After a year in which the banking industry underwent massive consolidation. automated teller machines finally appear to be fulfilling their original promise of reducing branch operating costs.

According to the American Banker's 1992 ATM survey, the nation's largest banks continue to add branches at a much slower rate than they are adding automated teller machines.

This fact, combined with a marked drop in the number of tellers overall, leads many bankers and industry watchers to proclaim that ATMs and other self-service devices are for the first time shouldering a significant portion of the work usually handled by humans.

Initially, More Work for Tellers

"What's happened historically is that ATMs have not replaced tellers, because [the machines] have tended to generate their own transactions," said Gregory D. Benson, program director for retail banking. operations. and technology at the Savings and Community Bankers of America in Washington.

"But with the downsizing in the industry, that is changing somewhat."

Mr. Benson and others believe that the industry consolidation has been driving man, institutions to rely more heavily on their automated banking products.

According to American Banker statistics, the number of domestic branches at the top 200 U.S. banking companies has grown by an average of about 6% annually over the past three years.

During the same period, these companies have increased the size of their ATM base by almost 12% each year. For a table of the top ATM owners in banking, see page 6A.)

Branches Actually Declining

Clearly, the growth in branches reflects the frenzy of mergers and acquisitions undertaken by the nation's largest banks as the overall number of branches has declined.

In the consolidations that inevitably follow the absorption of one bank by another, the closing of redundant branches is generally the first order of business.

While bankers recognize that ATMs cannot possibly replicate the level of service afforded by personal contact with branch employees, many institutions involved in consolidations are finding that ATMs help customers cope with branch closings.

For example, Fleet Financial Group Inc. last year closed a branch and an off-premises ATM in East Granby, Conn., as part of its digestion of a recently acquired bank.

When customers complained about the reduction in services, the bank reinstalled the ATM in the town to appease them.

American Banker statistics imply that Fleet's move is not an uncommon one. Over the last five years, the numbers of ATMs installed at locations outside banking offices has steadily grown, suggesting to experts that more banks are expecting ATMs to fill some of the service void that branch closings cause.

"It costs so little to operate ATMs [compared with branches] that the math of most consolidations points right to them," said Stephen A. Schutze, chairman of the American Bankers Association's retail payment services unit.

There is further evidence to support claims that ATMs are handling an increasingly larger volume of banks' basic transactions.

According to figures from the Bank Network News, a Chicago-based newsletter, ATM transactions recorded by U.S. banks are rising steadily each year.

During September, consumers used ATMs about 600.5 million times, which is 12.3% rise over the the 534.9 million transactions logged during the same month in 1991.

Teller Positions Declining

But, perhaps more important, the number of tellers at U.S. banks are dropping as ATM transaction volumes rise. According to the American Bankers Association, the banking industry has eliminated around 22,000 teller positions over the past three years, and more reductions are expected.

Few experts are prepared to say the rise in ATM transactions directly caused the reduction in teller ranks. However, most will admit the movement of these numbers is far from coincidental.

"There are a lot of complex reasons for what is going on in the branches," said John Mara, a manager at Gemini Consulting Co., Cambridge, Mass. "But there is clearly a transition taking place, with bankers relying more heavily on the work their ATMs and telephones do."

Half of Customers Use ATMs

According to the estimates of industry experts, only about half of retail banking customers use ATMs or other automated banking tools.

While the branch closings may drive increased ATM use among those customers already familiar with the machines, there is little evidence to show that the consolidation has increased the number of active cardholders, experts said.

"To use a branch closing as some kind of substitute for marketing is just plain wrong," said Catherine Bond, president of CBond & Co., a consulting firm based in Hartford, Conn. "You're just not going to get non-ATM users initiated that way."

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