Cash Handling Model Under Review as Westpac Seeks Equity in Armaguard Deal
Stakeholders are discussing the potential renewal of the cash distribution deal involving Armaguard and Westpac, with calls for a more equitable sharing of responsibilities among the Big Four banks.
There's been a big development in how cash is handled across the country behind the scenes. Big stakeholders involved in propping up Armaguard have met this week to work out whether to renew the deal inked last year to keep the beleaguered cash-in-transit company afloat.
Part of those discussions reportedly centred around whether Westpac should continue to hold the responsibility for all the cash in Armaguard's vaults or if that should be shared across the Big Four banks. RMIT's Professor Angel Zhong told Yahoo Finance that this arrangement had been around for decades.
"It's an unusual model because it actually places significant balance sheet liability on Westpac, while at the same time, other banks benefit from the distribution network without carrying the same financial burden," she said.
"So it's quite a reasonable push that, especially with the declining usage of cash, Westpac wants a more equitable distribution of responsibility."
"I think it also reflects the growing unease with the outdated structure around cash usage and the declining profitability of cash distribution."
How does the Westpac x Armaguard deal work?
Under the 20-year deal, the Reserve Bank of Australia (RBA) owns responsibility for all notes and coins it issues until it reaches Armaguard. Once that happens, even though it's being stored by the cash-in-transit company, the liability, which is worth hundreds of millions of dollars, is on Westpac.
The Big Four bank has to manage that risk until Armaguard delivers the money to bank branches and other retailers like Coles and Woolworths around the country.
This arrangement, which is called the cash distribution agreement, will finish on July 18.
Naturally, when most contracts come to an end, some stakeholders might want to see a shake-up before another deal is organised.
According to the Australian Financial Review, Westpac has been pushing for the load to be shared across itself, Commonwealth Bank (CBA), NAB and ANZ. CBA reportedly agreed with Westpac when the Big Four met on Wednesday to discuss the looming deadline and there was "broad support" for the idea of dividing up responsibility for Australia's cash.
