Cornerstone Advisors | November 2016 The Quest for Video ... · Source: Cornerstone Performance...

The Quest for Video Teller ROI

Cornerstone Advisors | November 2016

© 2016 Cornerstone Advisors. All rights reserved. Reproduction of this report by any means is strictly prohibited without written permission. 2

3 Introduction4 The Business Cases for ITMs12 Operational Considerations16 Benchmarks20 Conclusions 23 Additional Resources

24 About Cornerstone Advisors

5 Figure 1: Teller Productivity6 Figure 2: In-person Teller Transactions per In-person Teller FTE6 Figure 3: Total Transactions per Total FTE8 Table A: Performance Metrics: FIs with ITMs versus FIs without ITMs9 Figure 4: Performance Metrics: Top 3 versus Next 816 Table B: ITM Capacity Ratios17 Table C: ITM Cost Ratios18 Table D: ITM Transaction Ratios19 Table E: ITM Ratios for Top 3 Versus Next 8

TABLE OF CONTENTS

INDEX OF TABLES AND FIGURES


ITMs: BRANCH SAVIOR OR PROLONGING BRANCH EXTINCTION?

A 2013 article on CNBC.com called interactive teller machines (ITMs)1 the “future of banking.” According to the article:

“Because these machines let people talk to a remote teller on a video monitor, customers can do things that wouldn’t be possible otherwise. For example, if you lose or forget your ATM card, you can prove your identity by showing the teller a driver’s license. Another benefit: faster service. Because the remote teller doesn’t have to count cash or physically enter the amount of each check—the machine does it—transactions are conducted more quickly than they would be inside the branch.”

So, the future of banking is enabling a customer to come into a branch and interact with a bank employee who isn’t in the branch? And can’t a cash recycler at a teller station count cash just as fast as an ITM?

On the other side of the coin, ITMs have been hailed as the nail in the branch’s coffin. A Financial Brand article titled iPhone, iPad Video Banking Could Spell the End for Branches said:

“ASB Bank in New Zealand is among the first banks in the world to pioneer interactive, two-way video banking applications for mobile phones and tablet devices. If customers can get face-to-face service over the Internet, why would they ever need to step foot in a branch again?”

This study from Cornerstone Advisors uncovers the business cases and rationale that went into the thinking of financial institutions that have deployed ITMs, the operational performance the technology has had, and the deployment issues and challenges the FIs faced.

INTRODUCTION

1 This technology also goes by the terms virtual teller machines, video tellers, and personal teller machines. In this report, we’ll simply refer to the technology as ITM.

ABOUT THE DATACornerstone’s ITM benchmarks come from a survey sample of 11 banks and credit unions with an average asset size of roughly $1.5 billion. The largest financial institution in the sample has $3.2 billion in assets; the smallest has $550 million.

On average, participants have slightly less than 300 full-time equivalent (FTE) employees working at their institutions and have roughly 129,000 customers or members.

In addition to the operational data collected from these institutions, interviews were conducted with the FIs to understand the business rationale, case, and impact of their ITM deployments.

http://www.cnbc.com/id/100925605

https://thefinancialbrand.com/25363/asb-video-banking/

https://thefinancialbrand.com/25363/asb-video-banking/


We asked study participants what their FI’s initial business rationale for investing in ITMs was, and prompted them with five responses: 1) Branch staff reduction/productivity improvement; 2) Improved sales and account opening effectiveness; 3) Geographic expansion; 4) Branch closing; and/or 5) Other reasons.

THE PRODUCTIVITY RATIONALE

Overwhelmingly, productivity improvement was the primary driver in nearly all participants, with improved sales and account opening effectiveness mentioned by a number of the firms, as well. As one interviewee put it:

“Our challenge was how to provide a faster, more efficient, and better member experience—and do it at a lower cost structure than we had, and without hiring staff. Our goal was to completely eliminate transactions in the branches. We also felt that we had to build a sales culture, and refocus branch staff on growing relationships.”

Another echoed similar sentiments:

“Branch transaction levels were declining year over year, and we felt we needed to develop an entirely new service delivery strategy, of which ITMs would be one component. We saw ITMs as a means to centralize tellers and improve the customer experience.”

A third FI’s approach to ITMs was entirely different from those characterized by the previous comments:

“We wanted to capitalize on efficiencies and make the teller experience more like the call center environment. In a number of branches, we’re reducing the footprint from 2,000 to 1,500 square feet, and doing it via ITMs plus extended hours. In addition, we’ve built new 1,500 square foot branches with ITMs in a 24-hour vestibule.”

Have productivity goals been met? The results have been positive:

“We decreased teller staff by 40%, while increasing hours of operation by 86%. We also cut branch manager staffing levels by 50%, because we didn’t need a manager in every branch.”

THE BUSINESS CASES FOR ITMs

Overwhelmingly, productivity improvement was the primary driver in nearly all participants, with improved sales and account opening effectiveness mentioned by a number of the firms, as well.


“We were operating with 2.5 teller FTEs per branch. We installed ITMs in four branches, and now have 2.5 centralized tellers that support all the transaction volume in those branches.“

Study participants may have reduced teller staffing through ITM deployment, but ITM transactions per ITM FTE still lag traditional teller productivity. At the median, the 11 FIs in the study conducted more than 23,100 teller transactions per teller FTE per year, in contrast to 17,622 ITM transactions per ITM FTE. At the 75th percentile, however, the volume of ITM transactions per ITM is greater than the volume of teller transactions per teller FTE (Figure 1).

Study participants may have reduced teller staffing through ITM deployment, but ITM transactions per ITM FTE still lag traditional teller productivity.

Source: Cornerstone Performance Report

Figure 1 | Teller Productivity

Teller Productivity

ITM Transactions Per ITM FTE

Teller Transactions Per Teller FTE

25th percentileMedian75th percentile

11,627

17,622

31,358

21,31023,108

30,053

However, the 11 FIs with ITMs included in the study are conducting 9% more in-person teller transactions per in-person teller FTE than financial institutions without ITMs, suggesting that the presence of ITM tellers has helped those FIs drive higher levels of productivity among live, in-branch tellers (Figure 2).



Figure 2 | In-person Teller Transactions per In-person Teller FTE

In-person Teller Transactions per In-person Teller FTE

25th Percentile Median

21,31017,289

23,108 21,264

75th Percentile

30,053 29,415

FIs with ITMsFIs without ITMs

Adding together the ITM transaction and in-person teller transactions for the FIs with ITMs shows that, even with the seemingly lower productivity of the centralized ITM tellers, the FIs with ITMs are outperforming the FIs without ITMs (Figure 3).


Figure 3 | Total Transactions per Total FTE

Total Teller Transactions per Total Teller FTE

25th Percentile Median

18,001 17,28922,283 21,264

75th Percentile

32,367 29,415

FIs with ITMsFIs without ITMs


FIs unwilling to let go of staff should plan for role transitioning during ITM deployments.

SOWHATA variety of factors impact ITM productivity:

• ITM location. The physical location of ITMs helps to explain differences in utilization. One study participant only has ITMs in its drive-up lanes, operating with the philosophy that “if someone comes into the branch, they deserve to talk to a live person.” A couple of FIs mentioned that the placement of ITM units has not been optimal because of the physical layout of existing branches driving down transaction volume in those locations.

• ITM hours. Participants who offer ITM access after branch hours reported that roughly 15% of their total ITM volume is coming after the branch is closed, potentially contributing to their above-average ITM transaction volume.

• ITM strategy. FIs that have committed to going tellerless in their branches demonstrate greater utilization of the machines. Realizing the productivity gains is another story, however. Many credit unions are loath to lay off staff, but even the one that reduced teller staff by 40% found other positions within the firm for those tellers who didn’t make it as video tellers. FIs unwilling to let go of staff should plan for role transitioning during ITM deployments.

THE SALES CULTURE RATIONALE

After productivity improvement, improved sales and account opening effectiveness was mentioned by roughly half of the firms interviewed as a business rationale for deploying ITMs. One interviewee captured the sentiments of the others:

“We felt that we had to build a sales culture and refocus branch staff on growing relationships.”

Among these FIs, however, there were mixed feelings regarding the extent to which ITMs have contributed to sales growth. On one hand, some attributed increased sales to ITMs:

“We couldn’t have achieved our sales growth without the ITMs—they were the catalyst for branch reinvention and helped to expedite the results we achieved.”


FIs with ITMs FIs without ITMsReturn on Assets 0.94% 0.74%Non-Interest Income % of Assets 1.84% 1.50%Net Interest Income % of Assets 2.60% 2.51%Non-Interest Expense % of Assets 3.50% 3.28%Retail Products per Household 2.22 2.42


Table A | Performance Metrics: FIs with ITMs versus FIs without ITMs

“Our ITM locations do a better job of onboarding, drive more products per customer, and have higher new loan balances than our other branches.”

On the other hand, other FIs were represented by this comment:

“Honestly, we’d have a hard time attributing our increase in sales to the deployment of ITMs.”

SOWHATMany FIs have seen an increase in lending and deposit volume over the past few years. Would the FIs with ITMs have seen lower rates of growth if they hadn’t deployed the units? Would those who don’t have ITMs have seen higher rates of growth if they had deployed ITMs? It’s hard to definitively answer “yes” to these questions.

Data from the Cornerstone Performance Report sends mixed signals. FIs that have deployed ITMs had a higher return on assets than other FIs and generated 1.84% of assets in non-interest income, versus 1.50% among FIs that have not deployed the units. Among the FIs with ITMs, net interest income as a percentage of assets was greater than it was for the group without ITMs, 2.60% versus 2.51%. However, FIs with ITMs had higher non-interest expense as a percentage of assets, and trailed other FIs on retail products per household, 2.22 versus 2.42 (Table A).


However, among the FIs in our sample, three—the “Top 3”—conduct roughly 40% or more of their total teller transactions through ITMs. The other eight range from doing 18% of teller transactions through ITMs down to 2%. The Top 3 outperform the other eight on deposit accounts opened per platform FTE, retail deposit account open/close ratio, and consumer loan applications per consumer lending FTE (Figure 4). This doesn’t prove that the higher levels are attributable to ITMs, though.


Figure 4 | Performance Metrics: Top 3 versus Next 8

Deposit Accounts Opened Per Platform FTE

162

118

Top 3 Next 8 Top 3 Next 8 Top 3 Next 8

Retail Deposit Account Open/Close Ratio

Consumer Loans Apps Per Consumer Lending FTE

2.111.70

81.6873.63

THE BRANCH EXPANSION/SIZING RATIONALE

Branching strategy was a business objective for deploying ITMs for a few FIs:

“The size of our branch footprint has decreased since deploying ITMs. We’re down to 1,300 square feet in our new branches, versus 4,500 square feet in our older branches. In addition, we were able to downsize one of our existing branches as a result of ITMs.”

“Our new branches are 1,500 square feet with ITMs in a 24-hour vestibule. Existing branches average 2,000 square feet.”

“We’ve opened seven to eight locations with just ITMs for transactions. We’re filling gaps in our current coverage, though, not expanding geographically.”


OTHER RATIONALE

Other reasons were not as prevalent as productivity improvement and sales enhancement. One interviewee did give this as a reason for deploying ITMs:

“Our strategy was to provide an enhanced drive-thru service. We shut down the vac units, and replaced all the drive-thru windows with ITMs. We didn’t put ITMs in the lobby. Inside we shifted to a universal banker approach. The belief was, if customers were willing to get out of their cars and come into the branch, they deserved to talk to a live person.”

Another executive said his institution had considered ITMs as a possible strategy for geographic expansion—i.e., using ITMs to expand the footprint into geographies where they currently have no presence—but that they haven’t done that to date.

ROI ESTIMATES

The purpose of the study was not to build an ROI for ITMs—that has to be on a case-by-case basis—but to understand if FIs developed ROI estimates before investing, and how useful and successful those estimates turned out to be.

SOWHATTalk of branches going away has given way to a consensus that branches must be smaller and refocused on sales versus transactions. The FIs we interviewed believe that, and, to a certain extent, achieved that.

But they’ve succeeded at downsizing the new branches they’ve built—not their existing branches. So, while branch construction and/or leasing costs may be lower for the new locations, the overall cost structure of the branch network is actually higher than before the deployment, albeit at a lower total operating expense per branch location.

“Our strategy was to provide an enhanced drive-thru service ... if customers were willing to get out of their cars and come into the branch, they deserved to talk to a live person.”


We heard a range of experiences:

“We did develop an ROI model prior to investing. The model told us that it didn’t make sense to go full teller replacement. It also told us that our preferred solution was too expensive. Our model did make estimates regarding additional sales and up-sell potential, but we ignored that part of the model because we felt it might be over-inflating the results.”

“We’d be embarrassed to show you the ROI model we developed. If we had delivered on what was promised, we would be further ahead.”

“We didn’t do a detailed ROI analysis. We got board approval for an ITM R&D budget.”

A number of executives alluded to a chicken-and-egg challenge regarding the development of ITMs. To build solid ROI estimates, they needed a clear strategy for how and where the units would be used, and the timeline on which they would be deployed. But with no experience with the technology—and little guidance from the vendors—developing a solid ROI analysis was difficult.

With no experience with the technology—and little guidance from the vendors—developing a solid ROI analysis was difficult.


We asked study participants about their experiences regarding vendor selection, technology installation, and operational deployment.

VENDOR SELECTION

We expected to hear detailed stories about vendor bakeoffs and evaluations, but that wasn’t the case. In most cases, existing relationships, particularly on the ATM side, drove the ITM vendor decision. One exec, however, described the rationale for the choice his firm made:

“One vendor’s solution provides video with every transaction, while the other vendor’s approach is to provide three levels: self-service, assisted service (where the teller can assist a customer making a transaction), and full-service. We wanted a face-to-face, teller-controlled solution, so the choice between vendors was simpler.”

A few interviewees expressed issues with their vendor of choice, however, characterized by this comment:

“Our vendor didn’t understand what it sold us. We had cultural clashes with them. They didn’t realize that they were in the audio-visual business.”

OPERATIONAL CONSIDERATIONS

Before deciding whether or not to go with an existing vendor, FIs looking at ITMs should determine how strategic their ITM deployment is going to be.

cornerstone’s take: As with any major technology deployment, it makes sense to leverage existing vendor relationships. And the reality is that the ITM market really boils down to just three vendors. Before deciding whether or not to go with an existing vendor, FIs looking at ITMs should determine how strategic their ITM deployment is going to be.

FIs looking for productivity improvements (important, but not particularly strategic) may find that it’s not worth the vendor management (and potentially, integration) headaches to develop a new vendor relationship. But FIs looking for ITMs to transform their branch strategies or their customer or member experiences should take a fresh look at their vendor options.


OPERATIONAL ISSUES/CHALLENGES

Interviewees shared the operational issues and challenges they’ve faced, and the best practices they’ve employed to address them.

1. PRIVACY. ITM user privacy was the most-frequently mentioned operational issue:

“Privacy is a big issue, and it cuts across all demographic segments. Our units have privacy features like privacy screens, translucent panels, and a phone booth feel, but many people don’t know about them or just don’t use them.”

“Our move to a smaller footprint branch has led to stacking at the ITMs, and users feel like their privacy is being violated.”

“Privacy concerns come up all the time, particularly in the vestibules during extended hours. We used feet maps on the floor to get people to stand back. And our newer units are equipped with screen glare covers.”

2. NETWORK CONNECTIONS. Network connection cropped up as an issue in a few of the FIs:

“From time to time, a branch loses its network connection. If it’s an extended outage, what do we do?

“We experienced serious lag time between some of our branches and the central location. Our vendor had no clue how to fix it.”

cornerstone’s take: Planning for privacy when deploying ITMs should be a primary concern. One bank branch we recently visited had an ITM unit directly across from the human teller, where the ITM user could accidentally bump into customers on the teller line. Not surprisingly, the branch manager told us that nobody ever uses the unit.


cornerstone’s take: Network issues aren’t necessarily the ITM vendor’s fault. One bank that experienced ITM latency issues discovered that the root cause of the problem was a branch manager who was watching branch employees with cameras connected to the network. FIs should analyze their datacom capacity for ITM requirements and develop contingency plans for downtime.

FIs should analyze their datacom capacity for ITM requirements and develop contingency plans for downtime.

3. CORE INTEGRATION. Integration with the core was an issue for some, with others opting to not even bother to integrate:

“Symitar had early adopter issues with uGenius, so we had to do a lot of the integration work—and that drove out our implementation timeframe significantly.”

“We have no integration between our ITMs and our core. The Fiserv DNA platform isn’t robust enough, so we abandoned deployment. We just do two transactions for every ITM interaction.“

“We have no plans to integrate with the core. We would like others to do it so we can share the expense.”

cornerstone’s take: Lack of integration with the core didn’t appear to faze our interviewees. The additional work required for each transaction seemed to be a small price to pay in order to avoid the time and cost—not to mention pain—of integration.

4. CASH RECYCLERS. A number of study participants still keep cash recyclers in non-teller branches with diverging opinions:

“We’re committed to a tellerless model, but with two caveats or exceptions: having a meeter/greeter pod, and keeping a cash recycler in the pod for the overflow.”

“We keep a small cash drawer at branches to exchange bills. I wish we hadn’t done that. Members know it’s there, and now we can’t go back.”


5. TRAINING. Every FI we interviewed emphasized the importance of training—both for internal staff and customers. Some admitted, however, to not recognizing that training was required on an ongoing basis as new units are rolled out to new branches and locations:

“We failed to realize that it’s not business as usual to members at locations with new ITMs. We weren’t having personal conversations and doing the educational things needed.”

Interviewees refocused our questions about staff training towards the need for new recruiting and hiring practices:

“We couldn’t staff from the existing teller staff and had to hire new staff—most of whom had no banking experience. Training wasn’t a big issue—the bigger issue was recruiting ‘video tellers’—what the heck is that?”

“We had to change our hiring practices. Video tellers require a different set of skills and comfort level from traditional tellers.”

cornerstone’s take: Video tellers are only one facet of a branch’s cash strategy. Traditional, quick, 24x7 access to cash via ATMs still has value. Having a cash recycler as part of your branch cash strategy can help to alleviate cash transaction spikes as well as provide platform personnel the ability to perform complex services from start to finish—e.g., opening accounts with cash deposits—without engaging a video teller.

cornerstone’s take: From a customer/member perspective, not a single FI mentioned any issues or fallout from moving from a traditional teller to video teller environment. Some mentioned grumbling from a few customers or members, but no attrition.

From a staffing perspective, a key lesson learned from the interviews is that video interactions are not the same as in-person interactions. Video tellers need to be more animated, engaging, use their voice more prominently, and be aware of their facial expressions.

From a customer/member perspective, not a single FI mentioned any issues or fallout from moving from a traditional teller to video teller environment.


CAPACITY RATIOS

Overall, the study sample encompassed the deployment of 180 ITMs, or an average 16 ITM units, per FI. On average, each FI in the study had deployed 16 ITMs. The smallest deployment has just two units (to date), while, at the other end of the spectrum, the largest deployment had installed 73 ITMs. We computed the following ITM capacity ratios (Table B):

• Branch penetration. On average, the FIs in the study have ITMs deployed in about half of their branches. One FI has ITMs installed in all of its branches, while, at the other end of the spectrum, another has them deployed at just two of their nearly 20 branches.

• ITMs per branch. Among branches with an ITM, the average has almost two ITM units installed. The FI with the largest deployment averages more than four units per branch.

• ITM FTEs per ITM. From a staffing perspective, most FIs are operating with less than one FTE per ITM, although one FI has a total of 2.5 ITM FTEs supporting their two units.

BENCHMARKS

Average Median 25th Percentile

75th Percentile Minimum Maximum

ITM branch penetration 51% 47% 37% 64% 11% 100%ITMs per branch (all) 1.06 0.75 0.61 0.98 0.11 4.29 ITMs per branch (w/ITMs) 1.86 1.50 1.00 2.30 1.00 4.29 ITM FTEs per ITM 0.66 0.69 0.47 0.75 0.29 1.25


Table B | ITM Capacity Ratios


COST RATIOS

ITM costs are based on annual maintenance and depreciation costs, not staffing costs. ITM cost ratios include (Table C):

• ITM $ per transaction. On average, ITM transactions ran $1.89 per transaction, and $1.96 at the median. The FI with the lowest cost per transaction spent $0.48 per ITM transaction.

• ITM $ per ITM. The average cost per ITM was $18,245, with one FI spending 40% less per machine, and another spending nearly 70% more.

• ITM $ per ITM FTE. ITM cost per ITM FTE ran $28,533, on average, with one FI spending nearly $20,000 less, and another spending roughly $30,000 more.



ITM $ per transaction $1.89 $1.96 $1.40 $2.21 $0.48 $3.97 ITM $ per ITM $18,245 $14,576 $12,000 $21,321 $10,959 $30,765 ITM $ per ITM FTE $28,533 $25,508 $15,158 $44,302 $8,897 $59,176


Table C | ITM Cost Ratios

TRANSACTION RATIOS

Overall, the 11 FIs in the study conducted nearly 2.9 million ITM transactions in 2015. ITM transaction ratios include (Table D):

• ITM % of teller transactions. ITM transactions accounted for nearly 22% of total teller transactions, on average, among FIs in the study. The average is skewed by one FI who has gone completely tellerless in its branches. The FI with the next highest level of ITM transaction penetration did 45% of its total teller volume through ITMs, and the one after that conducted 38% of teller transactions.

• ITM transactions per customer. FIs in the study averaged 1.7 ITM transactions per customer (or member) in 2015, with the median at about one transaction. One credit union in the study conducted just over eight ITM transactions per member.

ITM transactions accounted for nearly 22% of total teller transactions, on average, among FIs in the study.


• ITM transactions per ITM. At the median, study participants conducted 10,200 transactions per machine, or about 40 per weekday. Higher performers, at the 75th percentile, conducted 26% more transactions per machine, with one FI generating nearly 26,000 transactions per machine.

• ITM transaction per ITM FTE. On a per ITM FTE basis, the median number of ITM transactions was 17,622 with FIs at the 75th percentile conducting 78% more ITM transactions per FTE. This compares unfavorably with the number of teller transactions per teller conducted at the study participants, however.



ITM % of teller transactions 21.9% 9.5% 4.3% 28.0% 0.9% 100.0%ITM transactions per customer 1.70 1.03 0.61 1.39 0.18 8.10 ITM transactions per ITM 12,050 10,200 7,766 12,900 5,434 25,595 ITM transactions per ITM FTE 20,948 17,622 11,627 31,358 6,346 38,753


Table D | ITM Transaction Ratios

ITM LEADERS

While tactical factors like ITM location and hours impact ITM productivity, the most important factor is ITM strategy. FIs that have more aggressively moved to eliminate traditional teller transactions in the branches have achieved different levels of results.

Three FIs in the study conducted about 40% or more of their total teller transactions through ITMs. The other eight range from doing 18% down to 2%. The “Top 3” FIs have (Table E):

• Greater ITM capacity. The leaders in ITM deployment among our study participants have installed ITMs in 80% of their branches; other FIs in the study have ITMs in half as many branches. In addition, the Top 3 FIs have, on average, more ITMs per branch (those with ITMs). Staffing levels are roughly equivalent across the two segments.


• Lower transaction costs. Although the two segments spend roughly the same per ITM unit for annual maintenance costs, the additional transaction volume that the Top 3 are driving through those machines result in a per-transaction cost nearly 50% lower than the cost incurred by the rest of the pack.

• Higher transaction utilization. On average, the Top 3 FIs conducted 61% of their teller transactions through ITMs in 2015. As a result, their transaction volume per unit was more than twice the level of the other FIs. Compared to the other FIs, transaction volume per ITM FTE was 35% higher for the Top 3. In addition, the leaders averaged more than four ITM transactions per customer (or member) versus fewer than one transaction per customer among the other eight FIs.

Top 3 Average Next 8 Average

Capacity

ITM branch penetration 80% 41%ITMs per branch (all) 2.12 0.66 ITMs per branch (w/ ITMs) 2.36 1.66 ITM FTEs per ITM 0.78 0.62

CostITM $ per transaction $1.17 $2.25 ITM $ per ITM $18,340 $18,197 ITM $ per ITM FTE $24,748 $30,426

Transaction

ITM % of teller transactions 61.0% 7.2%ITM transactions per ITM 20,187 8,998ITM transactions per ITM FTE 25,874 19,101ITM transactions per customer (member) 4.19 0.77


Table E | ITM Ratios for Top 3 versus Next 8

On average, the Top 3 FIs conducted 61% of their teller transactions through ITMs in 2015. As a result, their transaction volume per unit was more than twice the level of the other FIs.


THE REALITY OF ITMs

The reality of the current banking environment is that branch transaction volume is declining. Strategies like downsizing branches, or closing them outright, are certainly appropriate reactions to the trend.

But financial institutions that keep branches open—and that are committed to having branches that positively contribute to the customer experience and to the FI’s bottom-line performance—must address teller productivity issues. Many see ITMs as the answer to those issues. Based on interviews with FIs, and an analysis of ITM transaction volume, cost, and capacity, Cornerstone has come to a few conclusions regarding the reality of ITMs:

• Unrealistic expectations. The hype around ITMs is misplaced. There’s nothing transformational about standing in front of a video teller that makes the customer experience any better than standing in front of a live teller. Extended hours add a new—but small—level of convenience to the customer experience, and replacing pneumatic tubes in drive-up windows may make that experience a bit easier for consumers who still do it.

• Unrealized sales claims. Claims of superior sales performance resulting from the deployment of ITMs are unfounded, based on the interviews conducted and the data analyzed regarding the performance of FIs with ITMs versus those without them.

• Unfounded fears of consumer backlash. Fears of consumer backlash to changing years of behavior, and using technology to interact with remote tellers are as equally unfounded. None of the FIs we spoke with had experienced any customer attrition—or even declining levels of satisfaction—as a result of deploying ITMs. This was as true for the FIs that have gone completely tellerless in-person as it was for those who have adopted a hybrid approach.

CONCLUSIONS

There’s nothing transformational about standing in front of a video teller that makes the customer experience any better than standing in front of a live teller.


THE PRODUCTIVITY CASE FOR ITMs

The options aren’t complicated. An FI can do something along the following spectrum:

1. Maintain the status quo with in-person tellers and no ITMs;

2. Pursue a hybrid approach with both in-person tellers and ITMs in a given branch, or in-person tellers in some branches and only ITMs in others;

3. Completely remove in-person tellers and replace them with centralized tellers supporting ITMs throughout the branch network; or

4. Close all of the branches altogether and go completely digital. SOWHAT

For FIs that deploy ITMs, the productivity business case is the most compelling business case to pursue. Increased sales volume has not been demonstrated and fuzzy talk of improved customer or member “experience” hardly justifies the time and expense required to deploy ITMs. The remaining question, then, is: pursue a hybrid approach, or fully commit to in-person tellerless?

The results achieved by the firms included in the study suggest that productivity improvements can be optimized by committing to the tellerless option. But we recognize that qualitative factors like executives’ perspectives, philosophies on the role of branches, and the need for the “human touch” will mitigate the economic evidence.

Optimizing productivity gains from ITMs requires time, but getting there requires less management oversight and involvement than what’s required to manage and optimize the traditional teller environment. In effect, the ITM teller center of tomorrow will be much like the call center of today. Transaction spikes and valleys will be managed more effectively; as a result, the floater will become a thing of the past.

Optimizing productivity gains from ITMs requires time, but getting there requires less management oversight and involvement than what’s required to manage and optimize the traditional teller environment.


THE ROI OF ITMs

A few of the firms in the study did not develop a return on investment estimate before deploying ITMs, and we can’t say that they suffered for not doing so. But we still recommend that FIs that are considering an investment in ITMs develop an ROI estimate.

The purpose of an ROI estimate isn’t simply to make a go/no-go decision. Other valid purposes include: 1) Evaluating different strategic directions (i.e., hybrid versus tellerless approach), and 2) Establishing operational goals and targets for the actual deployment.

When developing an ROI estimate for an ITM deployment, FIs should:

• Identify and model different strategic scenarios. The choice of an ITM business model should guide the ROI estimates. The choice of strategy—e.g., hybrid versus tellerless approach—will determine differences in operating assumptions including ITM staff displacement, location (e.g., deploy in urban branches, drive-through only, or through the entire branch network), and hours (e.g., regular versus extended hours).

• Determine decision parameters ahead of time. Will your FI only invest in ITMs if there is a positive ROI? If you break even within three years? If you cut teller staff by at least 30%? Align the strategy with decision parameters and have an idea of go/no go criteria before finalizing the model. One bank spent (i.e., wasted) time developing an ROI estimate for a drive-in only implementation scenario, and afterwards determined that that implementation scenario wasn’t consistent with its strategic objectives.

• Get an accurate estimate of hardware and software costs. Take the time to get bids from vendors and work with them to understand the cost structure of the investment and break even machine volumes for different pricing structures (e.g., pricing structure x and y produce the same machine costs at 10 machines). At one FI, a vendor presented two alternative cost structures: one that included a heavy up-front cost to cover software and maintenance costs, and a second that included a lower annual cost per machine. Without an ROI model, understanding the tradeoffs between the cost approaches is difficult, if not impossible.

Align the strategy with decision parameters and have an idea of go/no go criteria before finalizing the model.


CORNERSTONE PERFORMANCE REPORT FOR CREDIT UNIONS

The Cornerstone Performance Report for Credit Unions provides an extensive analysis of credit union staffing/process benchmarks and technology utilization/deployment.

At the foundation of the report is the Cornerstone ScorecardTM, an indispensable peer comparison tool that details more than 200 key productivity and staffing benchmarks across 15 key operations areas, making it a valuable planning and budgeting tool.

The report also includes expense and revenue improvement opportunities in Compensation, Information Technology, Risk Management and ATM/Debit Income and Credit Card Interchange/Fees.

For more information click here or visit bitly.com/cornerstone-report-cu.

ADDITIONAL RESOURCES

CORNERSTONE PERFORMANCE REPORT FOR MID-SIZE BANKS

Drawing on data from a survey of 55 banks with assets of $1-40 billion, the Cornerstone Performance Report for Mid-Size Banks provides an in-depth analysis of staffing, volumes, processes, and technology spending, utilization and deployment at mid-size banks.

The Cornerstone Performance Report for Mid-Size Banks can potentially identify millions of dollars of performance improvements and cost savings.

The report includes the Cornerstone ScorecardTM, a detailed presentation of more than 200 benchmarks to help bank CEOs evaluate where they should be targeting their strategic initiatives.

For more information click here or visit bit.ly/cornerstone-report-bank.

http://www.crnrstone.com/publications/cornerstone-report-for-credit-unions.php

http://bitly.com/cornerstone-report-cu

http://www.crnrstone.com/publications/cornerstone-report.php

http://www.crnrstone.com/publications/Cornerstone_Report_MidSizeBanks.php

http://bit.ly/cornerstone-report-bank

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AFTER 15 YEARS IN THIS BUSINESS, Cornerstone Advisors knows the financial services industry inside and out. We know that when banks and credit unions improve their strategies, technologies and operations, improved financial performance naturally follows. Cornerstone’s multidisciplinary team is backed by the experience that comes from hundreds of thousands of gritty, in-the-trenches client hours. We live by the philosophy that you can’t improve what you don’t measure. With laser-focus measurement, financial institutions can develop more meaningful business strategies, make smarter technology decisions, and strategically reengineer critical processes.

Our comprehensive advisory services include:

ABOUT CORNERSTONE ADVISORS

PAYMENTS Payments Growth Initiative; Credit Card De Novo Program; Payments Stress Test; Credit Card Selection & Contract Negotiations

RISK MANAGEMENT ERM Model Definition and Roadmap; Risk Assessments and Remediation; Risk Audit and Testing; Risk Systems Selection

SYSTEM SELECTION & IMPLEMENTATION Core & Ancillary System Selection; System Conversions; System Implementation; Vendor Evaluations

DELIVERY CHANNELS Delivery Channel Planning; Branch & Contact Center Transformation; ATM & ITM Deployment; Digital Banking Selection & Implementation

INSIGHTS & KNOWLEDGE SHARING Research Reports & White Papers; GonzoBanker.com (our blog); GonzoBanker Roundtables; Webinars, Podcasts & Professional Speakers

STRATEGY Strategic Planning; Board & Executive Facilitation; Strategic Execution; Organizational Alignment

CONTRACT NEGOTIATIONS Core & Ancillary System Negotiations; Merger Contract Negotiations; Debit & Credit Card Contract Negotiations; Data & Voice Contract Negotiations

PERFORMANCE SOLUTIONS Benchmarking & Process Improvement; Branch & Call Center Performance; Consumer, Commercial & Mortgage Lending; Revenue Generation

TECHNOLOGY Technology Assessments & Planning; Vendor Evaluations, Implementations & Utilization; Vendor Management; IT Governance & Risk

MERGERS & ACQUISITIONS Transaction Advisory Services; Merger Integration Services; Merger Contract Negotiations

For more information on this report:

Ron Shevlin [email protected]+1.480.424.5849

For press inquiries:

Cate Pitts [email protected]+1.480.425.5203

CONTACT

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strictly prohibited without written permission.

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