Debit, ATMs And The New Age Of Bank Branches

Debit cards, default cards, banks both bricks-and-mortar and digital.

Plastic still reigns amid the payments-minded here in the U.S., with the need to feel something in the wallet beyond cash. Ours is not yet a digitally dominated world, as the slow uptake of payments by mobile wallet confirms. That brings up some questions for banks: What are the opportunities for banks with debit, and with branches, and even with ATMs? In short, how to tangibly capitalize on the tangible?

In an interview with PYMNTS’ Karen Webster, Troy Cullen, president of Elan Financial at U.S. Bank, said that cash remains the most common method of transactions and “what’s amazing about that is that millennials are the most likely users of cash. Given where they are in their career progressions, they are just now starting to make bigger-ticket purchases where cards are more dominant.” Debit card usage is habit-driven, he said, and habit has grown roots over the last several years.

Default cards (those cards configured to be used via mobile wallets as the primary line of payment) have become a huge part of overall spending, Cullen said, and there’s room to grow. He likened the growth to Amazon and Walmart, where the former is a $100 billion company and the latter is a $500 billion company, but Walmart is only growing 1 percent annually, whereas Amazon is growing 30 percent annually.

Against this backdrop, Elan has been waging campaigns to get smaller banks to promote their cards as not only for primary use (and via plastic) but for default use as well, to close the gap with the larger and national players through debit rewards programs and other incentives.

In reference to Webster’s contention that consumers would feel more comfortable with using debit cards if they were secure in the knowledge that someone else were not running wild and draining their bank accounts, Cullen stated that his firm has instituted “two-way alerts,” that allow consumers to be informed quickly about what is going on with their debit cards, and that they can — should the need or desire arise — block that debit card and also create rules governing the use of that card.

And in terms of Apple Pay and other payment methods, the executive stated that they haven’t really taken off because they require new habits in order to be fully adopted by consumers — and that the merchants themselves have been slow to adopt mobile payments.

If only one in 10 merchants accepts payments via mobile devices, then it makes sense to travel with both phone and wallet (with a card!), and in doing so, for most consumers it makes sense to just use a card, said Cullen. It takes roughly the same amount of time to swipe a card as it does to open up an application and use it.

In the competition between large banks and smaller ones, technology lends an edge, said Cullen. Looking at the top-five banks in the country, “if you look at the percentage of new, millennial accounts being opened, and you compare that to how many branches those same have as a percentage of overall branches, these banks are three times as likely to open an account with millennials as compared to your average community bank.” And that’s creating a problem for smaller institutions.

Smaller banks will have to use a variety of tools to displace the big banks and also displace firms like PayPal to keep consumers coming into, and staying with, the local banks (and cross sell more financial products).

One way that smaller banks are competing in the market for consumers’ attention is through ATMs, where fleet placement can bring a firm to top of mind and cement loyalty.

Beyond mere placement of the machines, according to Elan and to Cullen, FIs must grapple with the cost of owning and running those ATMs.  Estimates from Deloitte show that maintenance is $165 per ATM per month. Diebold estimates that a new ATM in the field costs as much as $15,000 to $65,000. “Owning and managing your own fleet is pretty expensive,” said Cullen, especially given “the increasing compliance burden.”

Through managed services such as Elan’s own suite of bundled options currently used across more than 9,000 machines, and as noted by research and consulting firm Celent, savings can run between 15 percent to 25 percent.

Then, of course, Windows 10 is coming as well. It all adds up to “costs and complexity going up, while revenue goes down,” making it a smart move to look at outsourcing your ATM fleet management.

Compliance-related managed services are in demand amid a landscape where regulations have been tough for the industry overall beyond just EMV, said Cullen, from PCI to ADA to other mandates — and also where FIs want to undertake a wholesale transformation of the branch experience to keep customer loyalty in place. The branch experience still remains critical, said Cullen, especially for big transactions such as mortgages, because “it’s a big deal” with which people want to have some guidance.

Technology has a place in branches, said Cullen, but nobody has figured out just how that technology will work or how the branch will evolve or how employees might interact with customers and would-be customers. Cullen continued, “So there is still plenty of time and opportunity for community financial institutions to change how they deliver services” and “to compete with large national institutions, they just have to pick the right partners.”

Skimming — with a wave of fraud seen in recent years at  ATMs — remains a concern, and Cullen stated that for his firm, like all major vendors, having anti-skimming devices is extremely important, and Elan certifies those solutions. But the criminal element, he said “is always testing. They are always trying new things.”

And just in the last few months, skimming has increased dramatically, through skimmers that are more advanced and harder to spot upon visual inspection because they are inserted deeper into the machines and are not visible. If you don’t have more advanced anti-skimming devices (ASDs) on your machines, “how they are usually found is that some jam happens,” he said, with detection upon actually going in and reviewing the machine’s innards. “There’s no great answer because the industry really struggles with this. For every solution they come up with, it seems like criminals have developed a solution to counter it.”

That can be especially egregious given the fact that people view debit cards and ATMs as extensions of the branch experience, and of one another, as Cullen and Webster discussed.

Elan researches what is out in the industry and certifies “pretty quickly” solutions that are out there and then brings the technology (and education) to customers. That can be especially fruitful, and perhaps even urgent, as Diebold reports the average skimming event in the U.S. causes more than $50,000 in losses on average.