A Review of Cash Handling and Management Practices in Aruba A Review of 1. Introduction Cash Handling The Centrale Bank van Aruba 3 and Management Purpose of this Report 3 Practices in Aruba About Aruba 3 July 2002 2. Serving the Marketplace Points of Presence and 4 Delivery Channels Cash Products and Services 5 3. Cash Operations Management and Cost 5 Structures Branch Cash Operations 6 ATM Cash Operations 6 Risk Management 7 The Armored Carrier Industry 8 Central Bank Operating 8 Practices Counterfeits 9 Foreign Currency Handling 9 4. Cash and its Alternatives Cash Usage Compared With 10 Other Payment Instruments Alternative Payment Instruments 11 The Future of Cash 12 1. Introduction In addition to discussions with two of the principal Armored Carrier Companies, The Centrale Bank van Aruba detailed face-to-face interviews were On January 1st 1986, Aruba obtained its conducted with Aruba’s five commercial separate status (‘Status Aparte’) with banks. The participants are listed below the Kingdom of the Netherlands. Prior in Figure 1. to that date, Aruba was part of the Netherlands Antilles. Upon the While the individual responses provided inception of the Status Aparte and by interviewees remain confidential to pursuant to the Central Bank Ordinance, the Central Bank, as part of the Bank’s a new monetary authority, the Centrale continuing communications policy, and Bank van Aruba was established. with the agreement of the participants, this report has been produced to provide Simultaneously, a new legal tender, the a general summary of findings and Aruban Florin (AFL), was introduced at industry trends. Where appropriate, a fixed rate with the U.S. Dollar of comparisons have been made to other AFL 1.79 = USD 1. published research. The mission of the Bank is to maintain the internal and external value of the Florin and to promote the soundness Figure 1: Commercial Bank Interview and integrity of the financial system, to Participants be accomplished by motivated and qualified employees, for the general Aruba Bank N.V. benefit and well being of the people of Aruba. Banco di Caribe N.V. (Aruba Branch) Purpose of this Report Caribbean Mercantile Bank N.V. As part of the Bank’s continuing role in Interbank Aruba N.V. bringing banknotes and coins into circulation, and concurrent with RBTT Bank Aruba N.V. preparations for relocation of the Bank’s headquarters to purpose built premises on the western edge of Aruba’s capital Oranjestad, the Bank commissioned a study of cash handling and About Aruba management practices. The Discovered and claimed for Spain in assignment, completed by specialist 1499, Aruba was acquired by the Dutch consultancy company Currency in 1636. The island's economy has been Consulting International, consisted of dominated by three main industries. A two broad elements: first, a review of the 19th century gold rush was followed by Central Bank’s existing internal prosperity brought on by the opening in practices, with a view to ensure best 1924 of an oil refinery. The last decades practice is adopted within the Bank’s of the 20th century saw a boom in the new facility; and secondly completion of tourism industry. Aruba seceded from a series of interviews with the principal the Netherlands Antilles in 1986 and commercial banks in Aruba, in order to became a separate, autonomous expand the Bank’s understanding of member of the Kingdom of the private sector cash handling activities. Netherlands. 3 Aruba is located about 12 degrees north In October 2001, Royal Bank of Trinidad of the equator, approximately 29km (18 & Tobago acquired acquired the assets miles) off the Paraguaná Peninsula of and liabilities of First National Bank of Venezuela. The island, one of the Aruba N.V. and ABN Amro Bank N.V. Lesser Antilles islands, is about 30 km Aruba branch and consolidated them as (19 miles) long and about 8 km (5 miles) RBTT Bank Aruba N.V. wide with an area of 193 sq km (75 sq miles). In total, the five commercial banks operate 20 branches and 65 Automated The island’s population of just over Teller Machines (ATMs) island wide. 90,000 is boosted by significant visitor Full details are provided in Figure 2. numbers, totaling more than 691,000 in 2001. North American visitors represent Branch numbers have remained approximately two thirds of all tourists. relatively stable in recent years, with just As a consequence of recessionary one or two closures as part of branch pressures in the United States, reviews or rationalization activities. aggravated by the terrorist attack of Most interviewees expect few further September 11th 2001, Aruba has changes in the structure of their branch experienced a marked downturn in the networks. By contrast, ATM numbers country’s tourism industry, a mainstay of continue to increase. Participants the Aruban economy. described modest plans for additional ATM installations. One notable aspect of the island’s concerted effort to attract tourists, and to Aruba has a significant number of make their vacation experience as ATMs, which are not sited at traditional enjoyable as possible, is the island-wide branch locations, but in alternative ‘third acceptance of U.S. dollars. The U.S. party’ sites. Currently, there are 42 currency co-circulates widely alongside such ATMs, which represent two thirds the domestic Aruban Florin. of all ATMs on the island. These ATMs are typically located in shopping malls, gas stations and at major beach resorts. Figure 2: Number of Bank Branches 2. Serving the Marketplace and ATMs in Aruba (as at June 2002) Points of Presence and Number of Number of Bank Delivery Channels branches ATMs Aruba has five commercial banks, and a Aruba number of other financial institutions Bank 5 13 supervised by the Central Bank. Of the Banco di five commercial banks, Banco di Caribe Caribe 1 4 is a branch of Banco di Caribe N.V. and Caribbean Mercantile Bank is a Caribbean 6 25 subsidiary of Maduro & Curiel’s Bank Mercantile N.V. Both are established in Curaçao in Interbank the Netherlands Antilles. Aruba 3 9 RBTT Bank Aruba 5 14 Total 20 65 4 In addition to dispensing Florins to Reciprocity between most other ATMs is domestic cardholders, approximately 80 possible if cardholders have Cirrus / percent of the island’s ATMs also Maestro branded cards. However, dispense U.S. Dollars to cardholders transactions are routed through with access to the international Cirrus international payment switches, which and Maestro networks. are settled in U.S. Dollars and incur significantly higher transaction fees. As Figure 3 illustrates, the island is well served with ATMs – in part to meet the For business customers, Florin cash needs of the significant number of withdrawals and deposits are also visitors to Aruba. usually free. All the banks offer night depository facilities – usually for a fixed annual fee – which are widely used. Figure 3: Comparison of ATM Access in Selected Countries Fees are usually levied for utility bill (latest available figures as at June 2002) payment and payment into third party accounts. Foreign currency exchange Each ATM also invariably incurs transaction fees in Number serves a addition to exchange rate differentials. Country of ATMs population of Aruba 65 1,392 3. Cash Operations Netherlands 6,700 2,359 Management and Cost Structures United 34,300 1,739 Participants described straightforward Kingdom organizational arrangements for the United handling and management of their cash. States 324,000 858 Most branches have a series of tellers who report to a Head Teller. The Head Cash Products and Services Teller typically controls the level of cash Aruban banks make little distinction in held at each teller position and overall the way cash services are segmented, within the branch’s reserve cash vault. either for individual or business The tellers and Head Teller usually fall customers. under the direction of the Branch Manager. In most cases, in order to deposit or withdraw cash, individuals have free Individual branch activity is customarily access to their own bank branches or coordinated through the Head Teller or ATMs. another senior bank official at the bank’s Head Office or principal branch. Only two banks, Banco di Caribe and Caribbean Mercantile Bank, have None of the participants reported that domestic ATM reciprocity facilities. the cost of cash handling was discretely Bank customers can use one another’s measured, and in most cases cash ATMs for a small Aruban Florin related costs incurred are recorded as transaction fee. part of the total branch operating costs. 5 Branch Cash Operations Participants reported that, growth in Participants described similar branch business excepted, branch and ATM cash ordering, depositing and cash levels have been reduced. This is management arrangements. in part due to security concerns, but also as a result of concerted effort to manage In most cases, individual branches will cash more efficiently. determine, from simple records or based on teller experience, the level of cash Participants believed that they held they need to meet customer levels of cash close to their true requirements. Branches also typically operating needs and that there was only work to set insurance limits, which often limited scope for further cash reduction determine whether or not surplus cash initiatives. is dispatched from the branch. It is usual for the branch Head Teller to report the branch’s cash position together with any order or deposit requirements to the Head Office Teller. ATM Cash Operations At Head Office the individual branch ATMs form an important distribution reports are aggregated and an overall channel for cash on the island. bank position is established. Most banks dispense AFL 25, AFL 50 Where practicable, cash is redistributed and AFL 100 denominations.