It is hard to argue, after five decades in existence, that the ATM hasn’t been an overwhelming success as financial products go — in fact, it has changed the face of how consumers interact with banks. What can be harder to see, as Michael Engel, managing director and VP of software sales banking at Diebold Nixdorf, told PYMNTS in a recent conversation, is how ATMs are continuing to act as an agent of change in the financial marketplace.
“If you look at the core functionality of what we originated 50 years ago, it was taking a teller transaction and equipment, and putting some software behind it to automate a manual process,” he said.
The task now is to look into the rest of the transactions that are running through a teller today, with an eye toward what can be automated and digitized. Today, bank tellers and branches exist largely to fill in process gaps for financial institutions (FIs) because the legacy IT systems within the banks are not interconnected, which results in an expensive facility to just process consumer transactions, Engel noted.
A better, more automated future, he explained, doesn’t eliminate the need for physical interactions, or seek to supplement the advantages that intimacy brings. Rather, it allows FIs to use their physical locations strategically, instead of by necessity.
Transforming The Role Of The Branch
In the modern banking era, consumers generally have the option to digitally handle much of their financial lives, such as via standard transactions like moving, withdrawing and spending money. The exception is any time one goes to volume or complex transactions, Engel noted.
For instance, a small business (SMB) owner who tries to deposit funds in excess of $10,000 needs to authenticate themselves by presenting a primary form of identification. On the other hand, they may have multiple deposits happening simultaneously, triggering the bank’s anti-money laundering protections and requiring the signatures of two branch employees. By connecting the digital and physical channels, it makes for a more secure and friendly customer journey, and eliminates long teller lines during specific banking hours.
These extra steps exist for good reasons, Engel said, but the current methods leave much to be desired. The large deposit that requires physical authentication by a branch teller sounds sensible, until one remembers that many bank tellers may not be experts in authentication. The customer is also being asked to go into the branch and wait in line — something no one wants to do — so that a human worker can fill a process gap to complete a pretty simple transaction.
“The question is, why does the customer have to do that?” Engel asked. “Can we use a combination of technology to overcome those hurdles? Why go stand in line if the small business owner can initiate the transaction on a mobile phone, authenticate it and then go to an ATM machine — instead of waiting in line to finalize that deposit?”
This is why the days of these transactions are numbered, he said. As in most scenarios, it isn’t really a value-adding experience. Diebold Nixdorf is finding it increasingly possible and preferable to automate all these transactions (even the complex ones), and make it easy for customers to manage them digitally.
That is not to say the era of automation is ending personal banking services, Engel added, nor does it mean the concept of the bank branch is over. The era of the 20th-century branch might be coming to an end, but only to make room for the digital branch experience of the 21st century.
Hitting The Right Balance
Engel makes his home in the Netherlands, which has recently been running into something of an unexpected problem with its emerging cash-free digital economy: It is succeeding a little too well, and a lot faster than expected.
Over the last six months, nearly three-quarters of all transactions have gone completely cashless in the Netherlands — a rate of success much greater than even the most optimistic predictions. Normally, pushing consumers to digital payment methods and away from cash would be cause for celebration. In this case, however, the central bank of the Netherlands looked at how quickly and completely the economy was migrating, and realized it had a problem.
“They issued a warning that this is going a little bit too fast, and if we have a natural disaster or a national power outage, our economy would basically collapse,” Engel explained.
The country lacks a substitute for cash that would allow for the continued flow of business in the event of electricity being unavailable. It’s a reminder, he noted, that, as much as digitization and automation can improve processes, the end goal isn’t to turn banks into the kind of digital-only operations run by the emerging class of challenger banks.
It’s important to keep track of those up-and-coming FI operations, to push banks to be a better bridge to the digital gap and to make better investments in improving that automated infrastructure. Ultimately, that can allow for better, smarter and more strategic decisions to be made about how to place branches, and what to do with them.
It is not a matter of having a branch every X number of miles, to fill in all of these services for customers in a friction-filled way that involves waiting in lines. Instead, it is a matter of placing branches where consumers want, and leveraging the human staff to act as counselors and sellers — rather than using them to count money or conduct simple banking transactions.
“We need to get into an operational mode, where we can reduce [the] cost and footprint of the branch,” Engel said. “We may choose to have a branch because of the intimacy it provides, or because it is a platform to sell our products. But if the reason for the branch is to process a check, something is wrong in the chain of process automation.”
For banks, overcoming legacy systems, and rethinking how they have done things for the last several decades, won’t be an overnight change. This will be a step-by-step approach that will require several iterations as FIs work to get it right. However, he noted, it is a necessary journey, as the market continues to evolve.
“The journey that began 50 years ago with ATMs — taking a transaction and using a piece of equipment to give out cash — was the start of automating these processes,” Engel said. “Now, we need to look at the rest.”