Are financial institutions making a good or a bad decision by deploying interactive teller machines? Yes.
A better question might be, ‘Should technology drive your branch strategy?' The answer is a definitive ‘No'; however, it's easy to get caught up in the whirl of new technology and become seduced by the possibilities. But how does it match up with your core brand promise? Does the newest technology enable you to deliver your brand in a way that connects emotionally with your customers? Introducing new technology should compliment and enhance your brand, acting as a driver for growth and prosperity. Often this isn't the case.
What is an Interactive Teller Machine?
In the past few years, banks and credit unions around the world have been deploying Interactive Teller Machines (ITM) with various levels of success. An ITM is an Automated Teller Machine (ATM) on steroids. It offers all the capabilities of a traditional ATM, but with a few additional, important features—namely the ability to talk “face-to-face” with a teller through video chat. The machines often go a step further by dispensing cash in denominations not normally found in an ATM, cashing checks, or even verifying a customer's identity if they've forgotten a debit card.
Since the initial machines were introduced in the mid-2000s, banks have become enamored by the possibilities. By centralizing tellers at a remote location, financial institutions are able to lower labor costs, offer extended hours, and give better service to rural areas that aren't traditionally well represented.
There are ancillary benefits as well. Remote employees aren't faced with the threat of robbery, the stresses of managing cash, or even the worry of having to stay late at work because of a drawer shortage. Meanwhile banks can provide extra services that might not have been fiscally possible before—such as multi-lingual remote tellers. All of this is exciting, especially when you look at retail banking's problems over the past 10 years.
Of course, with branch personnel accounting for approximately 45 percent of expenses, it's clear what's driving this technology.
A personal confession: I don't like going to the bank
It has about the same level of appeal as the post office or the dentist. In fact, I'll do everything in my power to avoid the place. I rarely go to an ATM, instead preferring to get my cash at the grocery store checkout line. If, for some unknown reason, I do receive a check, I'll deposit it using my smart phone. The last time I actually walked into the bank was to get a handful of $2 bills to fund the tooth fairy.
When I do go to the bank, I want to talk to a real person. By the time I've walked through the door, I've made the decision to bypass the website, cruised past the drive-thru lanes, and strolled casually by the ATM. All of these decisions were made, consciously or unconsciously, before actually walking into the branch. This is the magic moment. It's the time for me to be wowed by fantastic customer service, impressive financial knowledge, and my bank's amazing capabilities to manage my financial future.
If the bank doesn't deliver on the one reason I went into the branch for—a face-to-face interaction—it arms me with one more reason to never go back in. There are much easier, and more convenient channels than the branch.
Which leads us to the dilemma
According to a 2015 study by FMSI, branch transactions at credit unions and community banks have declined by 45.3 percent since 1992. Conversely, there has been a 90.1 percent increase in salary and benefits over the same period. (Interesting enough, branch density hasn't dropped at the same rate.) Staffing the branch is expensive and banks are looking for ways to streamline operations. ITMs seem to be a perfect fit for reducing the cost of labor at the branch. NCR, one of the largest manufacturers of ITMs, estimates that the average ITM transaction costs about $2 versus $4 for a traditional teller transaction. This sort of cost savings deserves further exploration.
With fewer customers, banks are placing a greater emphasis on the ones that are actually walking through the door. They realize that every visit to the branch is extremely important and consequently, is worth more than it was 10 or 20 years ago. Traditional savings and checking accounts are seen as secondary to higher-revenue items such as loans, mortgages, and wealth management accounts. It explains why cross selling has become a key strategy for banks looking to increase revenue. Who wouldn't be enamored with bringing in extra revenue to offset rising operational costs? Financial institutions aren't any different. With each additional account that a customer has with the bank, it becomes harder for them to leave. At one product, a customer will stay at the bank for an average of 18 months. Once a customer has three products, the relationship lasts an average of 6.8 years. Stickiness.
The trend is to become more relationship-based, rather than transaction focused. Which begs the question, “Is video chat the best way for you to build relationships with your customers?”
Customer service: up close and personal
When looking at pillars of customer service excellence in other industries, it's tough to find a more respected or honored company than Southwest Airlines. They consistently rank near the top of all airlines in customer satisfaction year-after-year and take great pride in following their mission statement:
The mission of Southwest Airlines is dedication to the highest quality of Customer Service delivered with a sense of warmth, friendliness, individual pride, and Company Spirit.
Over the years, Southwest has become well known for its open seating policy and its honest approach to fees. They have even set up a website dedicated to “…being open and honest with Customers and making sure pesky fees stay away from our low fares.”
So it came as a bit of a surprise when Southwest announced in 2015 that it was implementing software technology that gave the option to vary prices depending upon on demand and the ability to charge different fares for special seats. Both of these seem as an obvious affront to their brand, but this was an opportunity for Southwest to increase the bottom line through the use of technology. In April 2016, Southwest ceo Gary Kelly told CNBC that the new system wouldn't change their policies.
"We don't nickel and dime our customers," Kelly said. "We call that 'transfarency,' and I just think that that's really struck a chord."
It's safe to say that Southwest lives by their brand promise.
Does your brand promise Include the word ‘customer' or ‘member'?
Betting on ITMs as the savior of the retail channel and getting people back into the branch is a mistake. It might be part of the solution, but I don't believe that it survives the brand promise test for most institutions. Look no further than Bank of America's first Operating Principle:
Customer-driven. Our clear purpose is to help make financial lives better for the three groups of customers we serve - people, companies and institutional investors. We listen to what our customers want and connect across our company to deliver the solutions they need. We are focused on making customer interactions easier, our expertise more accessible, and our relationships more human.
The last line “…and our relationships more human” is a money shot. In a recent study, research giant Accenture found that retail banking is the third worst industry when it comes to broken promises. More than 13 percent of respondents mentioned, “self-service process and technology was cumbersome and difficult”, as a type of broken brand promise. The study continues by saying that more than one-third of people who experience a broken promise switch companies shortly thereafter.
Don't put the ITM in the scrap yard yet
The obvious customer benefits of extended hours, multi-lingual capabilities, and expanded banking reach are compelling reasons to embrace this technology. ITMs do have a place at the branch, but it might not be as prominent as the manufacturers suggest.
There are use-cases where the ITM makes sense and is customer-focused. It can be as simple as where the machines are placed. A perfect example is when ITMs are installed in the secure entryway area of the branch rather than in the lobby. This allows the bank to close the branch as usual while giving video teller service long after the lobby has closed. It's the same convenience concept that led to expanded drive-thru hours. Consumers are basing where they bank, on not only the branch location, but also how often it is open and available when they need to use it.
In TimeTrade's 2016 State of Retail Banking survey, 69 percent of respondents reported that they wanted the ability to bank after typical banking hours. Extended hours is definitely a positive, but only if the video teller can provide the service you expect. If you are completing a simple transaction it's adequate, but what if you have a complex question that needs answering? Will the video teller have the empowerment, or the capability to answer? If the answer is no, it can easily turn what was going to be a positive customer experience into a frustration.
If not ITMs, then what?
Building a comprehensive technology strategy is crucial and there isn't a one-size-fits-all solution. ITMs are great in certain situations, but there is a key factor that should be weighed. It's often overlooked in the name of efficiency—the needs of the customer. Retail banks are pivoting and need to be focused with laser precision on the ‘moment of truth.' It's the point where a customer's problem needs to be resolved, or when a complex transaction needs to be completed. Technology needs to make it easier for branch staff to address these needs.
Solutions are being tested and deployed right now. Universal bankers are becoming much more common. Assisted self-service devices are adding a human element to machine technology. Even ‘open-branches' change the relationship between tellers and customers. Modern banking technology makes all these options possible and helps enhance the customer experience.
There's no excuse for failing at the 'moment of truth" and there might not be a way to recover from it. Oftentimes, you've simply just lost a customer.