Automated Tellers = Micro Branches?

Putting the automated teller in automated teller machines may enable one credit union to expand its branch network at low cost. byLAURI GIESEN Jan 1, 2010 | 0 Comments Has the automated teller machine finally achieved its full potential not as the familiar and ubiquitous ATM that dispenses cash but rather as a machine that performs all the functions of a human teller by using video and audio capabilities? At least one credit union is determined to find out. Raleigh, N.C.-based Coastal Federal Credit Union has deployed 36 Express Teller machines designed by Sandy, Utah-based uGenius Technology in some of its branches and other locations to supplement and sometimes replace traditional tellers. These are advanced ATMs that facilitate cash and check deposits, cash and coin withdrawals and official check withdrawals. Via the video/audio component, they also enable customers to speak with and see a bank customer service representative to discuss their transaction. While customers may ask basic questions about opening new accounts or loans, the intent of the machine is to handle transactions, freeing up branch personnel to handle the more complex banking issues. The idea itself isnt new. Early tests of these systems in the late 1990s and early part of this decade foundered on the unwillingness of consumers to interact with machines. It didnt help that the systems deployed were often awkward to use and suffered from poor video quality. But changing times and improved technology have prompted a few institutions such as Coastal to try again. While no one is claiming that these new automated teller machines will ever entirely replace the traditional full-service branch office, they do seem to provide a useful supplement to the traditional branch, particularly for institutions such as Coastal that serve a unique customer segment. For many retail bankers looking to cut costs and expand their physical footprint at the same time, this is an experiment that bears watching. This strategy certainly has a lot of appeal for credit unions that need to serve corporation campuses, but there is also a lot of potential for large banks that already have an extensive footprint as well, says consultant David Kerstein, president of Peak Performance Consulting Group of Austin, Texas. Express Tellers are certainly not a substitute for every branch, but there are applications where they make a lot of sense. Expanding the Footprint Coastal, which has $2.5 billion of assets, serves just over 200,000 members, many of whom work for large technology corporations in North Carolina (it was originally chartered in 1967 to service IBM Corp. employees). The credit unions initial goal with the advanced ATMs was to serve corporate campus locations that lacked enough employees to justify a full-service branch on site. In a presentation at the BAI Retail Delivery Conference & Expo last month, chief operations officer Chuck Purvis said Coastal typically needs between 5,000 and 10,000 employees to cost-justify a branch at a corporate campus.

In addition to serving these campus locations, the credit union wanted to extend banking hours at its 19 traditional branches in Raleigh and Charlotte without adding staff. While cost reduction was certainly a consideration, the credit union also wanted to improve customer service by reducing wait times, Purvis explained. The Express Tellers allow customers to conduct their transactions between 7 a.m. and 7 p.m., Monday through Friday, and on Saturday mornings. Long-term, Coastal wants to have the service available seven days a week for 24 hours a day, Purvis said. Convenient access is a big part of our strategy and a big part of the expectations that our members have, he said. The 24-hour access will give us a strategic differentiation, something we think few of our competitors will be willing to undertake. The machines enable customers not only to take care of basic transactions, such as withdrawing cash and depositing checks, but they also come with a video/audio interface that provides live interaction with a human teller for more complex transactions. The Express Branch model allows us to open a branch with as little as one Express Teller machine and one associate, Purvis said. By mid November, Coastal had installed 41 units in 13 locations and plans to add another 4 units at several more locations by the end of 2010. It has also opened one virtual branch location in a corporate center and has plans to open up to three more. There are also unexpected benefits. After a recent winter storm shut down most of its traditional branches, Coastal was able to open two branches fitted with Express Teller machines that were connected to one employee who was able to get to the call center, Purvis said. While improved service was Coastals primary goal in installing the Express Tellers, the credit union has experienced a major cost reduction as well. We are replacing 110 branch tellers and supervisors with 48 tellers and three supervisors to service our 19-location branch network, Purvis said, adding that this program will give Coastal a 50% reduction in teller headcount by 2011. The cost savings are significant. About half of our teller costs are for tellers at 3 p.m. when theres no one in the branch. Theyre reading magazines, chit-chatting, surfing the Internet, waiting for members to come in between 4:30 and 5 p.m. when theyre on their way home. Kerstein notes that Coastal is also better able to utilize existing employees. Using this type of a system enables a financial institution to have the right type of staff. You can shift your employees so that more are involved in sales and service rather than in handling basic transactions, Kerstein said, adding that branch managers can spend more time developing and overseeing marketing strategies and less time overseeing tellers and performing mundane tasks such as making sure the proper cash is on hand and that all the tellers have the proper balances. Recent numbers indicate customers are using the machines. In October, the credit union reported 40,000 Express Teller machine sessions, which accounted for 65% of its total branch transactions for the month. Also in October, 6% of total transaction volume occurred during the extended hours.

To get customers familiar with the technology, Coastal keeps an additional teller on hand during the first month of a machines deployment. That teller can walk customers through the use of the machine and answer any questions. The Coolness Factor Is the Coastal experience transferable to the rest of the industry? Birmingham, Ala.-based BBVA Compass Bank has been using Virtual Bankers, video-enabled workstations, to offer mortgage and investment advice in the Houston area and some other institutions are exploring the technology as well. Historically, video systems used by banks were choppy, said Nicole Sturgill, research director of bank delivery channel strategies for Needham, Mass.-based TowerGroup Inc. The video was not as smooth and the picture quality and transmission speed was not as good as what you see today. The technology has really improved in just the last two to three years. Additionally, customers are using Web cams on their PCs and they use video conferencing a lot more in their work and family life than they used to, Sturgill said. There is a coolness factor. Kerstein said that while other financial institutions may not be able to duplicate Coastals precise strategic plan which depends heavily on a corporate campus-like banking market they should find value in similar deployments of video tellers. The ability to provide 24-hour service, in particular, is worth considering for all retail banks, even large ones with extensive branch systems, he said. In both urban and suburban settings, the machines enable expansions into areas that wouldnt justify a full-service branch and have the potential for working well in supermarket locations. Indeed, Purvis said Coastal was looking at installing Express Tellers in supermarkets. There are skeptics, however. I think it is still difficult for these types of machines to take off, said Kate Monahan, an analyst with Boston-based Aite Group LLC. There is a lot more banks can do with ATMs than they have, but I dont think customers are ready to bank via video conferencing yet. There are a lot of customers who still want the service they get from humans. Customers go to a branch for a reason and its not to be served by a machine. While Monahan applauds the concept of using such machines to service corporate centers, as Coastal has done, she does not think it is a strategy that will easily work for other banks. There may be a lot of good applications for credit unions, but most banks dont have the same requirements, she said. The good news about Express Teller branches is that they take up less physical space and that means they are less expensive to operate, Kerstein said. The bad news is that because they take up less physical space they are easy to miss. Consumers may not see them the way they would see a full-service branch so a lot of thought has to go into marketing. Coastal, for example, has focused its marketing messages on the extended hours and has passed out brochures to customers at branches being converted. The credit union has also promoted the teller machines via its Web site and Facebook and Twitter. Weve been selling customers on the

benefit of using the machines, not focusing on the technology itself, said Joe Mecca, Coastals marketing communications manager. Weve not advertised this to the general public. Once were fully rolled out, we will see some opportunity to use this to attract new customers, said Willard Ross, chief retail officer. Ms. Giesen is a freelance writer based in Libertyville, Ill.