Can a Teller Cash Recycler Grow Branch Revenue?
Can a Teller Cash Recycler (TCR) directly increase branch revenue? Could you consider cash automation a revenue generator?
In short, yes. To understand how, we need to (need to complete this sentence)
How Banking Institutions Make Money
You already know this but it’s worth revisiting the basic business model of retail banking. Financial Institutions (Fis) make money by paying one interest rate to retail (personal banking) and commercial customers for their deposit funds and then lending that money back to individuals and businesses at higher interest rates. Additionally, they charge various fees (account fees, overdraft fees, application fees, etc.) for deposit and loan products.
Net Interest Income is the difference between the revenue generated from assets (interest on loans, mortgages, securities, etc.) and the expenses associated with paying out the liabilities (deposit interest). The fee-based income stream is called Non-Interest Income.
Net interest income and non-interest income represent the primary income streams for most banks and credit unions. Some banks and credit unions, generally larger firms, may also have different income sources from other lines of business.
How Branches Work
Banks and credit unions can lend through many direct and indirect channels; however, the most cost-effective manner to acquire the deposit funds they need is through the branch network.
As of 2022, approximately 58% of consumers opened their bank deposit accounts face-to-face in a branch, though this percentage has been decreasing due to the rise of digital banking platforms. Small businesses are still more likely to open accounts in person due to the complexity and relationship-based nature of their banking needs. A branch network approach is most cost-effective if the institution can grow their deposit base high enough to offset the cost of operating the branch network—in other words, break even.
Breakeven is generally considered a deposit base of $40-50 million. According to the Federal Deposit Insurance Corporation (FDIC) data from 2022, the average traditional bank branch (non-in-store branch) holds about $100 million in deposits and generates approximately $2.5 million in revenue annually.
Developing a deposit base of approximately $100 million requires the right market conditions and, most importantly, time. While there is considerable variability by region and market, the average branch currently generates 2-3 deposit sales per day, or between 40-60 deposit account sales per month.
The Challenges for Branch Networks
As bank and credit union branches mature, the rule of thumb is that 50% of sales should be from new customers and 50% from cross-selling to existing customers. The challenge for financial institutions is growing the deposit base enough to offset the costs of operating the branch network.
Sounds simple enough. Then why does it seem harder than ever to keep branches profitable?
Over the past decade, branch sales volumes have been declining due to several factors:
- Digital Transformation: The rise in online and mobile banking has reduced foot traffic in branches. And increasingly, consumers open new accounts through digital channels rather than visiting a branch.
- COVID-19 Pandemic: The pandemic accelerated digital adoption as lockdowns and health concerns kept customers away from physical branches. This shift further reduced in-branch sales and increased reliance on digital channels.
- Changing Consumer Behavior: Younger generations are more comfortable with technology and less likely to visit branches, preferring the convenience of digital banking services.
Banks and credit unions responded to these changes by cutting operating expenses to keep branches profitable. They pushed migration of transactions from human channels to digital channels, resulting in the expansion of ATMs (including recycling ATMs), online banking, and mobile banking apps with remote deposit capabilities. The combination of these market-driven and strategic decisions has led to a significant decline in branch sales volumes. Additionally, the accounts acquired through cross-selling are from teller referrals, so lower teller volumes have meant fewer referrals and reduced cross-sell levels.
The Bottom Line
The bottom line is that initial revenue shortfalls led banks and credit unions to respond by cutting expenses rather than exploring ways to enhance revenue. Why? Because cutting expenses is easier and more predictable and revenue generation programs are more difficult to implement with less predictable results. Once expenses are as low as they can go, what’s next?
Expenses are only half of the profit equation. Revenue is the other half. (Once expenses are under control, financial institutions must look for ways to increase revenue.) (callout)
TCRs as Revenue Drivers
With fewer tellers and declining branch traffic, how can banks and credit unions drive revenue? One way is by focusing on their customers and the customer experience.
There is intense competition among banks to win depositors. When everyone is competitive on rates, financial institutions have to stand out in other areas like customer experience and service. Developing deeper customer relationships and cultivating loyalty is crucial to growing the deposit base.
Every customer interaction is an opportunity
Think of every branch transaction as a chance to connect with your customers, to build relationships — to generate revenue. Using teller cash recyclers to automate cash processes certainly will lower costs and improve efficiency but cash automation isn’t just about efficiency, it’s also about opportunity.
The typical consumer teller transaction takes about two minutes. A TCR doesn’t decrease transaction time as much as it creates a 20-30 second window within the transaction where the teller can engage with the customer instead of focusing on cash. If tellers are then trained to look for signals and listen for events that typically trigger new accounts, they are using that conversational window to uncover additional product/account needs.
When every cash transaction can become a conversation, even a modest increase in daily deposit sales can have a major impact on branch revenues.
Using Cash Recyclers to Drive Branch Revenue
Let’s do a thought experiment to examine the impact of leveraging TCRs to drive teller referrals and revenue growth.
Based on data from a 2022 American Bankers Association (ABA) report:
- An average bank teller performs approximately 50 transactions daily, totaling about 1,000 transactions monthly.
- Tellers in high-volume branches may handle up to 1,500 transactions monthly.
- The average community bank branch processes around 2,500 teller transactions monthly, typically requiring about 2 tellers.
Similarly, according to a recent report from Americas Credit Unions:
- An average credit union branch processes approximately 4,000 teller transactions monthly, necessitating 2-3 tellers.
If banks and credit unions can use the window of opportunity created by TCRs to identify one referral out of every 100 teller transactions (just 1%), that translates into a monthly increase of:
- 25 referrals per month for Community Banks
- 40 referrals per month for Credit Unions
- From an ROI perspective, these incremental referrals can significantly contribute to revenue growth, potentially offsetting the cost of TCR deployment.
Multiplying these additional deposit referrals by the average revenue for a new deposit account demonstrates significant revenue potential facilitated by TCRs.
The revenue impact from deposit referrals is substantial and accumulates over time. As a branch’s deposit base grows beyond the operational costs of the branch network (breakeven), the expenses to support additional deposits are minimal, so most of the revenue generated is pure profit.
Cash Environments
While many banks and credit unions have implemented cash recyclers on their teller lines, every financial institution would benefit from exploring automation in other transaction locations (cash environments) within their branches, such as universal banker desks or customer representative offices.
Cash automation helps branches shift focus from transactions to customers, fostering better relationships and creating new revenue opportunities. When branches use TCRs in various cash environments, they can multiply the benefits of cash automation.