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The switch to polymer: Act now, or pay later

The introduction of £5, £10 and £20 polymer banknotes during the next three-to-five years is set to have massive cost implications for UK businesses, with retailers the hardest hit. As the launch of the first polymer notes draws closer, retailers need to begin preparations sooner rather than later if they are to avoid unnecessary costs, writes Brendan Doyle, CEO of payments experts CMSpi. 

From 2016, the Bank of England (BoE) will start introducing polymer banknotes – with the launch of the £5 note in the latter half of 2016, followed by £10 notes in 2017 and the £20 note by 2020. Our estimates suggest that this switch will cost UK businesses nearly £240 million, and retailers will bear of the brunt of these costs.

So exactly where will these costs come from? Firstly, retailers will need to upgrade or replace cash-handling equipment – including note validators, cash counting equipment, ATMs, vending machines, self-service machines and smart safes. Self-fill ATMs will be particularly problematic for retailers, since these machines will be unable to take both polymer and paper notes at the same time.

Secondly, banking charges will inevitably rise due to a likely cash spike in the co-circulation period, when both paper and polymer notes are in use. Indeed, the general public will need to return around £30 billion of hoarded cash; a large amount of which will be processed through retail outlets. As a result, retailers will have to bank more paper notes whilst buying in polymer notes to replenish their cash supply.

These are unavoidable consequences of the BoE’s decision. That said, by understanding the changes now and strategically planning their response, retailers can be positioned to navigate the polymer landscape as effectively as possible, avoiding non-essential costs. So how can retailers go about this? 

A plan of action

Equipment upgrades are inevitable, so retailers should therefore be engaging with suppliers, reviewing the age and capabilities of their equipment and checking contracts early on in preparation. They need to determine who is responsible for the equipment upgrades and, more importantly, for absorbing the costs involved.

It is also essential that retailers don’t fall into the trap of purchasing unnecessary equipment or overspending. Indeed, equipment manufacturers stand to benefit from the change to polymer and, inevitably, they are likely to encourage retailers to purchase more than they need.

Retailers should also be getting in touch with their banks. Indeed, it may be possible to negotiate a temporary reduction of the charges associated with banking cash during this period. This is particularly important for smaller retailers that currently use ATMs to recycle their cash, as all paper notes will need to be banked once polymer comes into circulation, resulting in additional costs. Retailers can also observe the supply chain by clarifying banks’ expectations of the polymer notes, i.e. checking presentation standards and the costs of extra notes to fill ATMs.

Lastly, retailers can plan staff training to ensure all cash-handling employees have a strong understanding of the changes in processes and any potential issues which may arise.

As the age of polymer approaches, retailers need to prepare now and adopt an effective strategy within their organisation. Early engagement with banks and suppliers is crucial, yet it is equally important to have a clear understanding of what is required of your own business to become “polymer ready”. Indeed, with such a period of disruption and increased expenses ahead, avoiding overinvestment and unnecessary costs will be more important than ever. Retailers must therefore be aware of their exact needs and stick to their shopping lists.

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