You may already know this, but it’s worth revisiting the basic economy of banking. Banks and credit unions make money by acquiring funds through deposit accounts and then lending those same funds to customers with interest. While they have many direct and indirect channels to lend funds, the most cost-effective way to get the deposit funds they need is through a branch network.
As bank and credit union branches mature, the rule of thumb is that 50% of sales should be from new customers and 50% from cross-selling to existing customers. The challenge for financial institutions is growing the deposit base enough to offset the costs of operating the branch network.
Sounds simple enough. Then why does it seem harder than ever to keep branches profitable?
Just ten years ago, branch sales volumes were nearly double their current levels. But since then financial institutions have migrated transactions from human channels to digital channels which resulted in ATM expansion, online banking and mobile banking apps with remote deposit.
All of these efforts reduced teller volumes by about half. And since more than a third of deposit accounts acquired through cross-selling are from teller referrals, lower teller volume resulted in fewer referrals and cross-sells.
Banks largely responded to the drastic drop in sales in the last decade by trying to cut operating expenses in an effort to keep branches profitable. Cost cutting measures have included staff reductions and even closing many branches. But at what cost to the customer experience? Once expenses are as low as they can go, what’s next?
Expenses are only half of the profit equation. Revenue is the other half. Once expenses are under control, financial institutions must look for ways to increase revenue.
With fewer tellers and declining branch traffic, how can banks and credit unions drive revenue? One way is by focusing on their customers and the customer experience.
There is intense competition among banks to win depositors. When everyone is competitive on rates, financial institutions have to stand out in other areas like customer experience and service. Developing deeper customer relationships and cultivating loyalty is crucial to growing the deposit base.
Every customer interaction is an opportunity
Think of every branch transaction as a chance to connect with your customers, to build relationships — to generate revenue. Using teller cash recyclers to automate cash processes certainly will lower costs and improve efficiency but cash automation isn’t just about efficiency, it’s also about opportunity.
With 80-90% of customers opening new deposit accounts in the branch, banks and credit unions have to be ready to make the most of these branch visits. The same teller cash recyclers that streamline branch operations also have real revenue potential.
Cash recyclers create a 20-second window during every cash transaction where a teller has a new opportunity to engage customers, discover their account needs and explain product solutions.
When every cash transaction can become a conversation, even a modest increase in daily deposit sales can have a major impact on branch revenues.
Using recyclers to drive revenue
Let’s do a thought experiment to examine the impact of leveraging TCRs to drive teller referrals and revenue growth.
According to industry reports, the average teller performs about 100 transactions daily or about 2,000 transactions monthly. A very busy teller can handle as many as 3,000 transactions monthly. The average community bank does about 4,600 teller transactions monthly, which translates into about 2-3 tellers. The average credit union does about 7,200 teller transactions, so they need 3-4 tellers.
If banks and credit unions can use the extra customer face time to identify one referral out of 100 teller transactions (just 1%) that translates into a monthly increase of:
From a return on investment perspective, these incremental sales will more than pay for the incremental cost of TCR deployment.
Looking a little more closely at an example using several variables for the average community bank and credit union we see the ongoing revenue increase of using TCRs.
The revenue impact just from deposit referrals are significant and build over time. As a branch’s deposit base exceeds the cost of operating the branch network, the costs to support incremental deposits is small so most of the revenue generated is pure profit.
While many banks and credit unions have considered or implemented cash recyclers on their teller lines, every financial institution would do well to explore automating other cash environments within their branches with cash recyclers, particularly the revenue positive universal banker desks or customer representative offices.