Many financial institutions provide ATMs at each branch location because that’s the way it’s always been done. However, is this profitable for the financial institution and how would you know?
ATMs first appeared in the late 1960s, and by 2015, there were nearly 3.5 million ATMs installed worldwide, according to the ATM Industry Association (ATMIA). They were originally designed to give cardholders access to cash when the financial institution was closed, but banking has evolved by leaps and bounds in 50 years. While most financial institutions offer ATMs at every branch and assume it’s just part of doing business, Lisa Fisher, director of card services at PRI, says it’s not a foregone conclusion.
“Institutions rarely analyze the profitability of each of their ATMs or the program overall to see if it’s the right fit for their business,” Fisher said. “Having an ATM — or not — is a complicated decision.”
ATMs have many expenses associated with them, including maintenance, telecommunications, security, cash replenishment, supplies and actual investment in the ATM purchase. On the other side of the equation, income is generated mainly by acquiring other institutions’ cardholders at your ATMs in order to earn interchange and assess a surcharge. However, these aren’t the only influences on ATM profitability.
Are your ATMs cash dispensers only, providing “basic” services? Or, during the last hardware replacement, did you opt for additional features like loan payments and cash and coin deposits? These additional functions may actually contribute to enhanced profitability by taking customers out of the lobby, if that still remains a goal for the institution.
“Every financial institution knows it’s about being profitable,” Fisher said. “The function of ‘basic’ ATMs is to support cardholders who want to operate in cash, but generally these cash-only cardholders are not your most profitable cardholders. Cash is expensive. ATMs are expensive. Spending money to ensure your least profitable cardholders always have access to cash does not typically make sense.”
However, if your multi-function ATMs replace cardholder time spent with valuable branch personnel completing basic functions, these branch personnel are available to focus on more profitable functions. In order to know if your ATMs are making a difference to branch personnel, you must analyze how your ATMs are used by your cardholders, including how many of your debit cardholders are using their cards mainly for ATM cash withdrawals.
Institutions must critically analyze their ATM reports to determine whether most users are your cardholders (on-us) or cardholders acquired from other institutions. Often these reports are only reviewed by the IT department when they should be studied strategically and acted upon by the retail business unit.
But what about an institution’s profitable debit card program? While ATMs are accessed by cardholder debit cards, the debit card program statistics should never be comingled with the ATM program, says Fisher. The profitability of these two programs should be measured separately in detail since they’re not co-dependent.
Financial institutions earn net income when their debit cards are used for purchases, and that includes when a cardholder requests cash-back with a transaction. In general, promoting the use of cash doesn’t increase profitability, particularly from ATMs. However, reminding cardholders on a regular basis that they can receive cash-back during a card purchase is a good way to deter on-us ATM use and improve profitability.
“PRI helped a client with eight branch ATMs analyze its profitability and found they were losing $100,000 per year on their ATM program overall,” Fisher said. “This was an avoidable loss. It’s typically much more profitable for an institution to invest in promoting using debit cards to make purchases. Or, investigate an ATM outsourcing vendor relationship.”
Additionally, as more and more so-called “digital natives” enter the banking system who are comfortable with person-to-person payment systems like Zelle or Venmo, the need for ATMs will be further reduced. Now is a good time to analyze your ATM program and determine whether it is making you money – or costing you.
Profit Resources specializes in identifying profitability improvement areas for financial institutions through revenue growth, cost control, streamlining processes, and effective use of technology. Contact us to learn more about our personalized approach to strategic planning to propel growth and improve profitability.