Comment: Linfox Armaguard has persuaded its banking clients to prop up the business, in the form of higher prices.
In an agreement being brokered by the Australian Banking Association, Armaguard is about to be propped up to the tune of more than A$100 million over three years.
Not much more, not at the moment. Word is the banks, collectively, have volunteered to support Armaguard in the form of $30 million to $40 million a year paid in higher aggregate prices by the industry.
This money will also buy the story that the banks and Armaguard have saved cash in Australia.
But: “What are they going to give me?” is the reasonable but so far unanswered question of Steve Newton, executive director of Authentic Security.
“I'm not involved in any conversations, and I run a lot of business,” he told Banking Day.
His company Authentic is the only remaining competitor of note in CIT, with a market share of 8 per cent or so.
Somewhat oddly, neither the ABA nor the RBA cared to invite Newton and his team to contribute to the flurry of roundtables and working groups that have propelled this matter along over the last four or five months.
The ABA last night emphasised that discussions are continuing and any resolution may take another couple of weeks to iron out.
Whatever the final ‘save Armaguard, save cash’ number proves to be (and whatever its structure), the costs will be parcelled out on a proportional, transaction-based basis, with the four major banks likely to pick up more than their fair share of the tab.
This is an extraordinary but not altogether surprising outcome to resolve a stand-off where the protagonist held almost all the cards.
Let us not forget it is barely even six months since the Armaguard near-monopoly of cash-in-transit and related services came into being in August last year.
Crushed like its trucks, Spanish-owned Prosegur has fled the scene, its Precinct-branded ATMs still working for a while yet. The Armaguard brand, atmx, will be ubiquitous in time.
US-based Binks recently investigated Australia’s cash-in-transit scene, and concluded that it is too hard, devoid of opportunity given the users (the banks) are in thrall to Linfox.
It is fair to say that the projections worked up a year ago on demand for cash (and thus Armaguard revenue) have gone awry. Enough banks are making plenty of branches cashless, and demand for cash via ATMs has wavered, although rebounding very recently.
Suggestions that Armaguard is otherwise sleepwalking to a state of insolvency should be taken with many grains of salt.
Armaguard have brawled their way to prominence in cash through influence, ingenuity and patience.
However, their costs are excessive and even in a state of monopoly, the ruling combine is vulnerable to disruption by a lower cost and more adept operator.
For now, with ACCC backing it seems, Armaguard is negotiating with banks to loosen or remove conditions around pricing and service levels agreed with the ACCC less than a year ago.
So Armaguard can now more or less charge what it likes for CIT, and deliver as infrequently as suits them - with banks falling over themselves to volunteer to cough up to ensure the economics of the cash distribution system remain viable.
A perfectly credible and preferable position would be toughing it out and making Linfox Armaguard resource the shortfalls from within their own empire and their own funding lines. Make them reap what they sowed.
Armaguard applied for monopoly authorisation after all, submitting detailed business and financial plans to the ACCC.
If anyone in banking got at all ballsy on this contrarian alternative over recent months, they got shouted down.
Turns out even banks are too timid to square off with Lindsay Fox.
Why not pay more if you want to? This is the both sensible and silly retort of banks at the very moment they are being outfoxed from every angle.