EXPANDING BRAND PRESENCE IN A TIME OF BRANCH REDUCTIONS

Transcription

1 EXPANDING BRAND PRESENCE IN A TIME OF BRANCH REDUCTIONS EXECUTIVE SUMMARY Each year, CEB TowerGroup conducts a detailed adoption and investment analysis of 29 key technologies in the retail banking space. In 2014, 57% of surveyed executives indicated that they intend to increase their spend on ATM hardware while only 32% of executives consider the branch a key strategic investment. Knowing that branding is an important component of the retail banking strategy for most firms, Cardtronics commissioned CEB TowerGroup to create this whitepaper examining how financial institutions are maintaining market presence in a declining branch environment. 57% 18% 14% 11% Decrease Little or No Increase Change N = 49 Source: CEB Technology Adoption & Investment Survey Unsure In the following pages, readers will learn about how banks are expanding their presence without building branches, while still meeting basic customer needs for cash as well as check cashing and making deposits. Many banks are using the ATM to replace or complement branches, using new functional capabilities to provide the convenience that customers need. This whitepaper will examine three priorities shaping retail banks and credit unions today: How financial institutions are using the ATM to shape their market presence The changes that retail banks and credit unions need to make to adapt to customers changing interaction preferences How self-service is being used to meet new branch priorities Copyright 2017 Cardtronics. All rights reserved. Cardtronics and the Cardtronics logo are trademarks or registered trademarks of Cardtronics. Other product and service names are trademarks or registered trademarks of their respective companies.

2 USING THE ATM TO CREATE PRESENCE When the ATM was first created and deployed in the late 1970s, there was a belief that the ATM would replace the teller in the near future. As the years passed without this prediction transpiring, it began to seem impossible that it would ever happen. While the ATM could perform some of the basic transactions, it just couldn t do enough to negate the need for a bank teller at a branch. The development of the ATM over the last decade, however, finally changes that perspective. The spectrum of ATMs now ranges from a machine that does only cash withdrawals to one that connects the customer via video to a centralized teller and can perform essentially any transaction type. This increase in ATM functionality makes it possible for banks to offer more services to meet the needs of the evolving customer in new, convenient locations, which not only helps banks provide better service to customers Location but can replace or transform the branch in Hardware certain locations. At the same time that ATMs have evolved, it has become inefficient to maintain and grow the branch network as it has been done in the past. Yet the need for market presence and branding in target markets has not declined. Even though name recognition can be achieved through traditional advertising, retail banks and credit unions still need to convey the idea of convenience of being there to meet customer needs when and where they are needed. ATMs can provide the dual benefits of bank branding and customer convenience. And those financial institutions that are challenged to compete Network ATM Strategy Services Functionality ATM Strategy Considerations with large banks to obtain the best branch locations can put their resources behind ATM branding to gain access to the locations they otherwise could not. The improved capabilities of the ATM have now given banks countless options in developing innovative strategies in the wake of branch closures. To fully understand these new options, we can break them down into five categories location, hardware, functionality, services and network. PAGE 2

3 Onsite Offsite Branch Lobby Self-Service Branch Drive-Up Through-the-Wall Standalone Drive-Up ATM Strategy: Location Considerations The location of an ATM is crucial to determining the hardware, functionality, and services to be offered. Banks and credit unions primarily deploy at least 70% of their ATMs onsite. Interior ATMs are placed either in the lobby that is open to customers 24 hours, 7 days a week, or within the branch as a self-service option for transactions while the staff focus on advisory services. Exterior ATMs accessible as walk-ups via sidewalk or drive-ups via car are popular options for customers. Offsite ATMs are located off bank and branch property, often at convenience and grocery stores, entertainment venues, shopping centers, and parking lots. The goal is to provide customer convenience where and when access to bank services is needed. Offsite ATMs are typically drive-up or standalone, most often inside a retail environment. L O C A T I O N Another decision to be made is the number of ATMs available in one location. In some locations, one ATM is enough to provide convenience. In high traffic locations, banks may need to deploy a group of ATMs to meet demand. The hardware installed at an ATM will determine both the functionality and the services that can be deployed. An image scanner will facilitate envelope-free deposits and the addition of bulk note acceptors allows consumers and businesses fast deposit processing. Touchscreens on the ATM have risen in response to consumer comfort with smartphones and tablets. Coin acceptors and dispensers open up the ATM to check cashing and bill payment. Document printers extend the ATM to more complex services like full account statements and loan documents, providing the opportunity for line of credit and CD renewals. Biometrics have been added to some ATMs through the forms of iris and fingerprint scanners. H A R D W A R E While customers have not yet fully embraced biometrics, there has been some softening as mobile devices offer them for authentication. And personalized marketing turns the ATM from simply a customer convenience to an opportunity for new revenue. This marketing has taken the form of bank marketing, offering new accounts and services, as well as merchant offers in which the customer receives coupons for local stores. Image Scanner Bulk Note/Check Acceptors Touch Screens Coin Processors and Dispensers Document Printer Iris/Fingerprint Scan Personalized Marketing ATM Strategy: Hardware Considerations Hardware PAGE 3

4 F U N C T I O N A L I T Y Functionality at the ATM has changed drastically over the last 10 years. Banks are now choosing to deploy ATMs that perform a single function like withdrawals, deposits, or bill payments. This cuts down on the time that the customer has to spend choosing functional options. In addition, the advent of the image ATM has changed the types of deposits that customers are comfortable making at the ATM. While there was trepidation over making a cash deposit in an envelope ATM, customers now receive a reconciliation and proof of what was deposited. Multi-function ATMs like virtual teller machines or Cardtronics VCOM extend the base functionality of the ATM to allow for check cashing, cash-based bill payments, and more complex transactions that require additional documentation and information. Recycling ATMs leverage cash deposits for future withdrawals, reducing the cost of cash servicing. Functionality Express Cash Full-Service (Envelope) VCOM Recycling ATM Deposit Only Full-Service (Image) Interactive Teller ATM Strategy: Functionality Considerations While the functionality of an ATM determines its overall level of complexity, that functionality also defines the services that an ATM can offer. On-us bill payments, funds transfers, and mini-statements have been a service offered by bank ATMs for over a decade. Foreign exchange has also been available, although dynamic currency conversion has been added more recently. Deposit automation, check cashing, and mobile top-up are more recent additions, as image functionality and mobile devices have become more prevalent. S E R V I C E S It is critical that financial services institutions carefully consider which services to offer at each ATM. Services should be deployed based on the location, the customer base for the ATM, and the processing costs. For example, a drive-up ATM should offer services that can be performed quickly while an ATM in an office location for which a bank provides business banking services should deliver more extensive services. Bill Payment Funds Transfer Deposit Automation Check Cashing Mobile Top-Up Foreign Exchange Mini Statements Loan Documents ATM Strategy: Services Considerations Services PAGE 4

5 Banks are employing numerous models for ATM management. Some are using the hub and spoke model, with the branch serving as the hub in which more complex transactions can be carried out and ATMs providing access to customer service transactions in various locations in the surrounding area. ATMs can also be branded or unbranded. While most banks and credit unions will always choose to brand their ATMs as a sign of customer convenience, they increasingly have the option of using a third party ATM to do so. Some banks, however, choose to give customers access to network-branded ATMs to increase their footprint in which customers can access cash surcharge-free. And over the last five years, banks have increasingly chosen to outsource their ATMs to a third party, one that takes responsibility for the hardware, maintenance, and cash. N E T W O R K ATM Strategy: Network Considerations Network ADAPTING TO CHANGING CUSTOMER NEEDS The Customer Definition of Value Fast Simple Accessible Source: CEB Analysis, 2014 From the customer s point of view, service should be simple. An affirmative to the question Can I do what I need to do when I need to do it? is the basic need. And while branches (in which these basic needs were met) are closing, customers still need to complete transactions. Deposits need to be made, checks need to be cashed, payments need to be made, and cash withdrawals are needed to buy goods and services. These transactions have already started to move to other channels. Check deposits are moving to image ATMs and mobile remote deposit capture. Cash withdrawals have been primarily done through the ATM for years. Payments are often remitted through online and mobile banking. Check cashing has historically been the one transaction that keeps people coming in to the branch, although some off-premise ATMs do offer this service. PAGE 5

6 The mobile device has changed consumer perspectives on self-service. No longer is self-service primarily viewed as a way for companies to save money on customer service. Now customers see it as a convenience, allowing them to get what they need when they need it. This effect has been seen directly in banking. In 2003, 51% of transactions occurred in the personal channels, the branch and contact center. In 2013, only 27% of transactions were completed in the personal channels. Almost three-quarters of transactions (73%) have a new opportunity to serve more cost-effectively as customers naturally move towards these self-service channels. The Evolving Personal and Digital Transaction Mix Percentage of Transactions, 2003 and % 51% 73% 27% Digital Personal Source: CEB TG Analysis As banks close branches and customers transition to new channels, they will need to consider how to migrate those transactions that customers currently prefer to conduct in-person. For example, 75% of customers prefer to cash a check and 60% to make a deposit in the branch. However, for both of those activities, the ATM is the clear second preference. Retail banks and credit unions can capitalize on this opportunity to guide customers to the ATM as they move out of the branch. Channel Preferences for Financial Activities Percentage of Respondents 1% 25% 1% 17% 7% 1% 6% 3% 5% 2% 5% 1% 27% 66% 14% 84% 73% 4% 60% 75% 66% 29% 7% 21% Withdraw Cash Make a Deposit Cash a Check Check Your Balance Transfer Funds or Wire Money Add Additional Products PAGE 6 N = Source: CEB Customer Experience Survey 2013 In Person Online or Mobile ATM Phone

7 CEB TowerGroup explored how banks would be able to influence customers to move to other channels. Unsurprisingly, adding a small penalty fee to continue using the branch resulted in customers indicating they would move to avoid the fee. Customers were overwhelmingly willing to either switch banks altogether or simply use another method if a penalty fee were imposed. However, when asked how the customer would react if offered a small financial benefit (for example, reduced monthly fees), 64% did not reject the idea outright and indicated willingness to consider the option, with only 21% choosing to forego the incentive to continue to use the branch. The results from offering an incentive show that banks can persuade customers to use alternative channels even when a strong preference has been indicated to use the branch to conduct business. If you were encouraged to conduct everyday banking tasks through ways other than a branch by getting a small financial benefit, what best describes how you would respond? 37% 27% 21% 16% N = 774 Source: CEB Customer Experience Survey 2013 Inquire more about the benefit Use the other methods Continue to use the branch Unsure MEETING NEW BRANCH PRIORITIES Not only is it difficult for banks to justify building new branches, it is becoming increasingly necessary to close branches as transactions at those branches decline and profitability declines, as well. It is expected that there will be over 6,000 fewer branches in the United States by 2017, a decline of over 6%. Branches in the United States In Thousands, Source: FDIC, CUNA, CEB TowerGroup Analysis PAGE 7

8 With over half of transactions occurring through online and mobile banking, personal customer interactions at the branch are no longer the primary touchpoint between the bank and the consumer. And while the presence of a branch is still one reason that a consumer may choose a bank, it is now part of a larger equation that takes into account overall convenience and pricing across the channels, making it cost-ineffective to build branches simply to make people feel better. A 3,500-square-foot stand-alone branch costs approximately $3 million to build and equip. An investment of this magnitude requires a branch to generate approximately $40 million in deposits in the first five years to break even. US branches open five years frequently fall short of this figure, averaging approximately $27 million in deposits. The combination of the changes in customer preferences and the subsequent reduction in the number of branches are forcing banks to draft new strategies to meet sales goals in the coming years. This has resulted in mixed confidence levels as executives attempt to fulfill customer needs for support and guidance in other channels. Confidence in Ability to Provide Personal Support and Guidance in Non-Branch Channels Percentage of Retail Banking Executives 42% 26% 16% 11% 5% Complete confidence High confidence Some confidence Low confidence No confidence or unsure N = 19 Source: CEB TowerGroup Agenda Poll, 2014 One way that banks are addressing this issue is by shifting their branch focus to an advisory role instead of the traditional transactional role. In branches that have been redesigned using self-service technology for transactions, branch staff provide a supporting role, engaging in conversation to better understand customer financial needs. PAGE 8

9 Almost three-quarters of banks indicate that they are making the shift to advisory by training staff and developing sales capabilities and almost 70% are investing in self-service to process customer transactions. However less than half of survey respondents have complete or high confidence in their abilities to adequately complete this transformation. Branch Transformation Components of High or Critical Importance Percentage of Retail Banking Leaders 41% 71% 43% 71% 40% 67% 52% 61% 36% 60% High or critical importance High or complete confidence N = 150 (Retail Banking Leadership Council Source: CEB Retail Banking Leadership Council Agenda Poll, 2014, CEB Retail Banking Agenda Poll, 2014 Banks continue to be committed to branches, as they know that certain customer needs are still predominantly completed in-person, like purchasing new products and resolving problems. The goal now is to craft experiences that not only reduce both customer effort and transactional requirements for staff. With the range of self-service solutions now available, retail banks and credit unions can design branches and their surrounding areas with the most appropriate functionality to meet its customers needs. The choice of location along with the hardware, functionality, and features can create an experience that is unique to the institution, providing customers with the full range of service typically associated with the branch. PAGE 9

10 SUMMARY The increased pressures from the digital banking customer have forced strategic shifts in the retail banking industry. Creating a presence outside of the branch is gaining higher importance as banks have fewer branches to rely upon. CEB TowerGroup s research has shown that while customers are moving more towards digital channels, they still have a strong preference for personal channels for certain transactions. ATMs can bridge this gap as the functionality and service provided by ATMs continues to improve, giving financial institutions new strategic options to fill the void of closing branches. As ATMs have developed significantly over the past five years, banks are given a wider range of options in terms of location, hardware, functionality, services, and the network that allows them to customize solutions based on their strategy. The location can be used to access target markets too operationally expensive for a branch. ATMs also provide an advantage to those institutions competing with large, nationwide banks by providing access to a wider array of location choices. New ATM hardware such as image scanners and touch screens facilitate a wider range of transactions and incorporate the digital customers comfort level with smartphones and tablets. Expanded hardware options also increase the available functionality, allowing banks to choose the right level of service that can support the customer base, the location, and the surrounding bank presence. Expanded functionality options such as the virtual teller also allow for more complex transactions and reducing the cost of cash servicing. Hardware and software combine to provide an expanding range of services to customers. Deposit automation has spurred the largest change at the ATM in decades, providing the opportunity for customers to safely deposit cash and for business customers to take advantage of bulk deposit capabilities and later deposit windows. Perhaps the most strategic decision that a bank can make, though, is the networking option. This decision determines the level of surcharge-free access that a bank or credit union can provide as well as the opportunity for branding in new locations, expanding both market presence and convenience for customers. As banks develop their strategies in the next few years, the goal will be to craft a reduced effort experience in all channels, making banking easier for customers. The ATM will play a vital role in reducing customer effort by making banking transactions accessible when and where customers and members need them. PAGE 10

11 SUMMARY: ATM STRATEGY CONSIDERATIONS Offsite Drive-Up Standalone Onsite Branch Lobby Self-Service Branch Drive-Up Through-the-Wall Location Image Scanner Bulk Note/Check Acceptors Touch Screens Coin Processors and Dispensers Document Printer Iris/Fingerprint Scan Personalized Marketing Hardware Hub and Spoke Branded Unbranded Outsourced Surcharge-Free Network ATM Strategy Services Functionality Express Cash Deposit Only Full-Service (Envelope) Full-Service (Image) VCOM Interactive Teller Recycling ATM Bill Payment Funds Transfer Deposit Automation Check Cashing Mobile Top-Up Foreign Exchange Mini Statements Loan Documents PAGE 11

12 Phone: Web: cardtronics.com