­mindedlistening and commercial flexibility areessential characteristics of successful

technology providers and partners. Providerswho are short on any of these qualities canstruggle to cope with the demands of the newmarket.

Finally, the challenge of funding for theSST operators (commercial banks in all butone case in Malaysia) is also a major shaperin the resultant adoption. Many SSToperators have chosen to delay investmentuntil the eleventh hour, and in some casesthey have chosen to reduce machine estatesize to limit their investment obligations. Afew have sought out potential partners incountries willing to take over the duties ofSST operational management, including therequired investment although this is stillproving to be a hopeful aspiration.

Clearly there has been a limit on theoperators’ willingness to comply with theinitiative, and the central bank has recentlyfound it appropriate to re­emphasise themandatory nature of compliance. Further tothis, new guidelines have been issued by thecentral bank to curb the noticeable reductionin ATMs within the country, whereby theoperator must gain approval from the centralbank before terminating any SST.

On reflection the reticence of theoperators might have been anticipated andproactive controls could have beenintroduced to increase engagement andmaintain momentum in the programme.

For the CIT enterprises the challenges ofthis initiative may feel familiar. Despiteinclusion within the initial consultationprocess, the CIT providers have foundthemselves out in the cold when it comes todetermining the end solution.

Given the SST operators’ understandablereluctance to invest beyond the minimum,and their limited enthusiasm for meaningfultechnological engagement much of theresponsibility for solution specification hasbeen handed to the machine vendors.

To date the vendors, led by the industrygiants NCR and Diebold­Nixdorf, havecovered much ground in determining theirIBNS partners, but the suitability of thesolutions in question for CIT operational

Continued from previous page

Ink staining protection: Noteswith ink on their surface aredevalued and cannot be used.

Continued on next page

Volume 1 | Issue 2 7

models has not been high on theiragendas. This has the potential to causeproblems for the industry going forward.

Perhaps more concerning is theprioritisation of cost over technicalcapability and product history. Theconsequences of this could besubstantial and time will tell if this leads tosignificant problems in the field.Unfortunately any issues of liability orconsequential damages are likely to fallonto the CIT providers or SSTmanufacturers and a period of contractdevelopment is going to be critical forbusinesses going forward.

The challenge for the CIT industry ishow to ensure their operations aregeared up for the implementation of IBNShardware and processes. Inevitably theintroduction of more technology adds tothe complexity of SST servicing, withfailure to comply with associated specificprocesses ever more important. The

danger of false activations destroyingequipment and rendering cash value­less(although a process to recoup costs fromthe central bank has been defined) is apotentially expensive one for the CITservice provider.

The advice to CIT companies havingto use IBNS technology would be to getinvolved in the consultation process at anearly stage:• Work with the IBNS suppliers on their

products’ operational requirements toensure smooth management beforewidespread implementation.

• Develop your procedural amendmentsin time for testing, verification and, ifrequired, modification so these can becommunicated to the teams in a timelymanner.

• Agree with vendors on a process fordetermining liabilities in the case ofequipment failure, damage and/orfalse activations.

• Develop a robust training plan for yourCIT teams to ensure they are all able

to manage the technology as part oftheir daily norm. Listen to theirfeedback and bring in operational aidsand equipment where necessary.

• Invest in material handling solutions tominimise damage to the hardware. It ishighly probable that any costs incurredhere will be more than offset by theavoidance of losses in failedperformance post­implementation.These proactive steps will not only

reduce costs of damage and repair butimprove your relationships with thevendors and SST operators, enhancingyour reputation as a provider of expertise.

It is too early to say with certainty howsuccessful the IBNS programme inMalaysia has been. The real evidencewill only emerge in 2019 and beyond viacrime statistics; however, in themeantime the positives achieved to datemeans that this could be the first step in aregion­wide change in SST servicing.

ATM attacks using various destructive techniques have been increasing in Malaysia, leading BNM to pass new guidelines to the industryset forth in the regulations.

Continued from previous page

ACMA Currency Notes8

About ACMAMissionTo provide a platform for Cash ManagementCompanies (CMCs) in Asia, Africa and Australia &Oceania to raise their professional reputation andstanding in the Cash Handling and CashManagement Industry, and to act as a representativewith the appropriate authorities on issues of commoninterest.

Founding MembersAB Securitas Phiroze Kevin PestonjeeCurrency Research Richard HaycockLinfox Armaguard Scott ForsterSpearpoint Group Ted Devereux

Office BearersChairman Óscar Esteban, ProsegurExecutive Director Ted Devereux, Spearpoint

GroupSecretary Tan Chee Meng, Currency

Research

Committee MembersAbdul Malek Bin Sutan, Meps Currency ManagementScott Forster, Linfox ArmaguardHuseyin Memis, Streamcorp ArmouredBaskaran Narayanan, Brink'sPhiroze Kevin Pestonjee, AB SecuritasCharles Wink, G4S

www.acma­asia.org

To become a member, write to Tan Chee Meng at:tancmsia@gmail.com

share your insightS

If you would like to havean article published inthe ACMA CurrencyNotes, please write to TanChee Meng at:tancmsia@gmail.com

Contributors to this issue:

Huseyin MemisTan Jit KentAnthony McAndrewÓscar EstebanTed DevereuxTan Chee Meng

October 2017 saw an importantmilestone in the history of

Spinnaker International Ltd, with theopening of its new Asia office inKuala Lumpur together with theappointment of its new RegionalBusiness Development Director,Anthony McAndrew.

Spinnaker claims to be the world’s largest manufacturer of ink­stain protection systems, with over 50,000 devices successfullydeployed in CIT and ATM operations in nearly 40 countries, acrossfive continents. Today they protect over 11,500 ATMs worldwide,including NCR, Diebold and Wincor­Nixdorf devices with patentedsolutions that have successfully defended cash for thirty years.

Tony Westington, Managing Director of Spinnaker Internationalsaid, “We are delighted to have made this investment in thecompany’s long­term future in Asia. We were well served by ourlocal distributor in the region previously but with ATM and CashSecurity becoming a greater focus for central banks and policymakers in the region, now is the right time for us to establish adirect presence.”

Anthony McAndrew joins forces with Spinnaker after twelveyears’ experience in the cash management industry, having ledmulti­national operations in the UK, Malaysia and Indonesia. “Webelieve that having a permanent presence in this region of theworld will bring better levels of innovation, collaboration andservice to our new customers here. Our new system a2m 180®has been developed with the needs of this region in mind.”

Industry Appointments

If you would like more information on Spinnaker and their capabilities,

please contact Anthony at anthony.mcandrew@spinnaker.co.uk or call

him on +601 7328 2505.

Spinnaker International protectover 11,000 ATMs with ink­protection today worlwide.

Spinnaker International Enter theSoutheast Asian Market