Several Arkansas banks are using interactive teller machines to offer extended hours and better service to their customers, grow their deposits and gain a competitive edge, especially in new markets.
And according to a couple of local bankers, the machines are likely to become an industry standard.
The interactive machines look a lot like ATMs, but they have software that lets tellers in remote locations control transactions and talk to customers through a live video feed.
Customers can use ITMs to do anything they’d normally need to walk into a bank branch or go to a drive-through teller window to do — the most obvious task being cashing a check. Unlike an ATM, an ITM can give exact change even though the teller never touches the money.
Michael Wingo, a solutions consultant with Federal Protection Inc. of Springfield, Missouri, has sold ITMs to three banks in Arkansas. “There are a variety of ways that efficiencies are created in that process,” he said. “However, these machines and their deployment — the strategy pursued is generally not geared around cost savings” — although the cost per transaction is lower than the cost of a traditional teller transaction.
“The primary strategy is to make the bank more available, more convenient and to grow their deposit base through growth in transactions per hour, the size and then the services per household that can be generated,” he said.
Federal Protection is an authorized reseller of ITMs made by NCR of Duluth, Georgia. It also installs and maintains the machines. Diebold Nixdorf Inc. of North Canton, Ohio, and Nautilus Hyosung of Seoul, South Korea, also produce what they call video teller machines.
Before joining Federal Protection four years ago, Wingo, based in Fayetteville, worked for banks for 16 years. His clients include Stone Bank of Mountain View, Bear State Bank of Little Rock and Farmers Bank & Trust of Magnolia.
More than a dozen of the machines have been deployed statewide. Stone Bank has one in Mountain View and another in White Hall. The bank deployed its first machine in late 2014 and is planning to add four more — two in Little Rock and two in Harrison. By early 2018, its tellers will be operating three ITMs, COO Bruce Upton said.
The tellers behind the ITMs are now based in Mountain View and White Hall, but Upton said an operations center to house them is being built in Little Rock.
Bear State started installing ITMs in June 2016 and now has nine: three in Harrison, two in Hot Springs, two in Jonesboro, one each in Waldron and Rogers. The tellers for the machines are at the bank’s operations center in Harrison and solutions center in Jonesboro.
Arvest Bank of Fayetteville announced in August that it would acquire publicly traded Bear State either later this year or in the first quarter of 2018. A spokesman declined to discuss Arvest’s ITM strategy going forward because that sale is pending regulatory approval.
Bear State started promoting its ITMs in April, Chief Administrative Officer Shelly Loftin said; they are available from 8 a.m.-8 p.m. Monday-Friday.
The effort has gone well, she said, though customers are still getting used to them, and “we have mainly focused on existing customer convenience.”
Farmers Bank & Trust started deploying ITMs last year and now has two in Magnolia and one in Blevins. It plans to install two more this year.
The locations for those haven’t been finalized, but President and CEO Chris Gosnell said they would probably be placed in Texarkana and in the Dallas suburb of Prosper, where FB&T opened a branch a year ago. He said ITMs are planned for both sides of Texarkana, but the Arkansas side will get the first one. The bank also plans to deploy five more next year.
The tellers operating the bank’s ITMs work at its call center in Magnolia.
As with any new technology, he said, “customer education is the hardest part.” Retaining customers had been the bank’s goal for the ITMs, Gosnell said.
The consultant, Wingo, declined to name any other clients, citing confidentiality agreements. But he said about 10 financial institutions in Arkansas are considering ITMs.
Stone Bank views the machines as something extra to offer customers.
“Our philosophy is that it’s supplemental to all the traditional banking services because, especially in Arkansas, we want to be able to still do warm and friendly, put an arm around you, be your banker personal service,” COO Upton said. “And we want to also be the one who can take care of you if you’re bringing the kids home after school, you need to stop at the bank, you need to talk to somebody but you can’t come in.”
ITMs can also help Stone Bank stand out in the crowded Little Rock market, where it is a new player, Upton said.
“We won’t ever pay for an ITM through our customers, through what we get from deposits and what we get from services,” he said. “But what we do get is another place for our customers to access our services and especially access them on their time rather than on our time. That’s the first part.
“The second part is we absolutely want to build our deposit base. That’s an important piece for us.”
Wingo said a bank could spend about $200,000 in the first year to deploy one ITM, but the annual cost declines substantially after that. The unit price also falls when banks buy more than one.
ITMs are two to three times more expensive to maintain than ATMs, he said, and the initial $200,000 does not include costs like training or paying tellers to operate the machines.
So when Wingo is courting clients, he doesn’t just give them them the price tag. He invites their teams to see the machine at Federal Protection’s headquarters. He asks them their goals, and provides a return-on-investment analysis.
“As a banker, what they’re going to be keyed in on is that return on investment, and they know that buying something and owning and operating something are two totally different things. And so they key in on that cost-per-transaction or cost-per-additional-deposit dollar gained,” he said.
“If a client comes to me and says, ‘Hey, we want to implement ITMs because we want to save. We want to reduce our cost-per-teller transaction,’ I’m probably not going to be able to show them an ROI that bears that out,” Wingo said.
“But, if they say, ‘Hey, we’re looking to grow $10 million in our deposit base and we think, we feel like there are segments of our footprint that are underserved and that we could pull deposits in from, but we have no way to penetrate those markets,’ a cost-effective way to do that can be through the deployment of these machines,” he said. “This ... allows banks to grow and to capture additional deposit base at a lower cost per transaction.”
Wingo said an ITM may also be a way for a bank to serve a market where it can’t justify the expense of building a branch.
That is one of two reasons One Bank & Trust of Little Rock has deployed two ITMs in Little Rock, at 300 West Capitol Ave. and on Highway 10 in the Murphy Oil parking lot where a branch used to be. The bank’s machines were manufactured by NCR but purchased from a different vendor.
Tellers currently operate the ITMs from the bank’s Capitol Avenue branch.
John McInnis, marketing and retail coordinator, said the bank plans to deploy three more but has not finalized their locations. He said one location may be Maumelle, where the bank doesn’t have a branch. McInnis also said the bank is using the machines to give branches extended and Saturday hours.
Wingo and several of the banks see ITMs as an emerging industry trend.
Wingo called them the next logical step up from ATMs, which he said came about because financial institutions sought ways to automate more of the teller transactions “for the obvious reason that, when a human is involved, it costs more to do the transaction.”
He sees ITMs following the path of online banking. People were skeptical of that at first, Wingo said. But once online banking was fully deployed and advertised, the market adjusted and financial institutions were expected to offer it.
One Teller for 3 ITMs
While humans are needed to operates the ITMs, Wingo said, one teller can operate three machines. Upton, with Stone Bank, said one teller can operate as many as five ITMs at once.
The operations center they work from also requires fewer bells and whistles — such as extra security to protect a safe — than a full-fledged branch, Wingo said.
Tellers operating ITMs won’t be physically handling cash either. That means there’s no need for the kind of “dual control” accounting procedures required for in-person tellers.
The operators can, in theory anyway, sell other services to customers in the time they would have spent counting cash.
A manager is still necessary at an operations center to assist tellers as needed, and banks need a “robust” information technology/operations department to deploy ITMs, Wingo said. The IT support is especially necessary to ensure compliance with cybersecurity regulations.
It takes about six months from first consultation for a bank’s first ITM to be fully operational, but installing additional ITMs is quicker because the network needed to run them is already in place, he said.
Banks large and small are employing the machines now, Wingo said, and many are using them to replace legacy drive-through equipment.
First Arkansas Bank & Trust of Jacksonville, for example, is adding two ITMs as it remodels a Cabot branch and a Conway branch it bought for $1.5 million last month from Simmons Bank of Pine Bluff.
Larry Wilson, chairman, president and CEO of FAB&T, said its first ITM would be operational in Cabot in a few months. He hopes the Conway ITM will give his bank a competitive edge as it enters a new market, helping to grow deposits there and providing better service and hours efficiently.
The bank will evaluate how customers respond to the machines before ordering more of them, Wilson said.