As digital technology is becoming more pervasive, we’re seeing how it’s revolutionizing the banking industry. As banks and credit unions add new branches, there is a growing trend to supplement staff or exclusively use Interactive Teller Machines (ITMs, also called Video Teller Machines or Personal Teller Machines).
Based on prior statements from the NCUA, this can prove to be a cost-effective solution to help multiple common bond credit unions expand their fields of membership into new select group additions and underserved areas. To summarize the statement “to comply with the definition of “service facility” as contemplated by the FCU Act and the Chartering Manual, a video-teller machine is an electronic system that:
- “Provides real-time, face-to-face video access to live tellers at regularly scheduled weekly hours;
- “Uses credit union employees or local, shared-branch employees as the tellers appearing on the screen;
- “Allows a member to conduct all the transactions he/she could if visiting a service facility of another sort permitted by the FCU Act and Chartering Manual; and
- “Is in a physical location within an underserved area or a physical location in reasonable proximity to the group being served for group additions.”
When deciding how to offer services to customers, credit unions must perform their cost analysis, ROI/ROA analysis, and evaluations on how well these solutions will be accepted by the public they serve.
If we start by looking at the published costs on building a stand-alone branch, Bancography did several studies in 2003, then again in 2016, finding that while average branch sizes fell, costs still increased (from an average of $440/sq. ft to $570/sq. ft). It is important to note that these figures only apply to land acquisition and construction costs, and not ongoing staffing and maintenance costs (technology, connectivity, etc.).
When looking at ITMs, these costs are more in line with deploying ATM costs. According to a Cornerstone Performance Report, deploying ITMs delivers mixed results. Hardware costs vary based on feature-set and capabilities but range from $65,000-$85,000/unit on average, plus software and support costs. The overall calculations showed that financial institutions leveraging ITMs had 0.94% average return on assets, compared to a ROA of 0.72% across institutions that hadn’t deployed ITMs. Conversely, institutions with ITMs had an average penetration of 2.2 products per household while institutions without ITMs had an average of 2.42. Does this signal a resistance of customers to leverage the new technology?
Customers are clearly ready to move to the digital age. According to a poll conducted by Accenture, 66% of customers are using online banking services, and a 2015 Gallup Poll showed that 53% of customers would give up branches before they gave up online banking. This adoption of new technological solutions shows that customers are ready to leverage technology in their day-to-day interactions with credit unions.
In order for Interactive Teller Machines to become a viable solution within the credit union, especially when used to expand your footprint, this solution can prove to be an attractive alternative when compared to more traditional brick and mortar “full-service” locations. The following concerns need to be addressed:
- ITMs may be in a physical structure (i.e. a Kiosk) and must be monitored by employees during published hours. Many ITMs offer the functionality to provide ATM services outside of regular hours.
- ITMs must provide most, if not all services, a credit union offers. It would not be unreasonable to assume that services such as safe deposit boxes may not be available, but loan services, account services, and money management services must be accessible from an ITM. These features must be, at minimum, comparable to those available in a mobile solution to be relevant.
- ITMs do add to the overall IT cost, requiring additional bandwidth for two-way video and audio, software licensing, infrastructure, and management of solutions. These costs, however, are lower than the management of a traditional branch.
Overall, ITMs offer an attractive alternative to a full branch for multiple common bond credit unions to expand their field of membership and to provide service to underserved populations. Not only is a physical presence gained at a manageable initial investment, ongoing support is more efficient by minimizing staff requirements. For example, only one teller is needed to service three to five ITMs, instead of four to five FTEs in a traditional branch location.
As you evaluate these options, ensure that if you’re a federal credit union, narrative applications are submitted as we outline in this post. Also, remember to check your eligibility to expand. Resources and suggestions to expand your FOM can be found in this post, and, check the NCUA listing of well-defined communities before submitting your applications. Or contact CUCollaborate for all of your field of membership needs.