Are ITMs Worth the Investment?

The pandemic’s thin silver lining made credit union executives realize that they needed to make more technology investments after seeing members flock to online/mobile options for their financial needs, including access to cash through ATMs, ITMs and drive-up teller windows.

What’s more, for many financial institutions, their ATM fleets are aging and with Microsoft’s requirements for Windows 10 - which will become mandatory in 2023 – looming, those ATMs will need to be upgraded or replaced over the next three years, according to research from Cornerstone Advisors in Scottsdale, Ariz.

Michael Watkins, who specializes in telecom/ATM contract negotiations for Cornerstone, said there has been increasing interest from financial institutions about how interactive teller machines can become an important competitive strategy.

In addition to making a careful assessment of the pros and challenges to decide whether these capital-intensive video teller machines are worth the investment, executives may have gnawing concerns about how another possible COVID consequence is a world without cash, which may threaten to make ATMs and ITMs obsolete.

CNBC, for example, reported on Jan. 28 that because of the coronavirus crisis, Americans are shunning cash almost entirely in favor of “tap and go” transactions. Moreover, the report also cited experts who said the growing trend of contactless payments is here to stay even when the pandemic is over and will keep growing exponentially.

But Watkins isn’t buying the cashless society concern.

“Cash isn’t going away,” he said. “I talk to people every day, even within my own organization, that say there is no need for ATMs. They are dying because you can do everything on your phone. Well, you can’t push a dollar bill out of your phone as far as I know, and you never will be able to. And as far as I can tell into the future, cash is still going to be around with us. How that need for cash is met is something we all have to figure out. That’s the key right there.”

Watkins said ITMs provide superior benefits over ATMs or drive-thru tellers, noting that when a member touches the ITM screen a smiling rep appears who can fulfill any traditional teller transaction and answer member questions about account balances, mortgage payments or loan status. When that type of service is delivered smoothly, consistently and seamlessly through the ITM channel and the credit union’s other digital channels, it can significantly increase member satisfaction. What’s more, a centralized ITM staff enables a credit union to expand its teller hours of operation before and after regular business hours, offering greater convenience for members.

One idea Watkins shared was to enable members to preorder cash from their mobile phones and have the money ready to pick up from an ITM when the member arrives.

“It takes less time and it’s almost a seamless drive-thru experience; that’s the kind of thing that’s going to make these machines stay in business because it’s seamless, it’s one channel to the other. That’s where it makes sense,” Watkins explained. “Now, I got to offer a caveat because this also means we’ve got to update our machines and our digital channel. Now you’re looking at much higher cost. So, if cost is your big pet peeve then this course of action really needs to be thought through very carefully.”

Watkins said the initial capital investment is the biggest challenge for many financial institutions.

An ITM can set you back about $55,000 to $80,000 for base models, while the one-time infrastructure costs can range from about $250,000 to $500,000.

Nonetheless, a few credit unions were early adopters of ITMs when no one was certain as to whether their members would even use them.

It was a risk that has apparently paid off for the $3.9 billion Coastal Federal Credit Union.

The Raleigh, N.C.-based credit union was the first financial institution in the world to transition 100% of its branch’s tellers to video tellers more than 10 years ago.

But its groundbreaking ITM journey began in 2005 when the credit union partnered with uGenius Technology, a video banking solutions firm later acquired by NCR, to develop Coastal’s first personal teller machine.

Pre-pandemic, its 60 tellers worked at two centers from which they serviced the 194 ITMs throughout its 25-branch network from 7 a.m. to 7 p.m., on weekdays and weekends. When the pandemic hit, the tellers were assigned to nine branches to comply with social distancing and other requirements to keep their employee safe.

Centralizing ITM tellers created new staff savings and efficiencies for Coastal.

For example, since Priscilla Awkard was named vice president of teller centers in 2018, the credit union has opened three new locations without adding new ITM tellers.

“We could probably open three to four more [branches] without adding any headcount to my teller centers,” Awkard said. “When a traditional branch opens, you’re probably going to staff it with four or five tellers.”

According to Cornerstone Advisors research, ITMs produce transactional savings that can offset the purchase and operational costs. For instance, an in-person teller transaction is approximately $4.50, while an ITM transaction is between 50 cents and 70 cents.

Another advantage is that the ITM tellers free up the sales and service employees to focus on what they do in the branch, Awkard said.

At a traditional branch when tellers are, at various times of the day, unable to service members, the sales staff typically fills in at the teller line. With ITMs and a centralized teller staff, however, that scenario is no longer an issue.

“So immediately when we did that, our sales team was able to focus strictly on just what they do, not having to worry about jumping on the teller line, if a teller was out for some reason,” she explained. “That immediately increased our sales per day by doing that.”

Coastal’s ITM fleet also eliminated the need to do teller transactions inside the branch.

Awkard said it was a process to get members accustomed to using ITMs for teller transactions.

“You have to be transparent with your members, and you’ve got to have extremely good lobby management,” she said. “You’ve got to bring them along the process from the very beginning; it’s not something you just spring on them and say, OK, you have to use this [new technology]. But if you show them the benefits and the value of it up front, nine times out of 10, they’re going to use it and adapt to it.”

What also helped member adaption was that Coastal placed ITMs in a vestibule, which enables members to walk into a branch to do their banking transaction during times that are most convenient for them as the ITMs are open 12 hours a day, every day.

ITMs also have given the credit union the cost savings of opening smaller branches.

“We can stick an ITM in a 200-square-foot location and call it a branch,” Awkard said. “We literally did that at a select employees’ group [location] where we also put in a desk and it’s staffed by one person.”

Without the expensive overhead costs of opening a new branch, Watkins also noted that ITMs can make it feasible for small credit unions to expand their market presence in rural areas or other untapped locations that may open new opportunities.

Awkard noted another benefit is the uniformity of ITM teller training, which helps create consistency in delivering member services, and also helps prevent fraudulent transactions because ITM tellers can quickly message each other when they encounter attempted transactions that appear to be suspicious.

Though ITMs offer advantages, Watkins recommended that executives first conduct a gap analysis.

“A gap analysis compares an ATM’s or ITM’s current return on investment, its replacement costs and other ongoing expenses,” Watkins said. “Too few institutions conduct this critical analysis, which can make the difference between a successful investment of thousands of dollars – or failure.”