Will Video Kill the Teller Line?


kill-the-teller-line.pngWhen asked about technology, many bankers are quick to tell you that they want to be on the cutting edge—not the bleeding edge. But banks are slowly, if perhaps begrudgingly, adopting new technology in bank branches. And while this technology may not be the flashiest, its adoption could spell the end for that stalwart of the banking industry—the teller.

Sixty-eight percent of consumers visited a branch in June 2013, according to the Boston-based research firm Celent, and more than one-quarter of Americans cite branch convenience as a factor when they choose to switch banks. But foot traffic is declining by as much as 5 percent annually. In the age of digital banking, it’s clear that the industry’s approach to the branch must change. For many banks, this means the implementation or expansion of self-service technology.

Bob Meara, senior analyst at Celent, sees the industry heading towards an increased self-service model, with staff available when needed. “I think the teller line [will be] extinct sooner rather than later,” he says, but since sales typically occur within the branch, “the last thing [bankers] want to do is close branches.”

When it comes to technology in the branch network, “the single biggest sea change I see in branch technology…is the image-enabled ATM,” says Kevin Travis, managing director at New York-based bank advisory firm Novantas. Unlike a traditional automated teller machine, these ATMs scan images of customer deposits, whether cash or check, speeding the process for bank staff and providing confirmation to the customer that the deposit was accepted accurately. Image-enabled ATMs have been around for about a decade, but adoption has not been universal by the industry so far. Celent estimates that about 1,300 banks and credit unions in the U.S. use them—about 10 percent of the industry.

In 2005, Kennebec Savings Bank, a $792-million asset financial institution headquartered in Augusta, Maine, was just the third bank in the U.S. to deploy image-enabled ATMs, by Duluth, Georgia-based technology firm NCR Corp. In addition to four traditional branches, two 24-hour unstaffed electronic banking centers with image-enabled ATMs allow the bank to reach communities within the its geographic footprint in a more cost-effective way, processing transactions at about 10 percent of the cost of the bank’s full-service branches, says Andrew Silsby, the bank’s president and chief operating officer. He says that the bank’s 12 image-enabled ATMs handle about one-third of its deposits.

Despite the success of its electronic banking centers, Kennebec Savings Bank is still on the fence when it comes to virtual tellers, which allow consumers to interact with a member of bank staff operating from another location. According to Celent, as few as 150 banks in North America use virtual tellers—a small fraction of the industry.

“I think it’s going to take another couple of years for the vendors to work out the kinks,” says Meara, and video tellers may not be the right solution for all banks. Unless the bank wants to extend service hours or geographic reach, many don’t see a need for a remote teller.

Conestoga Bank, with $679 million in assets in Chester Springs, Pennsylvania, uses virtual tellers, also by NCR, at two locations in the Philadelphia area. Transactions at these branches are handled entirely by virtual teller machines, so branch staffing at those locations is minimal. “Anything that a traditional teller could process through the teller window, the machine can handle,” says Lori Adamski, chief operating officer at Conestoga Bank. In addition to deposits and withdrawals, customers can make loan payments and print certificates of deposit and cashier’s checks.

Conestoga CEO Richard Elko says sales have increased at these branches. The office on Walnut Street in downtown Philadelphia, once a traditional branch, now opens two-to-three times more accounts each quarter with virtual tellers than with live ones, enabling branch staff to handle more complex services. And while the bank has yet to see a significant cost savings, Elko says that expansion of the new concept by one or two additional locations without hiring additional remote staff will generate the efficiencies that the bank is seeking.

Banks should take a careful look at how self-service technology is deployed within the bank, says Cris Gunter, director at Seattle-based architecture firm Callison. He recommends moving technology to the front of the office. “Make technology the first step available to the customer,” he says.

Extraco Banks, a $1.2-billion asset financial institution headquartered in Temple, Texas, locates cash recyclers, which automate cash handling by branch staff, at the front of the branch. Transaction times have been reduced by half, according to Vice Chairman James Geeslin. Extraco designed branches to be “open and flexible, and they went all-in in terms of automating routine transactions as much as possible, whether it’s check cashing or cash handling of any sort or even opening modest loans,” says Meara. Extraco also uses machines to issue debit cards within minutes, and image-enabled ATMs account for 20 percent of bank deposits.

The successes seen by banks like Kennebec Savings, Extraco and Conestoga reveal that community banks might actually have an advantage in implementing new branch technology. “Smaller banks have been more radical,” says Travis, because they aren’t hampered by extensive branch networks and are well-connected in their communities. “When you go to make a radical change, you’re less likely to lose customers if your customers are already highly loyal to you.”

Technology is not limited to transactions. It can also help familiarize customers with a bank’s many products and services.

“The typical bank has 50, 60, 70 different products, but how do you convey that? How does the customer actually discover that you offer all those different things?” says John W. Smith, CEO at DBSI, a branch design firm. “One of the things that work is interactive digital.” Marketing messages can be quickly updated and even customized to educate consumers on the bank’s products and services.

Customers scan their ATM cards to access the electronic banking center at Kennebec Savings Bank, which not only gives them a sense of security, but allows the bank to experiment with digital signage. “We actually display a personalized message up on the digital signage welcoming that particular customer,” says Silsby. The bank has future plans to tailor the messaging to target the right products and services to the customer.

DBSI worked with $14-billion asset Rabobank N.A. to transform the bank’s Roseville, California headquarters, focusing on the bank’s client base in the agricultural community. The centerpiece of the branch is a table with an embedded interactive touch screen. While the table brings back the nostalgia of a farmer meeting his banker in his kitchen, the modern interactive screen provides information about the bank’s products, including how to open an account and sign up for online banking.

With the continuing evolution of technology, one of the biggest challenges for banks is deciding what technology to adopt. JPMorgan Chase & Co. plans to introduce palm scanners, a type of biometrics, in branches later this year, according to Chase spokesperson Trish Wexler. The palm scanners not only examine the vein patterns in the customer’s hand, but a personal identification number is still required, adding another level of security. And in the near future, it’s likely that smartphones or wearable devices could identify customers who enter a branch. “A banker could understand in an instant who it is that walks through the door…and be alerted to sales opportunities,” says Meara.

In an industry with few innovators, “if you can differentiate yourself, if you can align yourself to your target market more effectively, you have a massive opportunity to win,” says Smith. Banks that find and implement flexible and efficient solutions that please the consumer will be the winners.

Video Banking: Folly or Foresight?


touchscreen.jpgThe past several years have not been kind to the retail banking business model. Low net interest margin, depressed lending demand, significantly eroded fee income and higher compliance costs have all contributed. Moreover, steady migration of branch transactions to self-service channels has been eroding branch foot traffic. The result is typically higher branch transaction costs and declining sales results. What is a bank to do?

The “Branch of the Future” May be Emerging

While substantive branch transformation remains a rarity in North America, there appears to be a growing consensus that the status quo is unsustainable. Celent couldn’t agree more! To understand the state and likely evolution of North American retail banking, Celent fielded surveys in July 2010 and again in July 2012. In 2012, considerably more institutions indicate intentions to make modest to sweeping changes in branch configuration.

Institutions appear to be eyeing a variety of approaches. Some (55 percent in the 2012 sample, up from 24 percent in 2010) see enterprise wide branch design changes likely. An equivalent percentage (57 percent, up from 48 percent) see ultra-low-cost designs in the mix. These small, highly automated outlets may replace some existing branches, while others may be built instead of more expensive traditional designs in new markets. A common objective in contemplating redesign supports a sales/service rather than transactional model (66 percent up from 58 percent).

Source: Celent survey of NA FIs, July 2012, n=132

None of this is going to be easy, and banks are wisely being cautious about what to do and how to do it. What has changed over the past two years, however, is the growing number of banks contemplating branch channel initiatives. In the July 2012 survey, more than a third of banks and nearly half of credit unions surveyed expect significant changes in size, capacity, technology and staffing over the next five years. About a third expected more modest changes, and only about one in five surveyed financial institutions expect their branch networks to remain mostly the same over the next five years. We are witnessing a tipping point.

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Most branch transformation initiatives seek to achieve the dual objectives of cost reduction and improved sales effectiveness. But, branch transformation, whether modest or significant, doesn’t itself suggest the use of video. Is video banking going to be a good idea? Celent is bullish on the use of personal video conferencing in banking applications. But before defending this assertion, let’s first look at the variety of ways video can be used to accomplish these two objectives.

Video Tellers. Video is being used at drive-through locations and in branch lobbies and vestibules alongside transaction automation technology to provide a low-cost alternative to the traditional teller experience. Credit unions have taken the lead in the use of video tellers both as a replacement of traditional teller roles and as a way to augment traditional teller arrangements. Some financial institutions have used video kiosks (a.k.a., personal teller machines, or PTMs) in de novo branch designs while employing live branch personnel inside the branch to engage customers with needs that go beyond simple transactions.

Video SMEs. In contrast to using video to support routine (teller) transactions, some banks and credit unions are using desktop video conferencing applications to connect customers with subject matter experts (SMEs) such as lending officers and specialized customer support personnel. Consumers could also be connected to SMEs via desktop videoconferencing as part of an online banking experience.  Thus far, the prevalent use of video SMEs has been among smaller and rural branches as a way to provide cost-effective service delivery.

The business case for video banking has been demonstrated in many financial institutions, while in others, those still piloting, the jury has not rendered a verdict. Those with successful implementations have seen benefits that may surprise you.

  • Cost savings. Coastal Federal Credit Union centralized all its tellers and deployed 63 PTMs across its network.  Coastal replaced 74 branch tellers and supervisors with 44 tellers, supervisors, and service staff to support its 15 branches, resulting in a cost reduction of 41 percent while expanding branch hours by 86 percent.
  • Improved customer convenience. Multiple PTM implementations are being accompanied by expanded branch hours. Video SMEs can offer expanded offers and shorter (or no) wait times by connecting to an available SME regardless of physical location.
  • Improved sales results. Celent has interviewed multiple financial institutions asserting improved sales results through the use of video banking. In most cases, this occurs through automation—largely removing teller transaction processing and reconciliation activity from the branch environment. Remaining branch staff, freed from the administrative burden, can now be devoted to sales and service. With remaining branch staff more focused on sales and service at Coastal FCU, average sales per full time equivalent (employee) per day increased to 2.4, up 49 percent from 1.6 sales per FTE per day when each branch had tellers.

But, will customers accept video banking? Done well, customer response has been strong, with measurable improvements in customer satisfaction. Customer response appears to be strongest when video banking is introduced alongside meaningful benefits such as expanded branch hours or shorter drive-through wait times.

A few short years ago, this would likely have not been the case. Technology improvements have made video conferencing both affordable and more satisfying. The growth of Apple’s Face Time and Microsoft’s Skype bear testimony. But, just as Skype is not for everyone, video banking isn’t either. Celent expects the topic to remain controversial for years to come. In the meantime however, savvy banks will give the idea careful consideration.

Originally published on December 3, 2012.