Financial Institutions (FIs) have been struggling for years to balance the demands of increasing customer/member care touch-points while reducing the cost to serve. In particular, ATMs continue to be an extremely important customer touch-point, but also represent a significant cost.
This cost includes ongoing expenses due to servicing, monitoring, rent, and other operational costs, as well as capitol investment in the ATMs themselves. While there has been much headway in the outsourcing of payroll, IT and call center support for many years, areas such as ATM operations certainly continue to be a fertile ground for outsourcing. This article will discuss the issues and trends in the ATM management outsourcing market and provide tactical guidelines on how to successfully execute an outsourcing strategy for the ATM channel.
There are many trends that can affect a credit union's appetite for ATM outsourcing. These trends include transaction volume, regulatory/network requirements, and corporate need to decrease the cost of operations. Transaction volume has been one of the most visible trends. The number of ATMs installed in the U.S. has been growing for many years. Conversely, per-ATM transaction volume has been decreasing. This is largely due to the rate of ATMs being deployed, which is growing faster than the total growth of overall ATM transactions. This trend is one of the key drivers in the reduction of margins per ATM.
Another clear cost-driver trend of ATMs is the network and regulatory requirements such as Triple DES (Data Encryption Standard) and ADA (American Disabilities Act) that are causing costs increase significantly in some cases. At the same time, there are top-down management pressures looking to reduce costs by trying to either decrease personnel or increase the productivity through re-engineering efforts.
Also, the fairly complex requirements of network reporting, compliance reporting and the management reporting of how ATMs are performing both on and off-premise is consuming more and more valuable management resources. Further, the operational management of member-care service desks, first and second line servicing management (including non-standard or non existing service level agreements) of multiple vendors across a disperse set of geographical areas has led to a management nightmare that FI's are trying to get under control.
One approach to managing this complex set of variables is to outsource the management of the ATM network to third parties that can have a credible and reliable service offering. The science of finding an ATM management partner is in finding the right price for the right set of services. The art is to find the right ATM management organization that has a management group and technological infrastructure to deal with all the issues outlined above.
The leadership experience of the ATM management organization is most critical because this team of experts should have a background in managing, placing, installing and the operations associated with all aspects of ATMs. Key questions include how many ATMs do you manage today? How long have you been managing ATMs? Where have you managed ATMs in the past? All these questions are critical in understanding, and most importantly, trusting a partner to take over a vital customer touch point channel.
Another critical element of determining fit with an ATM management partner is to analyze their infrastructure and ability to manage many of the aspects of the ATM network. These areas of management should include, but are not limited to, the technical infrastructure, processing capability, cash management, monitoring and vendor management. With a few exceptions, the ATM management partner needs to own most of these functions. This ensures two things: 1) They have the internal expertise in this area and 2) They control the direction and management of these areas. Otherwise, your ATM management partner simply becomes a middle-person or aggregator of capabilities.
A third area of importance in the outsourcing decision making process is to look at the ATM management partner's additional capabilities that it can extend to the credit union. These capabilities include reduced hardware pricing, updated information about regulatory requirements and access to a broader set of ATMs in order to extend the brand without investing into new ATMs. While these incremental services may not be relevant at the beginning of the outsourcing relationship, as the credit union gains in size and foot print, these capabilities will become more relevant and important.
Credit unions may not wish to outsource their entire operations at first. In order to start the relationship, one approach is to start with a portion of the overall ATM program such as vendor management, cash management or processing. This will allow sufficient time for mutual evaluation and to provide economic benefit through reduction in price and excess management supervision.
ATM outsourcing can be a risky endeavor, but by choosing the right partner and asking the right questions, outsourcing can be an important step in increasing customer care touch points and reducing costs.
Christopher Schnieper is director of product development, eFunds ATM Division. He can be reached at 480-629-7700.
