Smithers analyses four industry trends that are combating declining growth rates for the global banknotes market.

According to The Future of Banknotes to 2023 - a new market report from Smithers – the global market size for banknotes is forecast to increase from $9.7 billion in 2018 to $11.1 billion in 2023; an annual growth rate of 2.7%. Africa is forecast to grow by 4.5%, but all other regions will drop below 3%, most noticeably North America with a negative growth rate at -0.9%.

The slow growth forecasts are symptomatic of disruption in the industry, and have led to dramatic restructuring along the three major drivers:

• Meeting demand
• Providing security
• Achieving new efficiencies.

Much of the declining growth can be attributed to the range of new payment technologies on offer. Credit and debit card spending is on the rise, and in particular the arrival and acceptance of contactless payment is eroding the use of cash for smaller value transactions. This is being joined by new electronic platforms, such as:

• Mobile wallets - Apple Pay, Samsung Pay
• Mobile direct billing - M-Pesa, Airtel
• Mobile payment - WeChat, Alipay, WhatsApp, Google Tez, Venmo, Square.

The attitudes to payment of the millennial cohort – those born between 1980 and 2000 – is having a profound impact on the banknote printing industry. Millennials often described as ‘digital and mobile natives,’ and are much more ready to use online shopping, or electronic payment in retail stores. The overall value of e-commerce transactions worldwide continues with a double-digit growth year-on-year.

Despite these challenges, Smithers pinpoints four areas of development that are fighting the perception that the use, and profitability of printing cash is in terminal decline.

Security by design

In recent years, banknote suppliers have responded to market factors and central bank objectives by aligning design, security and supply chain considerations, leading to a concept called ‘security by design’. This covers all stakeholders from initial design to substrate and feature selection, through manufacturing processes to authentication and banknote processing.

Recent banknote designs increasingly explore the concept of creating similar effects with different technologies applicable to different stages of the production value chain.

Designs are simple, interesting and exciting, while containing novel optical and covert features. New effects catch the eye more instantaneously than old features. For the public to remember and authenticate banknotes effectively with minimal effort, the features on the note must interact with the user and within the features themselves.

Moving forward, banknote designs will be characterised by:

• More and brighter colours
• More abstract images
• More vertical orientation
• A more diverse selection of portrait subjects – in particular more female characters from history.

The key takeaway is there will be an increased emphasis on innovative design as a confidence-building tool, aiming to engage the public in note authentication.

Durability in note construction

Fitness criteria help to determine whether a banknote is suitable for recirculation or should be replaced by a new one, as well as to improve efficiencies in the processing speed and sorting accuracy of ATMs and note sorting systems. In addition, security features can be better authenticated on fit and clean banknotes.

Stricter fitness criteria can act to reduce the lifecycle of banknotes, forcing issuing authorities to produce higher volumes to meet demand. In response, demand has increased for durable substrates in the form of polymer, composites and paper treated with varnishes and coatings that increase the lifecycle of a banknote. The net effect of longer-life banknotes and shrinking demand is a decline in the number of printed banknotes annually, at net lower costs.

Sharply improved technical capabilities of ATMs, note sorting systems and their embedded sensors have created the opportunity to collect vast amounts of data on a wide variety of topics pertaining to banknotes, including velocity, frequency, fitness patterns, geographic movement and so on. Networked machines are able to analyse in real time what the status of currency efficiency and security is, allowing central banks to make better-informed decisions regarding inventory, ordering frequency, effectiveness of security features and more.

Data analytics to forecast demand

On a similar theme, advances in data analytics machine learning and artificial intelligence have led to an emerging use of data analytics to forecast demand, optimise the cash cycle and measure anti-counterfeiting effectiveness.

This is seeing established companies in the banknote printing sector diversifying their business offerings focussing further down the use chain; as well as creating a niche for new specialist entrants. Illustrative examples include:

• Giesecke+Devrient (G+D) Currency Technology division.  This offers big data analytics solutions that allow many processes in the cash cycle to be optimised, via the application of predictive analytics.
• De La Rue’s – DLR Analytics business unit is also applying advanced statistical analysis tools to help central banks make better informed decisions and improve the cash cycle. It allows benchmarking in a global or regional context across a network of over 65 central banks.
• UK-based 7 Layer Solutions is a developer specialising in software application development projects for the cash logistics sector. Its NoteChain platform is a note quality, fitness monitoring and benchmarking system for Intelligent Currency Solutions (ICS), designed to enable a central bank to assess the quality of notes in circulation.

Private sector priorities

Volume decline, new counterfeiting threats, improved sensor capabilities and adoption of data analytics are leading to industry restructuring, including acquisitions, divestitures and closures, strategic collaboration among all stakeholders, rise of consulting services and intensified competition.

Some countries are taking control of domestic banknote printing and production. This can pose a challenge for established banknote printing companies that have often taken on this work, especially for state in transition economies. For example, the United Arab Emirates (UAE) opened its first banknote printing plant in 2017, aspiring to become the premium choice of central banks in the Middle East for banknote production.

Africa still presents a commercial proposition for the future. De La Rue is investing $14 million in the expansion of its banknote and security printing facility in Kenya, with the intent of becoming a regional hub for East Africa and the continent. And Crane Currency’s new $100 million facility has been located on Malta, both because of substantial government subsidies and proximities to Africa, and the Middle East.

The Future of Banknotes to 2023 produces an unparalleled insight into the new challenges and market opportunities for banknotes. For more information, download the brochure.