MONTREAL – GardaWorld has landed what it bills as a transformational contract, with Bank of America agreeing to become the first large financial institution in the United States to fully outsource its cash vault operations.
“It’s game changing for the industry and naturally game changing for us because we’re the first one to do it with the largest bank,” GardaWorld CEO Stephan Cretier said in an interview from Florida.
The Montreal-based company said will acquire Bank of America’s 32 money rooms and related facilities as part of the deal that will generate $1.4 billion in revenue over 12 years on top of the $600 million it generates annually from existing customers.
The Canadian company will become the “bank for the banks” by counting, sorting and storing cash, processing cheques and keeping branches and ATMs supplied with notes and coins.
The deal more than doubles GardaWorld’s existing cash processing business as it handles more than US$5 billion in currency each day for 12,000 U.S. clients, including financial institutions and retailers, and process 500 million cheques a year using imaging technology.
More than 1,000 of the bank’s employees will join GardaWorld Cash Services when the deal is completed around March 1, joining some 10,000 GardaWorld vault and transportation employees in the U.S. It will then operate 280 vaults for most U.S. regional banks and retail customers.
Cretier said GardaWorld will make a major investment to buy the bank’s real estate and equipment, but declined to put a price tag on the transaction.
The contract was reached following some 15 to 18 months of negotiations and about seven years after it first approached America’s largest bank. Bank of America had already outsourced some of its operations with Garda and tested an expansion of the arrangement over the past two years.
Cretier said outsourcing is new in the United States but the trend is more common in other countries, including in Europe and Australia. About half of Canada’s banks have also outsourced their backrooms.
Already the leading U.S. cash services provider for four of the five top financial institutions, GardaWorld hopes to take advantage of the Bank of America contract to convince other large banks to fully outsource their operations.
“We’ve convinced one of those four to outsource all their vaults and the objective is to attack the other large financial institutions in the U.S. to do the same thing,” Cretier said.
Garda’s biggest competition comes for established companies Loomis and Brinks.
It also plans to leverage the Bank of America contract and the $110 million acquisition of G4S Cash Solutions (Canada) to convince those among Canada’s top seven financial institutions that still process their cash internally to also make the switch.
“If Bank of America is able to choose a Canadian company, a Quebecois company, to do this kind of work there’s no reason a Canadian bank cannot start looking at what we can do for them back home,” he said.
GardaWorld said its operations allow financial institutions to lower operating expenses, sell real estate and use a single countrywide processing technology.
The bank said the contract for its remaining cash vault operations is part of its efforts to “simplify” operations.
“This agreement ensures our cash vault clients will continue to receive the highest level of service,” spokesman Mark Pipitone wrote in an email.
Raymond James analyst Daniel Marchon was not surprised by Bank of America’s move given its vow a few years ago to save US$8 billion a year through various initiatives.
“I think it’s the combination of cutting costs and trying to optimize technology that really drove this,” he said.
Marchon said GardaWorld appears to have a competitive advantage in lowering operating expenses of the bank’s branches.
The company was taken private a year ago by a consortium formed by the cash logistics and security company’s CEO and private equity firm Apax Partners.
Garda provides security, cash logistics and armoured truck services and airport screening in Canada, and protects embassies and oil and gas workers in dangerous areas like the Middle East.
It has 45,000 employees and with clients in North America, Europe, Latin America, Africa, Asia and the Middle East.