FDIC Letter on ATMs Paves Way for More Branchless Banking

New input from the Federal Deposit Insurance Corp. (FDIC) is poised to pave the way for more “branchless banking” — through interactive teller machines that can, conceivably, amp up competition between smaller banks and their larger counterparts.

In a Friday (Aug. 9) financial institution letter, the FDIC said that state nonmember banks won’t need the regulator’s consent to set up bank branches as they insert interactive teller machines in different locations (i.e. not in branches) around their respective states.

As the letter noted, “Interactive Teller Machine (ITM) technology has become increasingly sophisticated in recent years. State nonmember banks have sought guidance from the FDIC regarding whether the proposed use of an ITM at a location other than an established branch facility would require the filing of a domestic branch application” and went on to note requirements of the machines themselves:

The ITM must operate as an “automated, unstaffed banking facility owned or operated by, or operated exclusively for, the bank,” and which can serve existing customer by connecting them via interactive sessions with “remotely located bank personnel.” The other condition is that customers are able to conduct core banking functions with or without the assistance of those remote banking staffers — in other words, self-service functionality must be on offer with these ITMs.

“ITMs that operate outside of these parameters may require a branch application,” the letter stated.

We note that state nonmember banks are those financial institutions (FIs) that are not members of the Federal Reserve system, and, as the name implies, operate only with state charters, and not national charters. As of the second quarter of last year, as detailed here, there were more than 3,600 state banks, holding assets of about $8 trillion, compared to more than 750 national players with assets of nearly $15 trillion.

Connected Banking, on Devices and on Site

PYMNTS Intelligence data has spotlighted the rise of consumers’ increasing comfort with digital and mobile banking, where those tech-enabled interactions are embraced by more than 40% of respondents surveyed across six countries. As for the smaller banks, 80% of all credit unions (CUs) report a positive return on investment resulting from their innovations across omnichannel settings; 12% of individuals opted to switch to their current CU primarily due to the lack of nearby branches at their previous FI. The branchless, ITM additions might go a long way toward rendering those customer/bank relationships a bit “stickier.”

In but one example of those initiatives, in April, Arizona Financial Credit Union launched a partnership with retail banking firm NCR Atleos. AZFCU has picked Atleos’ ATM as a Service (ATMaaS) offering to boost operational efficiencies within its self-service banking channel.

The move toward more interactive banking via ATMs had taken firm root during the pandemic — the growth of multi-functional ATMs had been estimated to be growing by 6% though 2026 — and video banking with bank staff had been a key feature of those interactions. The FDIC letter from last week looks set to streamline the installation and use of those machines in more locations.