No matter how comfortable and convenient your branches are, forcing customers to rush to the branch to cash a check before closing time is not helping cement the relationship. And it leaves you vulnerable to competitors with longer hours or branches that are closer to your customer. And extending hours into the evening and weekend may be great for the customer, but its tough on the bottom line. 

That's what makes Wells Fargo's latest move doubly smart. Because deposit/check-capture ATMs automate the check cashing process, the main reason customers visit a branch late in the day, the machines can serve almost like a virtual branch for many users.

So Wells Fargo is leveraging its so-called "Envelope-free" ATM network to provide what amounts to extended branch hours, providing same-day credit for checks deposited in its Envelope-free ATMs to 7 PM. By adding three hours to what was a 4 PM cut-off, the bank instantly has a network of 1200 extended-hour locations (see Note 1) for a fraction of the cost of keeping branches open an extra 10 to 15 hours per week.  

As remote deposit capture becomes a key selling point for banks, we expect deposit cutoff times to disappear altogether, just as many bill payment systems now allow payments to be initiated up to midnight for same-day processing. 

Notes:

1. The bank announced Tuesday that it will be expanding its network of envelope-free check capture ATMs to 1200, from the current 400 (see press release here). The Wells Fargo Envelope-free page is here.

For something completely off-topic, here's a niche service that couldn't have existed prior to the Internet.

Four-year-old Custom Receipts.com (screenshot below, link here) will create a year's worth of personalized fake ATM receipts. For $15 + $1.50 shipping, with payment via PayPal, you receive 52 ATM slips printed on thermal paper and dated every Friday for a year. 

The receipt includes your name, the last four digits of your account number, a withdrawal amount and closing balance of your choosing. The example shown on its homepage shows a balance of $629,112.23 with a paltry withdrawal of $60 (see inset above). They ought to up that to at least 3 Benjamins for credibility.

At $15 per order, the site operator won't get rich, but it's a clever idea and hopefully all in good fun. In an email exchange with the owner, who prefers to remain anonymous, he said that he previously offered to produce any personalized receipt. Intended to be used as a joke, he shut down the service after receiving numerous requests for items obviously intended to defraud employers or insurance companies. 

Wondering what to call your remote deposit-capture service? Just wait a few months and Bank of America will solve that problem for you. The bank, and its $175 million advertising budget (see NetBanker May 17), is on the verge of making check-scanning ATMs a household name.

According to last week's Wall Street Journal (May 8), "The Envelope-Free ATM," BofA will use television to trumpet the new feature as it rolls out 1700 next-generation ATMs by the end of the year. Bank of America has an ATM base of 15,000.

As you recall, the last time BofA used its advertising budget to push a new high-tech feature, free bill pay, in 2002, it set off a chain reaction that has resulted in bill payment being free at most U.S. financial institutions.

We expect the BofA advertising to be the beginning of mass adoption of check scanning at ATMs, self-service teller-assisted stations in branches, and for business customers, in-home/office devices.

Analysis
Today there are only about 4000 check-scanning ATMs in the United States compared to 396,000 conventional machines, so it will be years before there is a critical mass of the new machines. TowerGroup predicts that 25% of the 200,000 bank-owned machines will feature check imaging in 2010 (see chart below).

Financial institutions of all sizes should accelerate their plans to harness the technology. As the branch network is downsized, this is one of the ways the impact on consumers will be minimized. The extra $10,000 to $15,000 per ATM expense is relatively insignificant considering the labor savings from the device. TowerGroup estimates a 75% decrease in processing costs to just $0.40 per item compared to $1.70 for checks deposited with a teller or by means of an envelope dropped into an ATM. That means the breakeven is often less than 10,000 deposited items per machine, assuming the bank is able to reduce back-office or branch labor. This does not include the expected lower fraud costs.

However, this particular technology is more about customer satisfaction than cost reductions. Customers will love this system once they understand it. Not only is there instant feedback with an image of the deposited items, users also get the peace of mind of being able to access the image through their online bank system. Yet, another way that online banking adds value to the relationship.

--JB

In June 1995 Santos and Peffers published an academic study1 of the evolution of ATMs which showed that “early adopters” (those who deployed ATM technology before 1979) tended to gain substantial market share due to their bold investments. The same study showed that once ATM technology became widespread, it no longer provided banks with an obvious competitive advantage. Instead, ATMs became a strategic necessity—that is, they became a necessary condition for survival, not a money-making differentiator.

Let’s look at Citibank. From 1977 to 1988, the bank increased its market share in New York city from 4% to 13.4%. Most analysts agree that the ATM was a significant driver of that growth. During that period, ATMs served as a competitive advantage for Citibank. Today, however, no bank would expect to increase its market share by launching ATM access. In fact, most customers have grown to expect ATMs to be one of their banking options. That’s because ATMs have become a strategic necessity.

What will be the ATM of tomorrow? Which technologies will provide banks a temporary competitive advantage? Which will become strategic necessities? There are a wealth of new delivery channels on the horizon, and most bank managers are busy trying to determine which ones to embrace. If the history of ATMs is a good predictor for the evolution of other banking delivery channels, banks will profit from devoting more resources to understanding emerging technologies—and deploying them quickly. Let’s review some of the key delivery channels banks are using and talking about today:

1. BRANCHES: Many customers continue to flock—and probably always will—to this traditional banking delivery channel. Only a few banks nationwide have rid themselves of bricks and mortar.

2. ATMS: ATMs have evolved as the primary delivery channel for cash withdrawals. They are continuously being enhanced with foreign language, touch-screen, advanced transaction, video conferencing, and related capabilities. This channel is likely to continue to be an important one for most banks.

3. PHONE BANKING: With low set-up costs for banks, phone banking is another delivery channel that’s taken hold recently. Telecommunication companies and call centers now offer sophisticated voice response and video telephone services which increase functionality for bankers who prefer to contact their banks from home.

4. KIOSKS: Video kiosks give customers a direct connection to the most appropriate service agents. Although currently most don’t link directly to a customer’s records, this functionality is expected in the near future. At that time, banking kiosks will become enhanced ATMs.

5. PC BANKING THROUGH PERSONAL FINANCIAL SOFTWARE: Quicken, Microsoft Money, Managing Your Money, and related programs are a familiar delivery channel to many customers. These personal financial software companies offer direct links to many large banks. Some banks reject this delivery channel because they believe customers will transfer their loyalty to the software company, not the bank.

6. PC BANKING THROUGH PROPRIETARY SOFTWARE: PC, or dial-up banking, is sometimes offered through a bank's proprietary software system. Such systems are generally considered more secure than “open” systems. Their primary drawback is that they require the bank and/or its technology provider to issue and maintain the software program and its upgrades.

7. INTERNET BANKING: Today, talking about Internet banking seems to be the rage. Analysts predict it will grow by roughly 150% annually over the next four years. However, fewer than 75 banks currently offer true Internet banking. Most analysts agree that Internet banking will surpass PC banking within the next year or two—and that by 2000, there will be twice as many Internet bankers as people using dial-up programs.

8. COMMERCIAL ONLINE SERVICE BANKING: Online services such as America Online are becoming an increasingly important delivery channel for some banks. Some computer users prefer commercial online services because they find them easier to use and because they think they’re more secure than direct Internet connections.

9. INTERACTIVE TV: TV banking is currently being sampled in various test markets. According to Frost and Sullivan, today’s $545 million interactive TV market is primarily pay-per-view services. Some analysts believe it will grow to compete with the Internet (both for functionality and market share) with a market size of $12.9 billion by 2002. If interactive TV takes off with added functionality, TV banking is likely to be an important delivery channel.

10. SMART CARDS / E-CASH: Although they won’t offer all the functionality of the delivery channels outlined above, experts believe smart cards and e-cash will replace cash for certain purchases. Business Communications Co. predicts that the number of smart cards in use will grow from nearly 5 million today to more than 103 million in 2001. If this happens, banks will want to be positioned to deliver money through these innovative channels.

I sympathize with bank technology managers who are forced to grapple with this diversity of delivery channels. Each delivery channel has its own strengths and weaknesses. And each has a viable chance of becoming the next ATM. So, what should the bank technology manager do?

In his 1513 writing Il Principe, Niccolo Machiavelli said, “There is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success than to take the lead in the introduction of a new order of things.” But such leadership—particularly in delivery channel technology—is what allows a bank to build or defend its strategic position.

When the future is highly uncertain, and the risk of being unprepared for the future is large, smart businesses find ways to prepare for any future they can anticipate. Banks who choose not to be early adopters must position themselves so they can deploy new technologies quickly enough that they won’t lose their existing customers.

Don’t build your company’s architecture for today's delivery channel; instead, make it flexible enough to incorporate tomorrow’s. Think about all the delivery channels your customers might demand in the future—and build a system that will allow you to deploy those channels quickly, effectively, and securely.