Are ATMs Being Underutilized?
For once, technology is actually ahead of what credit unions and their members are looking for, and that's part of the reason more CUs haven't turned their ATMs into a combination convenience vending machine/bill payment venue/loan officer.
"Credit unions are unusual because they lack branch locations, which means using ATMs is a key strategy for them to expand their brand presence, so anything to do with ATMs is very important to them," said Jerry Silva, senior analyst for the Tower Group. "ATM technology is actually further along that what customers and financial institutions are demanding, so credit unions have been very cautious about adopting some of these new services."
But some ATM experts are predicting credit unions and banks alike are going to be showing greater interest in offering add-on services at their ATMs, such as pre-paid cell phone time, bill payment options, credit card offerings, movie tickets, postage stamps and others.
"We are starting to see credit unions begin to get into add-on services," agreed Triton's James Phillips in Long Beach, Miss. "They're seeing the success of these offerings at ISOs [independent sales organizations]."
Indeed, to see some the latest in ATM technology, don't go check out a credit union or a bank-take a trip to the nearest convenience store.
"This is a hot topic right now. Credit unions tend to be more progressive, and they're looking at the ISOs. If you want to see the best example, look at 7/11," said Chris Klein, EVP-marketing for the Deerfield Beach, Fla.-based Mosaic Software, an S1 company. "[CUs] are taking what they do and rolling it down to the credit union market. This is a particularly strong strategy for credit unions, especially because of all the sharing of ATMs and branch locations that they do."
But for as astonishing a number of things that can be done at the ATM today, financial institutions have to walk a fine line when deciding what to offer and where.
Regional ATM Tastes
"There hasn't been much that is universally accepted by the consumer, it's very regional in nature," Silva reported. "Postage stamps are probably the closest to being universally accepted."
Postage stamps show the appeal of convenience. "Wells Fargo is making a lot of money on stamps even though you can get them at cost by going to the post office," Silva observed.
The Tower Group's research shows that about 17% of ATM transactions fall into the "other" category, with the lion's share of business being withdrawals, deposits and balance inquiries. Of that 17% "other" category, there is no single function that tends to be bigger than the others.
"It really has to be based on the local market. Couponing, for example is highly regional," Silva suggested. "And it works better if what the coupon is good for is within sight of the ATM. So a coupon for Krispy Kremes that is dispensed at an ATM that is located right next to a Krispy Kreme is going to work better than a random coupon for a bottle of Coke. And breaking it down even more, a coupon for a bottle of Coke may not work all that well in Boston, but in Atlanta [where the Coca-Cola company is headquartered], that coupon takes on a whole new meaning."
Triton's Phillips agreed. "Each one of these add-on transactions is not necessarily for every location," he suggested. "You have to look at your demographics. For example, check cashing might not do as well in an affluent neighborhood."
And as financial institutions have begun to adopt some of these functions, there have been some surprises along the way.
"We assumed that if you put the money transfer capability on an ATM that you'd see that money go outside of the country," Phillips noted. "But what we're finding is that just as often, that money is being moved from one side of New York City to the other side."
Wells Fargo, for example, was caught off guard by its customers' response when the behemoth bank put movie trailers on its ATMs.
"They put the movie trailers in as a response to customer surveys that indicated that one of the things they want is to be entertained at ATM," Silva related. "The problem was, not everyone understood that you could skip past the movie trailers or cut out of them midstream to get right to your transaction, so people were frustrated with what they perceived to be a longer transaction time and longer lines at the ATM."
But as is often the case in financial services, sometimes marketing is everything.
"What's even more important than the services you offer at your ATM is how you market it," Silva advised. "The banks that have done this well are the banks that have invested in marketing these services. It does you no good to offer the services if you're not going to market them."
And the concern about creating additional lines and transactions taking more time can easily be addressed, he added. "You can really turn your ATM into a relationship device by offering targeted messages during the 'please wait' screen. You can communicate with me based on who I am," Silva explained. "Some banks have integrated a back-end data warehouse so that instead of flashing a generic message about free checking, for example, the 'please wait' screen can tell me that I've been pre-approved for a credit card, and then I can push a button indicating that I'm interested or not."
In fact, while direct marketing of pre-approved credit cards has a response rate of about 1%, one bank that offered a pre-approved credit card found that 40% touched the screen to indicate further interest and about 5% actually signed on to get the credit card. "That is a huge direct marketing response," Silva pointed out. "And the more personalized you get at the ATM, the faster it gets, so you can afford to have other offerings without significantly increasing transaction time."
Passive bill payment is another function that has been showing promise. "Most people think of active bill payment, where you sign on to the ATM and can opt to pay bills. And let's face it, that is going to add transaction time," Silva commented. "But with personalization of the 'please wait' screen, a customer can be given an alert when a particular bill is due. You could be told 'you gas bill is due, would you like to pay it?' And then they can just answer 'yes' or 'no.'"
Many of these services, both Klein and Phillips noted, don't require any refitting of ATMs because many of today's machines are already outfitted with the software, it's just a matter of enabling it. Other services-like check imaging and truncation right at the ATM-will require refitting or replacement.
Just about anything can be sold at an ATM today, but banks and credit unions likely will be much more selective about what's offered than the convenience stores and other ISOs.
"Financial institutions are a little skittish about what they want to offer," Silva explained. "They don't want the stigma that is carried by pre-paid long distance, for example. I mean, you could easily sell lottery tickets at an ATM, it's a natural, but financial institutions just aren't interested in being in that business. Because credit unions have to rely on their ATMs even more for brand presence than banks do, credit unions would be more interested in offering add-on services at their ATMs, but paradoxically, because there is more brand attachment at a credit union ATM, they will be even more cautious about what services they'll offer."
And finally, there's the issue of just how successful these strategies are in terms of driving revenue and transaction growth.
"There just aren't any good, hard numbers on this," Klein said. "We absolutely believe it's working, but this is still so new that we just don't have the numbers to bear that out."