When the first ATMs were introduced in the 1970s, they were seen as a harbinger of the death of the bank branch and the start of the era of self-service banking. Five decades later, the branch is not only still alive, but thriving.
Now, as interactive teller machines (ITMs) find increasing adoption, financial services leaders are wondering whether this new hybrid channel – which provides access both to simple automated transactions and more complex teller-assisted video banking activities – will have a similar effect.
They are not wrong to be asking this question. In interviews with The Financial Brand, industry insiders at small and mid-sized financial institutions that have deployed ITMs suggest that the machines don’t narrow horizons but instead broaden them. And they do so by moving the issue of channel mix front and center.
In thinking about channel mix it helps to bear some history in mind – and to beware of unintended consequences.
As ATMs were installed at financial institutions nationwide in the 1980s and ’90s, most pundits expected the number of tellers to plummet. It took 21 tellers on average to staff a branch before ATMs, and only 13 tellers for a branch with an ATM, according to research by Boston University economist James Besson. While this made it significantly cheaper to run a branch, it also had the paradoxical effect of facilitating the opening of many more branches. In the end, the number of installed ATMs and the number of tellers employed rose in tandem.
ITMs bring their own set of assumptions and opportunities. Some in the industry expect their deployment to slow the advance of self-service banking; others anticipate that ITMs would lead to a resurgence in teller hiring. But based on what we have heard from those who have deployed ITMs, neither of these scenarios is likely to play out.
What ITMs reveal is an emerging preference among some consumers for enhanced self-service – coupling automated banking’s speed and efficiency with the kind of service delivery that is only available with person-to-person help.
This brings us back to channel mix. In an interview with The Financial Brand, Troy Case, the CEO of Case Financial, a Minnesota-based provider of branch transformation solutions and consulting, said financial institutions must consider their ITM strategy in the context of their overall strategy.
Such a strategy, Case said, includes the role of in-branch tellers and off-site call centers, of traditional ATMs and drive-thrus – and more. And it has implications for strategic priorities like cost structure and profitability, data security, technology, cross-sales, and shifts in consumer demographics.
Star Choice: Tapping the Drive-Thru Opportunity
Star Choice Credit Union of Minnesota – a Case client – is a great example. Drive-thru ATMs were a critical consumer touchpoint for the credit union, especially in inclement weather, when consumers preferred to stay in their cars. But back in 2022 Star Choice was having trouble with its drive-thru ATMs. On one hand, the pneumatic tubes shuttling cash and paper back and forth would freeze in the harsh Midwest winter. At the same time, post-COVID, the credit union was looking for new ways for consumers to interact with tellers remotely. So Star Choice decided to replace its drive-thru ATM with an ITM.
The drivers (no pun) of the credit union’s decision included cost, consumer experience, and transaction speed – in roughly equal measure. Star Choice’s new ITM offered several important benefits:
| Goal | Advantage |
|---|---|
| Enhanced consumer experience | • Customers now have the option of conducting a simple transaction or interacting with a teller via high-quality video. |
| Operational benefits | • Staffing flexibility improves because ITM tellers can work some shifts from home. • One teller can handle the consumer flow from 2.7 ITMs on average. • Elimination of old-fashioned pneumatic tubes frees up space inside the branch, opening the possibility of upgrading interior design. |
| Competitive advantage | • When consumers seek help, ITM connects them to a local team member, so they are engaging with people they already know. For a small Midwestern institution that differentiates itself from major nationals by offering a personal touch, the ITM is thus a far superior option. • Star Choice gains a high-tech first-mover advantage that can be hard to come by for a smaller institution. |
| Data considerations | • Star Choice decided not to integrate the ITM to its core databases, for a simpler and more secure solution. |
Wings Credit Union: Efficiency Enables Growth — and Engagement
The ITM strategy of another Minnesota institution, Wings Credit Union, was motivated primarily by efficiency. Wings aimed to expand its footprint and enable membership growth, but to do so without disproportionately growing its costs. Improving the consumer experience was also a benefit.
Over the course of its implementation, Wings expanded its branch footprint by nearly 50%, reduced traditional ATMs by over 50%, and robustly embraced ITMs, including both basic and core-enabled. The result is a more efficient credit union, with smaller branch footprints, lower costs, and extended service hours. Wings now operates 32 branches – 10 more than when it started the program. Of these, 19 operate with ITMs and no teller line, including both new and remodeled branches.
“Offering robust self-service with the option for centralized assisted-service has given Wings the opportunity to build more branches for less money,” said Todd Kalina, ATM and Alternate Delivery Channel Manager at Wings. “Being able to remove the teller line and vault reduces costs significantly.” These changes also made room for lounge areas equipped with interactive tablets, and Sip Stations offering free tea and coffee.
The changes also improved member satisfaction after a few months of transition, during which staff helped members adjust to the new machines and branch footprints. “We could meet our members where they were in terms of their comfort with self-service,” Kalina said.
Despite added automation, Wings maintained its ability to offer highly-competitive loan rates and low fees. It retained some ATMs for members seeking simple transactions such as withdrawals, transfers and deposits for primary checking/savings. First-generation ITMs gave members the choice of working with a video teller, who would then be able to handle more complex transactions on their behalf. Finally, the latest generation of ITM machines, because they are directly core-enabled, allow members to execute complex transactions with or without a video teller’s support.
Wings’ transformation also opened opportunities for tellers who became in-person bankers; they now focus on deepening Wings’ relationships with members, earn higher incomes, and have more job satisfaction. And centralized staffing of the Personal Tellers has allowed for more consistent training, enhancing their ability to help members. What’s more, Kalina said, “Having machines take care of most of the routine transactional activity allows all of our staff to have much more enriching jobs, and branch sales productivity has gone up as a result.”
An ITM Overview
Using an ITM gives a consumer significantly enhanced capabilities vs. an ATM, allowing for much more than the simple deposit and withdrawal of cash. Customers can make loan payments (personal, car, mortgage, etc.), transfer between accounts (beyond checking and savings), cash checks, make card payments and receive advances. Crucially, they can speak directly to a live teller, opening more opportunities for interactions that can lead to such outcomes as originating loans and other add-on services beyond plain vanilla ATM offerings.
For the branch, a shiny, new ITM can draw buzz and attention, especially when placed in high-traffic areas, opening financial institutions up to new markets within their served communities. Adding a machine that conducts transactions faster also frees up tellers inside the branch itself to better use their time to educate consumers and cross-sell such products as personal loans and mortgages, potentially adding immense value.
Another key benefit is using ITMs to extend branch hours. Often, financial institutions with ITMs staff their machines earlier and stay open later – opening at 8 a.m. and closing at 7 p.m. – adding significantly to standard business hours. Those extra hours can boost profitability: financial institutions see an 88% increase in branch hours and over 30% increase in deposits being made outside of standard hours when they add an ITM to their branch.
Branch productivity and revenue growth also tends to increase with the addition of ITMs. An ITM transaction costs about $0.50 to $0.70 per transaction vs. the standard teller costing $4.50 per transaction. Our research shows that staff productivity also increases while consumer satisfaction increases by as much as 90%.
Strategic Considerations
As financial institution leaders consider deploying an ITM – and how to calibrate their channel mix, they might begin with some diagnostic questions: Will the ITM be integrated with core systems? Will staff be centralized, work remotely, or some combination of the two? Will hours be extended via the ITM? The table below, from a white paper by Adrenaline, puts this analysis into context.
| | Pros | Cons |
|---|---|---|
| Core Integration | • Creates a more seamless user experience • Teller doesn’t have to control entire transaction • User does not have to choose video upfront (video flows in as needed and is anticipatory of user needs) |
• Often requires core upgrades • Higher costs of acquisition / implementation • Requires ongoing maintenance contract |
| Centralized Staffing | • Efficient / seamless staffing solution • Quickest response time to consumer request for video • Easier to discern optimal staffing |
• Not as clear what downtime activities centralized employees would complete • Not as good for local relationships as branch-level staffing • Can feel as if staff are disconnected from the branch / community |
| Expanded Hours | • Greater consumer choice / convenience • Greater off-hours functionality, similar to in-branch service |
• Balancing staffing levels and consumer usage can be challenging • Increased compensation for staff to work longer hours than at the branch |
Source: Adrenaline LLC, ITM Success Strategies and Use Cases
Tactical Considerations
Once the decision to deploy an ITM is made, institutions can benefit from first installing a test system to help uncover such potential issues as having to modify or upgrade connected software systems. In addition, having extra staff on hand for the first month of use can help ease acceptance, by both consumers and staff. A skeptical staff member can easily create the sense for consumers that the ITM is not worth their time, where a helpful one can demonstrate the benefits.
A communications campaign, ranging from a celebratory kick-off week or month, to direct marketing and advertising, can also help with consumer adoption. Bank leaders should reassure staff that the new machine will not cost them their jobs and that training will be made available, both explaining how to use the machines effectively and – critically – to demonstrate how the new technology can strengthen relationships and consumer service.
Most financial institution leaders today accept that ITM technology is as inevitable as mobile banking in the 2000s. At a time when business headlines are filled with talk of artificial intelligence dehumanizing service professions and commoditizing once-essential roles, ITMs in fact are a cutting-edge technology that promises the alternative. Welcome to the era of enhanced self-service.