Local lenders are trying to puzzle out how to adopt a new form of automatic teller machine that lets customers talk via video with off-site bankers. These interactive teller machines, or ITMs, allow banks to make tellers available after hours. They also provide a lower-cost way to expand geographically, compared to opening new branches. There’s also a big difference in per-transaction costs, which run about $4.50 for an in-person teller and just 70 cents through an ITM, according to Cornerstone Advisors, a Scottsdale, Arizona consultancy.
But ITMs are expensive. From installing the machines to generating returns, banks must spend between $250,000 and $750,000, according to Quality Data Systems of Charlotte, North Carolina. More important, the banks must figure out how to fit ITMs into their particular customer service models. “If you try to implement them in existing branches to reduce human interaction, I think that will fail,” says Jimmy Sawyers, chairman of Sawyers & Jacobs, a financial technology advisory firm. People tend to believe that the next digital method for bringing products or services to market will replace all others, he adds. “That’s not how it works.”
Perhaps not surprisingly, most banks are kicking the tires of ITMs rather than buying. Since first testing the technology in Detroit in 2014, Comerica Bank has installed 21 ITMs in North Texas, with plans for continued expansion through 2020, says Cassandra McKinney, its senior vice president and national director of retail delivery and strategic services. The ITMs provide 90 percent of services typically available only during traditional service hours. “The fact that they double as an independent ATM and offer personal interaction is the added value proposition,” McKinney says.
Banking’s Real Estate Problem
There are 9,000 fewer bank charters today than there were nationwide in 1987, Sawyers says. But banks have added 44,000 additional branches over that time. “Banking has a real estate problem,” says Scott MacDonald, president and CEO of SMU’s Southwestern Graduate School of Business Foundation. “They may not need [the branches], they might be in the wrong place, and they’re too big,” he says.
Bank branches tend to be 5,000 to 6,000 square feet, whereas they only need 1,500 square feet, MacDonald adds. “They can’t get rid of the square footage.”
ITMs alone won’t solve that problem. But they might help. Three years ago, in Hondo, roughly 40 miles west of San Antonio, Community National Bank replaced pneumatic tubes in drive-thru lanes with ITMs. For several weeks, the $200-million asset institution had executives stand outside to show customers how to use the ITMs as they drove up, says Breanne Granberg, vice president of business development. “I think that helped the adoption process because we showed how easy it is to use ITMs,” she says.
In McKinney, First Guaranty Bank aims by year’s end to install its first ITM in the area, according to Jordan Montgomery Lewis, president of its Texas market. The $1.9 billion institution, which is based in Louisiana, also has one installed in Waco. In both instances, the bank—like many nationwide—is using ITMs to replace ATMs whose software was out of date.
Lewis says First Guaranty views ITMs as another avenue for serving customers, not as way to replace branches. “We underwrite loans based on relationships,” he says. “The point of the branch is to have human beings who know other human beings. We shouldn’t make loans to people we don’t know.”
For Big Banks, Different Challenges
The view looks different at JPMorgan Chase. With $2.7 trillion in assets, it’s the biggest bank in both Texas and the country. Greg Hassell, a spokesman for the New York-based company, says there are no plans to deploy ITM in its branches.
“As always, we continue to evaluate new technologies, including video teller, within our innovation lab to identify the best solutions,” Hassell says.
BOK Financial, parent of Dallas-based Bank of Texas, is similarly in wait-and-see mode. With $40 billion in assets and operations in nearly nine states, Oklahoma-based BOK says it assessed ITMs in 2017 and opted not to adopt them. “At the time we were not convinced the technology was mature enough and that our clients wanted the functionality,” bank officials said in a statement.
Having watched the tech’s advances since then, BOK plans to take another look at the value of ITMs in 2020. “We are in the pre-planning phase of assessing the move to ITMs,” the statement said. “Video banking will be a key factor in our evaluation and final decision on leveraging ITMs in the future.”
For banks that are uncertain about when to take the ITM plunge, an in-between step can be installing cash recyclers (which accept and dispense currency) in lobbies, as a way of eliminating tellers, says MacDonald of SMU. “They are another method to start reducing the dependence on branches, which are expensive and problematic,” he says.
Some banks have closed branches and put interactive tellers in their place, he says. Others have installed “smart tellers,” which can perform a larger percentage of jobs that humans can handle. Although many people do their banking on mobile devices, a certain percentage of the population, such as those who run small businesses, will always need to deposit and withdraw cash, bankers believe.
As Lewis of First Guaranty puts it: “I don’t think you can get cash from your phone.”
On The Way: Robot Tellers
Although ITMs currently connect customers to human tellers, it’s an open question whether banks will eventually automate the whole process, moving to something akin to Amazon’s digital assistant Alexa.
As things currently stand, giants like Capital One allow Alexa-enabled devices to answer customers’ questions and execute transactions for everything from credit cards and bank accounts to auto loans.
Technology has been replacing human labor for hundreds of years, of course. As experts point out, it offers people new opportunities to do more important stuff while machines handle the grunt work. Comerica’s McKinney says the bank is in the early stages of exploring how to use both artificial intelligence and “robotic process automation,” or RPA.
RPA is a software robot that mimics human actions, while AI is simulation of human intelligence by machines,” according to Singapore-based CFB Bots.
For now, Comerica sees opportunities to use AI and RPA to both streamline how it processes transactions and to reduce risks associated with them, McKinney says. The business also believes the two tools can help it deliver more value to customers each time they interact with it. “We highlight the personal interaction offered by the banker [through ITMs], even though he or she is remote,” McKinney says. “We also focus on our ability to reallocate staff for more engaging and consultative discussions with our customers.”
Geography may influence customers’ willingness to exclude people entirely from their banking. “In a small rural town, banking is still a social event,” says Granberg of Community National. “There is still something to be said for the personal touch. I can provide a happy medium of technology with personalization.”
Lewis of First Guaranty similarly sees human relationships as being difficult to automate away. “We do know larger banks have invested in Alexa-type products,” he says. “To be candid, I don’t think community banks would utilize that particular product unless the AI were really as good as the people that they can assign to customers.”
Jeff Bounds is an award-winning business journalist based in Garland.