Falling cash use means Armaguard rescues to continue

Once again, the perilous nature of the business of transporting cash around Australia has been demonstrated by a second urgent $50 million rescue plan to prop up the struggling monopoly, Armaguard.

With customers abandoning the use of cash very quickly and with Australia’s vast distances, supplying banks and businesses with cash has become a very poor business to be in.

And while this time it was a coalition of big banks and retailers that are tipping in the $50 million injection for the Linfox controlled Armaguard, it is not too difficult to see a future scenario in which the taxpayer could be called on for help as well.

Cash is becoming an unprofitable legacy business

In simple business terms, carrying cash is fast becoming a legacy business, with costs that are likely to continue to rise, volumes that are shrinking and alternate payment methods that are growing more popular all the time.

The use of cash is plunging dramatically, falling from 70% in 2007 to just 13% last year, despite everyone from the Reserve Bank and the Government confirming that they are committed to the future of cash.

The big question is who will pay to keep cash circulating, particularly with the bank branch network shrinking rapidly, along with the ATM network as well.

Some towns only have a Post Office bank

In some towns, the only source of cash is not even a bank but Australia Post so it was not surprising to see Australia Post joining with Commonwealth Bank, Westpac, National Australia Bank, ANZ, Coles, Woolworths and Bunnings to take part in the rescue.

Add in the fact that many businesses are strongly encouraging and prioritising electronic payments to move transaction costs onto customers through surcharges or higher prices and also to reduce the cost of security and costs around counting, storing, moving and banking cash and you have a perfect storm.

All of which means this is unlikely to be the last we hear about rescue packages for the transport of cash.

Respite may only last a couple of years

The latest deal between Armaguard and its biggest customers might keep bank notes and coins circulating fairly widely for another year or so – assuming it is ticked through by the competition regulator the Australian Competition and Consumer Commission – but it is unlikely to be a lasting solution.

That is shown by the fact that Armaguard and the Australian Bankers Association will continue talks about the future model for the cash-in-transit industry beyond 2024-25.

There are plans to put in an independent pricing mechanism to regulate Armaguard’s revenue and profit if it continues to operate the business over the longer term.

There are also plans to cope with fewer deliveries but all of this looks like treating a broken arm with a band-aid, or more likely, keeping a dying patient alive through life support.

In some offshore markets where similar trends are occurring, cash has been made an “essential service” and its transport and use is regulated by central banks.

Prices could rocket once ACCC undertakings expire

Complicating the situation here in Australia with a private sector company as the monopoly provider of cash transport services, the Australian Competition and Consumer Commission was given undertakings by Armaguard when it merged with the number two operator, Prosegur Australia, last year.

Those undertakings expire in June 2026 and the banks, retailers and the ACCC are all trying to prevent a situation in which Armaguard might try to push through hefty price increases after that date.

Now talks are continuing to avoid that outcome with Armaguard and its customers hoping to agree on a price reset after an independent assessment of Armaguard’s costs, plus a reasonable profit margin.

The $50 million promised for the 2024/25 financial year will be paid in instalments subject to defined performance hurdles, with Armaguard trying to remove $50 million of costs out of the business by ridding itself of merger duplication.