If your ATMs are getting old and you are thinking about replacing them or if you have a branch transformation strategy that entails restructuring to a more cost-effective physical delivery platform, going to an interactive/video teller machine (ITMs) must be a consideration. This isn’t an easy decision, especially when there are few banks that can make a clear case for an ITM, but in this article, we take a look at the strategy and economics of what a successful execution looks like.
The Base Case For The ITM
The general case for converting to the ITM goes something like this – you need to offer longer hours, have a larger physical presence, offer more products in the future to remain competitive. An ITM network allows a cost-effective way to support your branches by having an upgraded ATM that allows customers more product capabilities plus the ability to video conference a universal banker. Instead of locating your universal bankers at each branch, the ITM allows you to centralize and have one universal banker cover three to five locations depending on traffic and the number of products.
The ITM handles everything an advanced ATM does, plus has video and document capabilities. This allows for account opening, loan applications, wire initiation, teller reviewed check cashing, CD extensions, sub-account actions, online banking capabilities and more.
The ITM reduces staffing needs while providing the ability to offer more product specialties to your customer. Specialist for mortgage, wealth management, fraud, multi-lingual speakers and many other specialties can be centralized plus leveraged over a wider geographical area.
In addition to longer and more in-depth customer service, basic transactions are faster. For any banker looking for a solution to replace their drive-thru, an ITM makes more sense. Instead of the standard 5.5 minutes per transaction, the ITM averages 2.5 with a video call and about 1.5 in self-service mode. Faster transactions not only mean better customer service but greater productivity in the form of reduced cost per transaction.
Where a typical bank branch has between three and four employees per branch location, the rule of thumb with ITMs is to have two bankers for every ten locations.
The Problems with ITMs
In speaking with more than a dozen banks about their ITM experience, less than 20% were happy with their experience and could make a clear case. In fact, several banks we spoke with stopped their ITM expansion due to underperformance on usage. It appears most of the issues stem from unrealistic expectations, problems with placement, lack of marketing and deficiencies in strategy.
One consistent issue is providing the customer with too many choices while failing to spend time with customers teaching them the ITM. If given a choice, the customer will default to a live teller if the wait is perceived to be less than 10 minutes. Conducting a promotion and creating training programs whereby the staff walks the customer through ITM use for at least three transactions is starting to solve several underperforming programs.
Customers need to understand the range of possibilities with an ITM and not see it as an ATM or teller replacement. We are all for experimentation but one recurring theme from banks that aren’t happy with their ITM program is that they all expected at some level that customers would just use the new technology because it was available. Bankers need to make a clear case for an ITM channel a case that must include both a value proposition and the marketing/promotion of that proposition.
For example, many banks are finding that 70% of their ITM usage comes off hours when their branch is closed, particularly in the morning. This has far-reaching consequences and means banks need to consider their ITM placement at major commuter destinations and where access is convenient. Creating a marketing campaign around the efficiency of before work banking could go far to achieve greater ITM traffic success.
This also likely means moving to a universal banking model as tellers that support an ITM need a wider banking skillset to leverage the ITMs capabilities.
Finally, banks can’t roll out an ITM pilot program for the sake of having the next shiny object. While moving customers to an ITM channel might be the goal when considering replacing drive-thru lanes, the ITM tactic needs to be placed in a larger context. Expecting a two-year breakeven is likely unrealistic considering the other options the customer has available to them such as mobile, online banking, a call center, and the branch.
The Economics of ITMs
ITM costs are significantly more than an ATM. Where your basic ATM is approximately $35k to $65k per machine, the ITM is a median price of $85k. Further, to run the ITM network, the software runs around $200k, with staff time and training running another $150k.
While it all depends on volume, for a community bank, a teller costs around $4.05 for the average transaction and ITMs are about $2.40. For comparison, a typical ATM transaction is around $1.25 for a community bank ($0.7 for a national bank) while a mobile transaction is around $0.43 (sub-$0.20 at a national bank).
While understanding direct cost savings is important, the real economics come in the form of a branch replacement. If you can increase traffic in an existing branch and put off building a new branch, the economics of making an ITM investment makes greater sense.
The Strategy of the ITM
For starters, if you are one of the banks that has a mobile-first strategy and your goal is to deliver your entire bank via mobile over the next five years, then skip ITMs all together as it is a distraction you don’t need. If your bet is that checks and cash are going away and the customer doesn’t need an omni-channel experience, then there is nothing an ITM will do for you that you can’t do on your phone.
Conversely, if you are a bank that feels your customer base now and in the future, will never adopt new technology and you are placing your bets on the branch network, then again, the ITM is just going to serve to increase cost and take you away from delivering great customer service face-to-face.
However, if you are like 85% of the industry, and you want to take a step towards the omni-channel model, then your ITM will either play a role in transition or as a permanent new channel replacing your current ATM network.
Further, it should be highlighted that because of the economic structuring of the software cost and training, you need to deploy a minimum of three ITMs to test the concept and five or more if you have any chance of breaking even. From our analysis, a 12 ITM deployment is the optimal spot between risk/reward as it provides enough scale to test different concepts and get the most leverage out of your universal banking staff.
Before you go forward with any ITM purchase, first be crystal clear on what your objectives are going to be and what constitutes a “successful test.” Some banks want to use ITMs to improve customer service, others are looking for a transition strategy while still others are looking to reduced cost of delivery.
These objectives need to be taken a step further as if reducing the cost of delivery is your main objective, then you should also be clear on what type of costs do you hope to save. Saving marginal cost in the form of less labor/staffing calls for a very different deployment strategy than if you are trying to reduce fixed costs in the form of reducing the physical branch network.
While most banks strive to use ITMs in their high-traffic branches, the highest and best use are likely those high-traffic branches that exhibit the greatest variability. A steady stream of daily customers is good but having surges of customers at lunch and after work creates the most staffing/customer service issues. It is these issues that the ITM can quickly prove its value.
After that, using ITMs to expand the capabilities of loan production offices (LPOs) to turn them into more of a full-service location without the cost of a full branch has proven to be an effective use case since customer traffic is already present.
After those three top uses cases that can be used to reduce cost while potentially improving customer satisfaction, there are two risk mitigation strategies where ITMs make a compelling case. One is to push into new geographies before committing to a full branch. This allows the bank to test a location with a limited footprint possibly in a location that is shared by another company such as a café-style branch.
In a similar vein, a bank can use an ITM as a branch replacement should it seek to downsize its footprint.
Putting This Analysis Into Action
As you update your strategic path, figuring where an ITM fits into your branch transformation plan is the first step. If you are a believer that the physical branch will survive the next ten years, then it is highly likely ITMs will be required.
Then, create a tactical plan on where and when to deploy your ITMs at enough of a scale, so it makes sense to justify the effort. Choosing high-traffic areas that have volatile customer flow should be your first stop to extend branch hours and then choosing high-traffic areas that have the benefit of being at a metro hub or other location that can benefit from morning banking is likely your next stop.
After that, it is almost a no-brainer that if you are going to keep your drive-thru channel, then utilizing ITMs instead of having pneumatic tubes are an easily supportable use case.
No matter what your strategy or tactics have a clear intent supported by clear benchmarks, and a substantial training/marketing plan appears to be critical factors for success. Any ITM economic plan will pencil out and show a clear return, but the key will be your usage assumptions.
Before you come up with your usage assumptions, consider the number one most common regret of a bank with an underperforming ITM program – thinking only from the bank’s point of view and not considering what would motivate the customer to use the new channel. This question is always good advice for any branch transformation question.
Submitted by Chris Nichols on November 05, 2018