Should ATM Outsourcing Be a Part of Your Channel Strategy? 28 March 2018

Transcription

1 Should ATM Outsourcing Be a Part of Your Channel Strategy? 28 March 2018

2 Introducing Our Speakers Patricia (Patti) Hewitt, CEO, PG Research & Advisory Services President, Keen-Net, Inc. Patti is an independent payments industry expert providing research, market analysis, go-to-market, due diligence, and portfolio conversion services to stakeholders across the industry and around the world. Patti has over 35 years experience in the financial services industry having held executive positions in a wide variety of market sectors including commercial banks, processors, software developers, and market research firms Cardtronics plc. All rights reserved worldwide. Confidential do not copy or distribute without permission. 2

3 Introducing Our Speakers David McCrary, EVP, US Product GM Cardtronics David leads a team responsible for the innovation, development, commercialization and management of the company s North America product offerings for financial institutions, retailers and regional/global processing networks. David possesses a wealth of experience in ATM management, payment technologies and banking to his role. His experience in financial services encompasses more than 20 years in product development, sales and account management, retail channel development and technology at Cardtronics, Bank of America, efunds and Pendum Cardtronics plc. All rights reserved worldwide. Confidential do not copy or distribute without permission. 3

4 ATM Market Survey 2017 Results and Key Findings PG Research & Advisory Services, LLC 4

5 About the Survey Commissioned as an independent, qualitative market study based on first person interviews with ATM channel strategists and managers in banks and credit unions across the U.S. The survey targeted institutions in the mid-tier asset ranges. The objective of the survey was to uncover key market trends and drivers in the ATM channel with a keen focus on the convergence of retail banking strategies, branch innovation, and the ATM channel in order to gain an understanding of how institutions were leveraging this channel and the dynamics of working with and selecting an ATM managed services partner. Interviews with the survey s participants took place in 4Q 2017 and 1Q PG Research & Advisory Services, LLC 5

6 Survey Framework ATM Channel Characteristics ATM Management and Servicing Best Practices in Vendor Selection ATM Channel Innovation PG Research & Advisory Services, LLC 6

7 ATM Channel Characteristics People still want cash. PG Research & Advisory Services, LLC 7

8 ATM and Branch Channels More Tightly Converging 90% of participants stated their institution has not decreased their total number of branches. 30% have increased branches primarily due to M&A activities. Majority acknowledged that ATMs are taking on increased importance to institution s overall retail distribution and brand management strategies. Brand Expansion activities leveraging pinpoint ATM placement can be highly effective in improving competitive brand positioning. PG Research & Advisory Services, LLC 8

9 ATM Channel is No Longer Just a Utility Service 80% view their ATM channel as a strategic service. For smaller, community-based institutions ATMs provide a competitive advantage and provide vital cash services and can be used in place of a branch to extend their geographic reach. For larger institutions, ATMs are more broadly leveraged for enhanced services or in support of brand enhancement strategies. Most institutions do not actively monitor their competitor s ATM channel, but those that do, closely follow which services consumers seem to prefer when using an ATM. EMV upgrades have taken the wind out of most other feature functionality upgrades. PG Research & Advisory Services, LLC 9

10 Poll Question #1 Do you consider your ATM fleet a required service or a strategic service? Required Strategic PG Research & Advisory Services, LLC 10

11 Key Findings Demand for Core ATM Services Holds Steady. Branch Transformation Strategies Require Tight Alignment With ATM Feature Functionality. Financial Institutions must ensure that core ATM services, such as cash access, deposits and inquiries are always on for customers, but the ability to enable enhanced self-service and marketing is what s driving innovation and integration with competitive retail banking strategies. ATMs are increasingly taking the place of branches as a means of providing access to services and establishing a competitive brand presence in broader geographic markets. PG Research & Advisory Services, LLC 11

12 ATM Management & Servicing The problems they have managing an in-house fleet are pretty consistent and the two biggest are cash management and the number of vendors it takes to manage an ATM. PG Research & Advisory Services, LLC 12

13 ATM Services Offered Institutions offered the following services: Majority Deposits Withdrawals/Inquiries Payments International (V/MC) Minority Envelope-less Deposits PIN Changes Dynamic Currency Conversion Preference Settings Credit Card Cash Advance Multi-Denominations A2A Transfers PG Research & Advisory Services, LLC 13

14 ATM Services Management ATM Services Predominately In-House Predominantly Outsourced Network Connectivity Y Software Y Security (Physical) Y Cash Management Y Maintenance Y Monitoring Y (many mixed) Fleet Field Management Y Settlement and Reconciliation 50% 50% Information Security Y Business Continuity Y PG Research & Advisory Services, LLC 14

15 Outsourcing is an Established Practice for All Institutions Even institutions that claim to manage their ATMs wholly in-house, outsource at least some of the servicing and maintenance functions. It is more common to 100% outsource services, than 100% in-source services. Drivers of outsource strategies include: Cost of upkeep and compliance Liabilities Resource allocation Location of device Primary driver of in-house strategies is control over the asset, which could be an organizational preference, but in more cases, it had to do with being able to manage servicing issues on their own timeframe. An exception to this practice are off-site ATMs, where the value of outsourcing is higher. Almost all respondents outsourced servicing of their off-site fleets. PG Research & Advisory Services, LLC 15

16 Poll Question #2 What areas of your ATM management do you currently outsource? Check all that apply. Hardware Software Network Connectivity Security Cash Management Maintenance Monitoring Fleet Field Management Settlement & Reconciliation Information Security Business Continuity PG Research & Advisory Services, LLC 16

17 Key Findings All Institutions Outsource Some or All of their ATM Services and Unbundling is the Key Practice Institutions like having control over problem resolution and see this as a service differentiator, but the nuts and bolts of managing ATMs is becoming increasingly complicated which has drawn more institutions into outsourcing contracts. For smaller institutions, this complexity has translated into market dynamics that favor selling off the devices in favor of an expert services management relationship. PG Research & Advisory Services, LLC 17

18 Best Practices in Vendor Selection How are you going to make our members experience the best it can be? PG Research & Advisory Services, LLC 18

19 Uptime, Security, and Cost Drive Outsourcing Decisions PG Research & Advisory Services, LLC 19 Walker Information, Inc. All Rights Reserved

20 Evaluation Criteria Is Trending Towards Provider Expertise in the Channel, But First ATMs Must Work All the Time #1 Evaluation Criteria is uptime. #2 Evaluation Criteria is how quickly will a vendor respond to a servicing issue? Selecting an outsourced partner has evolved beyond the nuts and bolts of providing cash access, as participants indicated that their provider evaluation criteria also includes: Proven expertise delivering ATM-specific solutions Investments in the channel Leadership in the payments industry A deep understanding the ATM eco-system PG Research & Advisory Services, LLC 20

21 ROI Components of Vendor Selection Cost Other Considerations Compliance Resource Allocation ROI SLA Customer Service How many vendors have to be managed to support the ATM channel? Business continuity (natural disasters) Fraud Staff Productivity PG Research & Advisory Services, LLC 21

22 Poll Question #3 What do you view as the most critical element in providing ATM services to your customers? Reliability Security Cost Savings Competitive Services None of the Above PG Research & Advisory Services, LLC 22

23 What is the One Question to Ask a Potential Solution Provider? Do you feel that ATMs have more marketing value than cash value? How complicated is this change going to be? How do we avoid glitches in the conversion? How do you route the transaction to be more cost effective? Can you process these transactions as an on-us and price it accordingly? How are you going to make our members experience the best it can be? Why are you better than all these other many, many servicers in the market? PG Research & Advisory Services, LLC 23

24 Key Findings Solution providers must be cost competitive, but the real decision criteria lies in their ability to improve the value of an institution s ATM channel. The ATM channel is an expensive and complicated channel for any institution to operate. As ATMs become more feature-rich and more integrated into retail banking/branch strategies, the vendors that support them are being asked to demonstrate their expertise and commitment to this channel. Equally important, institutions are realizing that an efficient outsourcing partnership can have a positive and lasting impact on staff productivity. PG Research & Advisory Services, LLC 24

25 ATM Channel Innovation Digital becomes the new bank, ATM becomes the new branch. We have to offer a new rich transaction set to accomplish this. PG Research & Advisory Services, LLC 25

26 As Branches Evolve, ATMs Provide a Critical Accessibility Link Hi, I m a Universal Banker What s Your Superpower? The majority of participants see a future where ATMs are an integral part of a broader Universal Banker (UB) delivery strategy, but with that comes inherent risks that smaller institutions are hesitant to take on: The risk of the device being offline. The cost and overhead to keep the device updated and aligned across their retail banking products. It s the impact of future trends on outsourcing where a bifurcation in the market takes place. Wanting control over the strategic components of the delivery channel Recognizing they can t get to a UBenabled delivery channel on their own PG Research & Advisory Services, LLC 26

27 If You Could Add an ATM Feature Tomorrow, What Would It Be? Receipts Cardless Withdrawal Image Deposits Bank to Bank Transfers Check Cashing Conversational Messaging (real-time) NFC, Mobile Access Targeted, BINdriven Marketing PG Research & Advisory Services, LLC 27

28 The ATM Channel of the Future If an accountholder s digital phone becomes a pocket-atm, then the ATM must offer functions not available on the phone. The ATM will need to provide access to many different types of accounts held by the institution. Supports access via external wallets, such as ApplePay and GooglePay Video was not prioritized by any participant and most felt it was an expensive feature that at best was under-utilized and at worst, had a negative effect on the institution s customer relationships. PG Research & Advisory Services, LLC 28

29 Key Findings ATMs hold a critical position in the bank of the future and improved software and core system integration will enable institutions to leverage it based on overall retail delivery strategy All institutions acknowledge that ATMs will play a more prominent role in the bank of the future. Universal Banking strategies require more pinpoint use of resources and improved efficiencies from technology delivery channels. While the future of feature functionality will vary based on an institution s overall strategy, it is presumed that the next wave of table stake features will include cardless withdrawal, digital deposits and receipts and marketing capabilities. PG Research & Advisory Services, LLC 29

30 ATM Outsourcing: Market Trends January 2018

31 FI Landscape Is Changing Traditional channels are being replaced by investments in new self-service/ digital channels By 2020, two-thirds of bank customers will use ONLY digital channels Digital Migration of Banking Customers from 2012 to % 57% 10% 44% 7% 25% 27% 46% 68% Source: CIO.com Why banks must have an omnichannel digital strategy citing 2017 CGN Research & Advisory Group Data By 2020, two-thirds of bank customers will use ONLY digital channels 31

32 What Are the Implications? Consumers Prefer Banking Services Delivered Digitally 1 But Physical Access is Still #1 Selection Factor in FI Choice 2 Factors in Bank Selection for Consumers 18% Branches Nearby Data Security 66% 70% 58% 24% Online Capabilities Easy-to-use Mobile App 33% 62% 0% 10% 20% 30% 40% 50% 60% 70% 80% Telephone Banking Face-to-face Digitally Despite the growth of alternative forms of payment, cash is used for more transactions than any other payment method in the U.S. 3 Financial Institutions must compete digitally but maintain a strong physical presence to compete for customers and provide the cash they demand CGI Understanding Financial Consumers in the Digital Era 2. Salesforce 2017 Connected Banking Customer Report 3. PYMNTS.com Global Cash Index 2016

33 The Paradox Cash vs. digital is not a binary choice Consumers are adopting digital banking and payments FAST FIs are being forced to catch up investing more in digital, less in physical assets Competition in digital space is fierce, and not just from traditional FIs But consumers don t want JUST digital Consumers demand AND not OR in their payments mix Cash remains critical as a way to pay, for some demographics more than others, but for everyone Physical access is still the #1 choice factor when entering a banking relationship What s it all mean for FIs? Investments must be made in digital channels, but physical channels must be maintained Maintaining those physical channels is better left to 3rd party specialists 33

34 The Ask Broader, more strategic solutions offering Support all Service Delivery Strategies Increase points of presence; provide full service, end-to-end ATM management; access to surcharge-free withdrawal and deposit network Understanding Bank Needs Make it easy and enable no-cost frictionless integration on demand Customer Experience & Innovation Protect the customer experience and shoulder innovation investment for FIs; expand product set drive best-in-class performance Broad Supply Chain & Supplier Agnostic Enable economies of scale and flexibility to accommodate FI specific needs with pricing advantages 34 Low Risk Network Transformation Leverage experience to reduce risk associated with change management

35 Always On, On Demand Solutions to The Ask Turnkey Retail ATM ATM Branding Points of Presence Retail Surcharge-Free Network Full-Service ATM Management Retail SCF Network + Check/Cash Deposit Network Turnkey cash dispense ATM management in high-traffic retail locations Bank-branded retail ATMs to extend distribution cost effectively beyond the branch Shared access and membership to a retail ATM network to provide convenient cash access surcharge-free Operational outsourcing of bank-owned ATMs for efficiency, innovation and improved service delivery Expanded self-service banking through check and cash deposits 2017 Cardtronics plc. All rights reserved worldwide. Confidential do not copy or distribute without permission. 35

36 Case Study #1 Points of Presence ATM Branding Points of Presence ATM Branding Bank branded retail ATMs to extend distribution cost effectively beyond the branch Overview 5,000 ATMs in North America Provides accounts to 1 in 3 Canadians 21% composite market share Key Challenges Increase ATM footprint in low expense growth climate Scale quickly in key markets Limit capital investment and infrastructure required Solution Extend points of presence at 143 Walgreens stores in Boston, MA Extend points of presence at 186 Walgreens in FL (Miami & Tampa) Promote points of presence using billboards/other signage/social media etc. Results To Date Successfully doubled PoP network across both MA and FL in 45 day rollouts Customer engagement and ATM usage up Account openings up 6% in a 3 mile radius (vs control group) Deposit growth; even as branch count diminished 2017 Cardtronics plc. All rights reserved worldwide. Confidential do not copy or distribute without permission. 36

37 Case Study #2 Allpoint Network Retail Surcharge- Free Network Shared access and membership to Cardtronics retail ATM network to provide convenient cash access surcharge-free Overview Headquartered in Midwest with almost 2.5K ATMs Serves businesses and communities in 10 states with more than 1,200 full-service locations One of the top 20 largest U.S. banks Key Challenges Wide spread rebating not sustainable in lieu of branch closures Surrounded by multiple acquisitions Below market fees Solution Limited rebating to HNW/WM replaced mass accounts w/allpoint Using Allpoint as marketing platform to attract M&A spill off Results To Date Able to raise foreign fee from $2 to $2.75 Combined solution generating millions in savings per month for the bank Cardtronics plc. All rights reserved worldwide. Confidential do not copy or distribute without permission. 37

38 Case Study #3 End-to-End ATM Management Services Full-Service ATM Management Operational outsourcing of bank-owned ATMs for efficiency, innovation and improved service delivery Overview 138-year old regional bank located in Queensland with branches in every Australian state and territory Branches run by local owner managers Retail, business & specialist banking services ATMs: 420 off-premise; 195 branch Key Challenges Significant cost to income pressure ATM deposit capabilities for customers Deployment of new features/functionality on fleet more quickly and easily Solution Cardtronics provides managed services for off-premise and branch ATM fleets Replacing the bank s aged fleet with state of the art intelligent deposit devices Services include ATM provision, installation, software, maintenance, CIT, helpdesk, content management Results To Date Reduced costs - a reduced team now looks after the remaining in-house functions associated with ATM operations Faster deployment of new ATM fleet features/functionality 2017 Cardtronics plc. All rights reserved worldwide. Confidential do not copy or distribute without permission. 38

39 Case Study #4 Allpoint Network & Points of Presence ATM Branding Points of Presence ATM Branding Retail Surcharge- Free Network Overview Branded 8k+ ATMs across the country with a single retailer for past 10+ years; ubiquitous message 2.2k Image deposit ATMs at same retailer Key Challenges Shift in strategy from being a large national bank to focusing on 6 core MSAs Need to continue servicing customers outside of 6 MSAs Aimed at targeting a younger demographic via shift to self service/digital Solution Joined Allpoint as foundation to serve customers outside primary MSAs; large self service network aimed at pulling in millennials Results To Date Shifted physical points of presence away from 8k locations to 2k different locations focused in 6 MSAs Re-deploying full function ATMs in select locations to facilitate deposits in core markets Cardtronics plc. All rights reserved worldwide. Confidential do not copy or distribute without permission. 39

40 Thank You David McCrary Thank you EVP US Product GM Presenter Title