Episode 8: Branch Transformation and the Community Bank

Greetings everybody, this is Eric Cook. I'm with WSI Digital Marketing, and I'd like to welcome you to the 8th episode of my Banker Education Series weekly— or excuse me, I've got Jeff Simpkins as my guest, and he is my co-host for my weekly webinar show called Free Webinar Wednesdays that I'll talk about here in just a little bit. But Banker Education Series is a monthly webinar show Designed exclusively for folks in the banking services space. So depending on how you heard about today's show, I just want to bring a couple of things to your attention. You probably have visited this page and have clicked on the register and reserve your seat button. If you're interested in getting future invitations for upcoming webinars, you can go to the Banker Education Series page. Which is under our services under the banking industry, and click sign up for email reminders. That'll make sure that you get on the list so for future shows that get announced, you'll make sure you get notification on those. And, uh, I mentioned my guest is also a cohort of mine on ACES. I wouldn't be doing justice if I didn't mention our weekly webinar show called Wednesdays and actually co-host this for a little over 6 and a half years now. And every week, with the exception of this week, we host a webinar show every Wednesday at 1 PM Eastern. And if you are interested in joining us for those shows, sometimes they touch on banking-related information, but for the most part we talk about digital and strategy and business process and all sorts of other You can visit Wednesdays.com and just click on the Register Now button and get you a registration. We'll send you a reminder, and you can join us every Wednesday at 1 o'clock to go ahead and actually check out the show. A couple housekeeping items before we go ahead and start today's session. We're going to be talking about branch transformation and the community bank in particular, the concept of universal banker, as well as the ITM, or interactive teller machines. But if you are interested in asking a question or interacting with either of us during today's show, we would encourage you to go ahead and use the chat box, which is probably located on the right-hand side of your screen. You can go ahead and type your question in there, and I'll be monitoring those during the show.

And our—

Here for education between the audience and ourselves. So if you're listening to this live and would like to interact, feel free to do so. And last but not least, we do archive and record all of the sessions for the BES. And once everything is compiled and uploaded to YouTube, we'll go ahead and the very same button that you use to register, we'll go ahead and we'll make that a link to the archive. So during today's session, if we talked about something that you'd like to share with a colleague or access the replay for maybe a strategic discussion within your bank, You're more than welcome to go ahead and do that and stop back to the Banker Education Series page to access those links. Now, with the magic of GoToWebinar, I'm going to go ahead and send the presentation controls over to my good friend, Free Webinar Wednesday partner, and featured guest for episode number 8 for Banker Education Series, Mr. Jeff Simpkins. So Jeff, while you're going ahead and Getting your computer configured, I would like to officially welcome you to episode number 8, and thank you for being my guest on today's show.

Thank you for inviting me, Eric. Good afternoon, everybody. As Eric has indicated, I'm Jeff Simpkins. I'm president and founder of Community Bank Consulting, Inc. I am based in the Charlotte, North Carolina area, and we are going to spend the next hour or so talking about community bank branch transformation. So let's first look at how I'm going to define branch transformation for this webinar. For this webinar, I feel like branch transformation is where traditional community bank— and my slides went back too far.

The joys of a live show.

The joys of a live show.

Yeah, you must have one of those Apple Touch mice because I know when I just barely glance that, if I'm in Excel, it just kind of throws it all the way into column AAA and I don't know how I got there. So I feel your pain.

Here we go. So, for the purposes of our webinar today, branch transformation is really defined as where traditional community banking meets the technology of today and allows for efficient implementation of future technology. And I'd like to put on the table that branch transformation really is an important piece of a multichannel delivery environment, which includes not only having physical branch locations, but also mobile and internet banking. And some examples of things that really make up pieces of a multidelivery environment could be CRM. One of the partners that I work with on a pretty regular basis, CSI, has recently introduced some CRM components to their core banking system, NewPoint. Teller capture certainly is an important piece of the multichannel delivery environment. Teller cash recycling, something that we really didn't hear of a few years ago, but really has become an important piece of being able to deliver a more efficient transaction in the branch environment. And then self-service, and we're going to spend a lot of time today talking about either self-service branch delivery mechanisms or what I'm going to phase as sort of a semi-self-service branch delivery mechanism, and that's the ITM, the interactive teller machine. From the customer standpoint, what does branch transformation mean? And from the customer standpoint, branch transformation is really meeting the needs of the customer by being convenient. friendly, and meets their customer service needs. Now, when I was putting together this presentation and doing my research, I ran across some interesting statistics. What I found was that 26% of customers would move brands if availability of personal advice was removed from their branches. So 26%, if they weren't able to work with someone personally on their financial services needs, would change financial institutions. Now, the interesting thing that, that I sort of read into that is that means 74%, even if they felt like they needed personal advice from a financial advisor in their financial institution, they might stay if they're unhappy. And what that said to me is, once we lose a customer as a community bank, whether we lose it to another community bank, whether we lose it to a credit union, whether we lose it to some other type of financial institution, or we lose it to a non-bank competitor, getting them back is even more challenging. So as we're looking at our planning, our growth, figuring out how we want to structure our branch networks and our offerings that make our services available and attractive to our clients, and a cost-effective delivery mechanism for not only the bank, but also for the customer, I think we really should focus on keeping those customers, because once they're gone, the cost of getting them back can be really high, and we may never get them back. From the bank's perspective, branch transformation meets the needs of the banks in a couple ways. It's a cost delivery channel, and it contributes to profitability. So most of the financial institutions, most of the community banks that I work with today, are looking for ways that they can reduce their costs. And a lot of financial institutions look at reducing current costs, but in our consulting business, we're really encouraging our clients to think forward when they think of costs. One of the ways that we really encourage clients to think forward is that we encourage them to do things that allow them to do more with their existing staff today. At the point that they add additional staff, which we are going to look at in a good bit of detail a little later in the presentation, it is a really, really costly thing. When they add staff in the future, they are really adding staff that are necessary. They are not responding to something that may be better addressed with technology, maybe better addressed with introducing more operational efficiency in their organization and those type things. Some more statistics that I discovered when I was researching this presentation: 54% of the revenue generated by the world's most profitable banks is from basic retail banking services. 80% of sales revenue is generated through the branch channel. So that's a really strong enforcement— enforcing statistic indicating how the branch channel remains such an important piece of our business banking. And 4 out of 5 product sales are concluded. Now concluded is a key word. They aren't necessarily started, but they're concluded in the branch. even if they're initiated through other channels. And when we look at branch transformation, technology that is available to us as community bankers today really allows us to reach customers and start a transaction before they ever come into the bank. This is true whether they're opening accounts. It's true once we have a client on our books and they wish to make transactions to their existing deposit accounts, their loan accounts. It's also true, and this is a relatively recent thing, almost all financial institutions or a number of financial institutions can actually originate many of their loans by mobile or internet-based functions today, consumer loans, mortgage loans. There's some really outstanding products available today for For starting the mortgage loan process and continuing to collect information needed for that process through a non-branch channel. Now, branch transformation may or may not include redesign of the physical space, and I'm going to actually touch on a few things that offer an opportunity to maybe test the waters, part of branch transformation without spending the money to completely redesign your branches. So I'm gonna pause for a minute and just, Eric, ask you if you've got any questions, anything that you wanna add at this point.

I'm just checking the cat— the question log, and it looks like that's clear. And at this point, I don't have any questions, but I know we're gonna get into some cool stuff that might very well trigger some comments on my part. So let's continue diving in.

Yes, sir. So let's next talk about branch transformation from a community bank marketing standpoint. And I'm going to preface this slide by saying, why does marketing really care about branch transformation? Well, a number of things that, that I believe marketing cares about branch transformation are, It allows a cost-effective way to explore new markets. It allows a cost-effective way to expand your branch network. It allows a cost-effective way to expand business hours. And we're actually going to go through a few case studies close to the end of the presentation. And I've got some real good examples and some good information from financial institutions that have very cost-effectively expanded their business hours. It allows a cost-effective way to reach new prospects. It is a mechanism for using more highly trained staff in the delivery of your services. And branch transformation offers you some opportunities to deliver a higher level of customer service. So we're going to focus today on 2 components of branch transformation. Let me just point out, there are many others, but in the interest of time and really to allow us to go into some depth on these 2 components, we're going to look at the universal banker model. This is a staffing model that a lot of people in community banking think of as a relatively new thing. I think a better description is it has more recently become more popular to, at the retail branch level, have staff that are referred to as universal bankers. And we're going to spend a little bit of time and look at what some of the roles that universal bankers play. We're going to spend the bulk of our time talking about the interactive teller machine, or the ITM. Now, a minute ago, I talked about the physical space. So branch transformation, as I've indicated, may or may not include renovation or updating of physical branch space. This is just an example of what branch transformation may look like. Now, a minute ago, I made the comment that many of us think of universal bankers, which is certainly a component in many financial institutions of branch transformation, as being a new thing. I actually can remember working with a financial institution that was a de novo bank in the Chicago market back in the late '90s. So it's really a concept that has gained some maturity and is starting to gain some popularity as we reexamine our staffing models within community banking. So let's actually look at some of the things that make up a universal banker. Let me just point out, a universal banker at one community bank is not going to be identical to the universal banker model at another community bank. The exact job description is based on the needs of the bank. Some things that vary from state to state and from financial institution to financial institution Could be compliance requirements, looking at licensing. Those may play a role. And the reason I say they vary from financial institution to financial institution is there are some compliance components that are interpreted differently by one compliance officer than they are by another. And while we wish that were never the case, There are some components of compliance that it's just not black and white. So one bank may do something in their universal banker role that another bank just doesn't feel comfortable with from a compliance standpoint. So don't be surprised if you look at— if you adopt this model and you look at what one financial institution is doing, and maybe they're using a universal banker in a role that you're not comfortable with in your organization.

Okay.

That's fine. Just do it the way that you feel your compliance officer, your senior management teams feel is appropriate. So here are some examples that I've run across in working with community banks that make up the universal banker model. It's typically going to combine 2 or more of some of the following roles. Teller. A universal banker is almost always going to be able to perform some functions of a teller. They are almost always going to be able to perform traditional functions of a customer service rep or CSR. So that's typically things like opening new deposit accounts, opening new time deposit accounts, opening safe deposit boxes, and those types of transactions. Depending on the financial institution, universal banker could also have some lender responsibilities. These tend to be more consumer-related lender responsibilities. I especially see this to be the case in community banks that are using a score-based underwriting criteria for consumer lending. In some community financial institutions, mortgage lending or residential real estate lending is also something that is handled by universal bankers. Depending on what services that your financial institution offers, and this is where we're going to get— going to really get to the licensing, where licensing and your interpretation of compliance plays a role. Universal bankers could potentially either work as an insurance sales associate if they are appropriately licensed, In some areas, it is not— there is no licensing requirement merely to fill out some paperwork. So if there is some paperwork that a universal banker can start and then hand off to someone that is appropriately licensed, that may also be part of their role. And if you're part of a community financial institution that offers any investment products, they may Even if not licensed, they may be able to also handle some clerical responsibilities there. So start some paperwork or sit down with a client and fill out paperwork for them and then hand that back to the licensed person. So here's where we're going to spend the bulk of the remainder of our time, and that is really looking at the ITM or the interactive teller machine. Now the slide that I've got on the screen right now shows the NCR interactive teller machine. And when I give this presentation, I always give the disclosure. I don't own stock in NCR. I don't receive any type of compensation from NCR. I'm, I'm merely passing on information based on my research. And as of today, There is really not a strong competitor. There's really no competitor to the NCR Interactive Teller Machine that you see on the screen right now. NCR currently expects branch transformation to account for more than $100 billion of its sales. In 2013, NCR had about $6.12 billion in revenue. And they're looking at about $100 million of that in our active teller machine. Just a note, NCR just yesterday became— they, as a result of Diebold merging with German Wincor Nixdorf, I believe Diebold will actually surpass NCR in size, so NCR will become the second largest provider of ATMs and those types of devices. Still, the NCR Interactive Teller Machine is really the only option that's available in terms of the number of transactions and so forth that are available today. So let's actually look at the—

Annette.

Yes, sir.

Are you there? Yeah, just on that note, again, I don't receive any compensation or commission from NCR either, but from the bankers that I've also spoken with and from doing some of my research, there's a patent that NCR actually has on the technology. And in the NCR world, even though there are other vendors that'll do similar ITM-related services, the patent that NCR owns actually gives them a leg up in the sense that the bank or the customer service rep really drives the entire transaction, much like they do on the regular teller line. Whereas, you know, the patent has that technology locked up. All the others, the customer drives the transaction and it's not as seamless or as easy of a process to provide service. And so I think it's important to mention that. So even though, again, nothing against Diebold, but the patent that they've got is certainly giving them first mover advantage and You know, they seem to be well ahead of others as far as industry advantages goes.

That is absolutely correct. We'll actually cover some of the points on this slide that reinforce why that is true. So this is the NCR Aptra interactive teller machine. It's currently the best of breed, and To Eric's point, the reason that this machine is the best of breed right now is because of this Eugenius software that is part of the NCR Aptor teller machine. Now Eugenius was a separate company, and they are actually the company that put what they called when they introduced it in 2009 the PTM, the personal teller machine. They're what brought the world the PTM, or what we now call the ITM. They introduced it in 2009. Somewhere around 2011, NCR introduced the ITM through a partnership with Eugenius, and in 2013, NCR actually acquired Eugenius. So, so a little more details on what makes this the best of breed, and Eric's right, there are some products that are available from Diebold that provide similar functionality, but there is not another product on the market today that provides the teller experience that the NCR hardware with the Eugenius software can provide. Another really big differentiator between what NCR offers today and any competitor, Diebold, and there's actually at least one other manufacturer that has devices that are down the path to become similar or equivalent to what NCR offers, but they're just not there yet. NCR is the only provider today that does not use the ATM network for completing the transaction. So with the other vendors, they're doing it through the ATM network. With NCR, it's happening through the bank's actual core systems and teller systems. So some of the things that make the NCR hardware with the Eugenius software different is live teller assistance is available with approximately 35 different teller transaction sets. And when we actually look at the case studies, we're going to hear some numbers from financial institutions that are currently using this equipment and software, and we'll find that about 90% of teller transactions can be completed using the NCR Interactive Teller Machine today. So a transaction set is just going to be the types of transactions that can be accommodated using this equipment. So those are going to be things like a deposit to a DDA account, a deposit to a savings account, a loan payment, and so forth. And one of the things that I really like a lot about the NCR equipment with the Eugenius software is that it really is a device that can be used for many commercial transactions. If you've got a small business client that needs to come in and do a cash transaction— and I'll give you some specific numbers on the amount of cash that the machine can handle. Also, sets of checks can be handled pretty easily with this equipment. Personal and small business transaction support. Now, there are different models I'll tell you, if I were making a choice on selecting the NCR hardware today, I'd buy everything that's available. There— one of the things that's an option, and it's not a very expensive option, is the ability to handle coin. I think that option is somewhere around $3,000 or $4,000. If you install the equipment without the ability to handle coin, Then anytime you perform a transaction, the teller has to figure out something to do with the coin piece of the transaction. It also makes it harder to work with transactions for non-customers if you're charging a fee for cashing checks and doing things like that. So the equipment can handle up to 30 checks in a single bunch right now. It can handle 200 new notes. And again, keep in mind there are a couple options for the number of notes that can be handled, but they have an option that can handle up to 200 notes in a transaction, and then coin processing is available. The other thing, and I mentioned this briefly a moment ago, is check cashing. So, if you've got non-customers coming in and they wish to cash a check, they can do so with the machine, and you can actually— You can actually pull your fee out. Now, those of you that have not seen the way this machine works before, there's actually a window on the machine so that when a customer comes up, they can either establish their identity by using a traditional ATM or debit card. If they don't have those cards or the teller needs to actually get ID through looking at a driver's license or something like that, there's actually a window on the machine that the customer places those documents on, and the teller actually can view those and get a copy of those. A few statistics that may be of interest to you: the ATM market is estimated at about 30,000 units a year in the United States. About half of the future demand is expected to be ITMs. Just to give you some regional examples, in the state of Indiana, there's currently about 10 banks that are using the interactive teller machine. In the 5-state area that includes Indiana, Illinois, Ohio, Kentucky, and Tennessee, there are just under 20 financial institutions that are using the devices, and there's about 200 machines deployed. In the In 2014, NCR had about 80 banks in the United States and Canada that had deployed, and there were a little over 1,000 units. As I indicated a little earlier, NCR launched this product in February of 2012. One of the things that's likely to happen is that as this hardware gets introduced into the the branch model within banks, likely over time, the number of tellers that we see are going to go down, probably by something like 20%. Now, this is one of the things that a financial institution really needs to, to consider and address as part of introducing this type of functionality. within their organizations. One of the things that I want to kind of make the point is that even if you don't introduce something like the interactive teller machine, more than likely, just because of costs, the number of teller jobs in the United States is going to go down in the future anyway. Currently, there's about 550,000 teller jobs in the United States. What we're seeing happen is in smaller markets, a number of financial institutions just are finding it not cost-effective to operate brick-and-mortar branches with live teller or live staffing. And the interactive teller machine is really a good way that you can continue to offer service in those markets at a more affordable cost. So on a positive note related to teller jobs, one of the things that we expect to happen is that those jobs will more likely pay higher wages. There will be a reduction in the number of part-time people and transitional employees. Another piece of that is that ITMs and ATMs are never going to completely replace the human teller. There's always going to be a need for that. I think as we see branch transformation, as we see more modernization coming to the branch, we'll continue to offer things that offer a level of personal customer support, but we'll do so without having to have so many bodies in the branches at one time. So the ITM allows customers and non-customers that are doing things like cashing checks to actually interact with the teller using a video service. I'm going to show you a couple, couple examples of how that's being deployed by some financial institutions that are currently using them. Good locations. For the ITMs are in the lobby. I'm gonna show you a financial institution in a smaller area that they implemented ITMs by just setting up a standalone ATM in their lobby. My favorite locations for the ITMs are in a vestibule walk-up area of the financial institution. The reason I like those is that you can open those and have them as part of your lobby during business hours, You can close the traditional lobby of the community bank off during non-business hours and offer expanded business hours. Another example we're going to look at is the use of mini branches, and ITMs are a really outstanding way to operate drive-ups at multiple locations. One of the big things that it allows you to do is that you could operate drive-ups in multiple locations with having your staff all in the same location. So, Eric, I'm going to pause and see if there are any questions or if you've got any feedback at this point.

Sure. Yep. We do have a question, actually. Let me go ahead and just read it real quick. So is there a rule of thumb on how many FTEs you need for each ITM once you have it deployed, or more correctly, how many ITMs can be handled by each Full-time equivalent? Any thoughts on that?

Great question, and we will probably cover that again in a slide a little later, but I want to go ahead and answer that now. During non-peak business hours, an interactive teller machine, one employee can typically service 3 interactive teller machines. So what we are going to find as we look at some more of our examples A lot of financial institutions have instituted 7 AM to 7 PM banking. Almost all the financial institutions that are using interactive teller machines offer Saturday hours. We're gonna look at one financial institution that has 7 AM to 7 PM, 7 days a week. Most of the financial institutions that I've worked with or have done research on are, are not offering 7 to 7, 7 days a week, but they are doing something like 7 to 7 Monday through Friday, at least morning to mid-afternoon on Saturday. A few of them are doing Sundays or not. We're gonna look at the financial— we're gonna look at a financial institution. It's actually a credit union in Raleigh, North Carolina that only uses ITMs. They don't have any live tellers in any of their branches, which is not the right choice for 99% of the folks that'll be listening to this or attending this this webinar live. But their experience— and they've been using ITMs longer than any financial institution probably in the world, but definitely in the United States— their experience is that their teller costs went down by about 40%, or their branch staff costs went down by about 40%. Okay.

And then another question: when you think about reallocating staff, obviously if an ITM comes along, you may not need as many physical staff members serving customers in person. If the bank is looking to staff somebody to operate these ITMs in the background, what kind of skill sets should an institution be looking for, for somebody that can essentially man one of these devices and serve customers remotely through a teleprompter, basically? Closed-circuit TV, online chat, older, younger, techno, any thoughts on just the overall personnel skills for somebody that's going to excel at providing service through an ITM device?

So I love that question. Thank you, whoever asked that question. I think number one, in terms of Most important skill to have is a good customer service attitude. Can provide customer service through video interaction. That's going to have the same skills that someone that you had sitting live in a branch would have. They smile, they, you know, ask good questions and, and have good interactions with the person because it's as if they're sitting in the same physical location as that person. They just happen to be doing it by a two-way video feed. I would say the second most important set or skill set is going to be the ability to use technology. One of the things that I've consistently found with financial institutions that implement interactive teller machines is that they say that their teller training for interactive tellers is tremendously easier than their teller training for live in-branch. The reason it's easier is it can all be done from a single location or from a couple locations, depending on the size of your facility and the number of ITMs that you have deployed. So you've got much better controls in place. Got a couple more things that I think we'll touch on that question as we go through. Eric, any more right now?

No, I think that's good. I've got, again, a couple others rattling around in my head, but I've gotten a sneak peek at your slides coming up, so I don't wanna steal your thunder.

Okay. All right, so here's some numbers that actually are provided by NCR, and then the next slide, which you haven't seen, Eric, I've got some numbers that I actually pulled together myself that will— so we're going to look at transaction-by-transaction numbers from NCR, and then we're going to look at some numbers from multiple sources. I'll give you my sources on an annual basis for staffing. Based on their research, has said that branch staff costs are about 40% of Based on my experience in looking at numbers across financial institutions, multiple community financial institutions, I think that number is very, very accurate. It's at least— it could be on the lowish side. Again, it depends on your market. It depends on the average cost of wages in your market and some things like that, but I think overall that's a really accurate number to use. So when we break that down to transactions, the average teller transaction is said to cost somewhere around $4. An interactive teller machine, and about 10% of their time is spent waiting for customers. So when you've got a teller, he or she is only really spending about 10% of their time interacting with customers. So, NCR is reporting that typically 50% of customers migrate from the teller line to self-service when intelligent deposit-enabled ATMs are deployed. And give me just a second, Eric. I need to pause. Check my slides.

Is this where I'm supposed to be humming the Jeopardy theme song?

It is where you're supposed to be humming the Jeopardy theme song.

I can only hum about 8 seconds because then after that I think I have to pay a royalty to Alex Trebek. So we'll, uh, it's kind of like singing Happy Birthday, although I did hear, uh, that, uh, that that now has been resolved and we can now sing Happy Birthday without having to worry about paying royalties. So I don't know if that—

That was, uh, resolved in the court system, so we can now sing Happy Birthday. Yep.

Although it's not my birthday, but you can come back in June and do that.

Alright, so here's the slide that I was, I was going through. Teller transaction costs typically around $4. About 10% of their time is spent interacting with customers. According to NCR, 50% of customers migrate from the teller line to self-service when intelligent deposit-enabled ATMs are deployed. Some of you are probably already using those today. Those are the ATMs that actually capture checks directly from the machine, do image capture, and things like that. ITM teller transactions cost around $2, so they're about half the cost of a traditional teller transaction. One of the things that's really attractive about the ITM transactions is that completion time is about 50% less than traditional teller service. And one of the reasons that that's true is because the machine actually is able to process the physical documents, the currency, the checks, and so forth faster than a teller can actually do it. Traditional ATM transactions cost about $1.25 per transaction. All right, so let's break this down to actual annual costs for an employee. So just a reminder, go back to the question that, that was asked a little earlier. What are we looking at in terms of staffing numbers for ITMs versus traditional tellers? So during non-peak business hours, one employee can typically service About 3 machines. So if we're looking at the period from, you know, if you do 7 AM to 7 PM banking during your non-peak times, 1 employee to 3 machines. The other thing that, that I think it's really, really important to consider— I work with a number of community financial institutions that have Saturday banking hours. A number of them don't have Saturday banking hours at all of their offices, but it becomes this, this really big deal. For staffing the number of locations that they have open on Saturdays. ITMs totally, totally changed that game. You can have, you know, if you're thinking one person can operate 3 machines during non-peak hours, probably 2 people operating 3 machines during peak hours, you can probably take your number of staff required for If you do any holiday hours, you can take that number of staff down. And for nontraditional banking hours like weekends, you can take that number of staff down. These are numbers that I put together for the cost of an employee. An assumption that we're going to use with this number, I based these on a first-year employee. These numbers are going to go up a little bit as the number of years an employee is on your staff passes. But a $10 an hour employee is going to work about 236 days a year. They're going to get about 10 paid holidays if you use the federal holiday schedule. And they're going to get about 14 PTO days. So that's paid time off, a combination of vacation time and sick time. And I actually pulled that number from the Society for Human Resource Management. So the $10 an hour employee is going to have about $20,800 in gross wages. Your mandatory taxes and insurance, so workers' comp, FICA, unemployment taxes, and things like that, is going to cost about $2,303. We're now up to $23,103. These numbers that I'm showing for employer-paid insurance benefits, I wanted to be really conservative on these. So I got the number from the Kaiser Family Foundation, and this is the number for 2012. Now I have updated it, Off the slide, so I'll tell you what the current numbers are. But in 2012, an employer-paid portion of insurance for an employee that receives that benefit ran about $4,740 as an average. For family plans, employers were paying about $10,119. If they offer a 401 matching, and this is only the matching portion, this does not include the cost of providing the plan, That adds about $520 a year. So that means a $10 an hour employee costs the financial institution somewhere between $28,363 if they're, they're getting individual insurance benefits and $33,742 if they're getting family insurance benefits. And keep in mind, these are the averages for insurance benefits paid by the financial institution. It's already had the employee share taken out of it. So when we look at that for a $15 an hour employee, and I chose these numbers because these are probably relatively accurate for a teller depending on your market. A $15 an hour employee is going to cost you somewhere between $39,922 and $45,301 a year. So I did some research. I actually pulled more current numbers today. And the numbers for health insurance— and they're the same. It doesn't matter what the compensation level of the employee is. The number for single coverage for 2015 from the Kaiser Family Foundation is $6,251. So that's gone up $1,511. And the employer-paid portion for family is now $12,590. So that's gone up almost $2,500. So these numbers, if we updated them to reflect 2015 costs, it would be for a $10 an hour employee between $30,147— and $36,213. A $15-an-hour employee would be $41,433 to $47,442. So, you know, when you look at these numbers, when you consider using full-time employees, when you look at the interactive teller machine model where you can have pools of people that are working multiple branches in a single location, therefore reducing the headcount of employees that you need, There really can be some significant advantages to the financial institution over time. The other thing is there can be advantages to the employees, because if you're starting tellers out and you're paying them $10 an hour today, you're probably going to pay the ITM tellers more like the $15 an hour, which ultimately is still going to save you money. So I ran some figures for that as well. Using my numbers on the screen, if we're able to— rather than having 3 full-time employees at $10 an hour, we're able to use 2 full-time employees. Our annual savings for merely reducing our number of full-time employees by 1 per year using the 2012 numbers is between $16,804 $22,183. So really some things, some important things to look at. Eric, any comments before we go to the next slide?

Well, I think what you've basically just done here is kind of set the stage for an ROI calculation. So I know we didn't talk about it at the beginning, and I'm hopefully going to have a little bit of opportunity at the end, but I certainly want to make sure folks know what type of service you can potentially provide them as they kind of walk through this process and determine whether or not an ITM or certainly a universal banker role is going to be important. So we want to make sure I can give you a little plug. So I know this isn't intended to be a commercial for Jeff Simpkins and Community Bank Consulting, but I want to make sure folks know how they can engage with you to help run some of these numbers and do some of the analysis for their own institution. That was really good. I had not seen that slide yet, so good surprise.

Perfect. One of the things— I'm not going to spend a lot of time on this because we need to get through the presentation, but one of the costs that I didn't show on the screen is the University of California Berkeley Institute for Research in Labor and Employment Employment says that it costs about $4,000 beyond salary and wages to bring on an employee, to hire an employee. Now, the more employees you hire, the more that number goes down. It also depends on the skill set. So to hire a manual laborer, it costs about $2,000 above salary and wages. To hire a manager or professional, it costs about $7,000. But the other thing that we're seeing is a trend with the ITM, and some of the tools that we're talking about today as part of branch transformation through universal bankers and things like that, is we're also bringing in people in jobs that are going to pay a little more money. They're going to save the bank money. They're going to result in less turnover. So if you use the figure of $4,000 every time we turn over an employee above salary and wages, We've got really a lot of money on the table that we're playing with there that also really kind of makes us scratch our head and look and say, maybe there's something to this. Let me move quickly through these. These are some of the customer service things to keep in mind. Marriott School of Business, Provo, Utah, did some research. They polled a group of people before they ever used a video teller unit. They said, would you use an ATM video teller banking? 82% expected it would fit their banking needs. 85% said they'd be happy to use the solution. 85% of customers in the $30,000 to $90,000 income bracket said they were willing. The highest— excuse me— the highest acceptance rate came from the highest value customers, and those are the folks that are getting close to the $100,000, the $90,000 plus. When asked what they'd use it for, 80% said they'd use it for general banking transactions, 60% for bill pay and new product, and 46% said they would prefer using the ATM video teller for making deposits rather than an unassisted ATM. So the next slide, keyword here is before they did it, now after they did it. Across the 25 to 65 age demographic, 90% of them were satisfied with the service. Now, this is a statistic that Eric and I both have been like, wow, this is cool. 91% of the most senior age group, age 65 and plus, were very satisfied with their experience. Across the lowest, middle, and highest earning brackets, 90% or more of the users liked the new service. And almost 40% of customers in the group most likely to buy high-margin, advisory products would switch or choose their banking provider if they offered this kind of service delivery channel. So, Eric, quickly, any comments on these before we go in and look at our case studies?

Yeah, well, the reality is it's not just the younger folks that are going to be interested in this kind of a delivery channel, and I think you and I were both surprised at the 65+, and I think that's the biggest concern that most banks have that I've talked to that were worried about deploying an ITM is they're going to offend or alienate their older customers. And actually, those are the ones that have actually turned out to be the biggest fans of this technology. So yeah, kind of a surprise.

So one of the things we haven't, we haven't talked about at any level of detail, and we'll run out of time before we're able to, But these are treated from licensing purposes as an ATM, so you really have the option of deploying ITMs if you've got major employers, if you've got hospitals, if you've got retirement homes, anywhere you've got a large concentration of people that you can justify the cost of putting the device in the institution, at least the space and so forth. It's a very, very effective way to go into those markets.

Yep, yep. Hey, before we get—

great setup. Yes, sir.

Yeah, I was going to say, before we get into the case study, I know we're getting close to the top of the hour. I think we're going to go over a little bit, so if you do have to drop off right at the top of the hour, we totally understand. You can always come back and watch the remaining portion on the recording. But for those of you that are still attending live, I just want to make sure to give Jeff A little plug before you do have to drop off. I've had the pleasure of knowing Jeff for a long, long time, and what brought us together was an operational assessment that he did for an institution that I was acquired by in helping to better understand the technology that I was coming into. And I don't think that there's anybody in the industry that's better at understanding the technology and operational needs for an organization and matching the right fit than Mr. Simpkins. And so if this is an area that you are interested in exploring, I would strongly encourage you to visit with Jeff and get some follow-up with him and help kind of build a case study and do a review instead of using an NCR or a core processor. Somebody that's platform agnostic and independent, I think, really has some value in building out a comprehensive strategic plan. So I just wanted to give you that props. I know that you weren't planning on me doing that and might even be a little bit embarrassed by it, but I'm a big fan and I do these sessions to try to educate bankers and share great products and services and information, and I think you could be a good resource for folks. You can pay me my $20 later.

Just kidding. Thank you very much, Eric. For those of you who do— You do have to drop off If you do have to drop off early, at the end of the presentation, I've got 6 questions that are sort of a way— it's sort of a self-assessment to figure out where are we in terms of branch transformation? Do we need to start looking at something today, or what do we need to do next? So come back and pick up those 6 questions, or shoot me an email if you don't have my contact information. Get in touch with Eric, and I'll share that information with you if you don't get to stay on for the live.

Great.

Perfect. All right, so let's look at some case studies, and I'll try to move through these quickly but still give you the information that's relevant. Coastal Federal Credit Union in Raleigh, North Carolina— they are the innovators when it comes to interactive teller machines. The picture on the screen is Willard Ross. He's Senior Vice President and Chief Strategy and Talent Officer. He actually came to Coastal Federal from Capital Bank in Raleigh, North Carolina, which is still around. Capital Bank is now based in Florida, really, really quickly growing financial institution. I believe Capital Bank will become a regional bank very, very quickly. They're doing lots of acquisitions. But Willard, the bank that he came from, RBC Centura, which prior to the RBC, which is the Royal Bank of Canada, prior to being acquired by them, with Centura Bank based in Rocky Mount, North Carolina. They really were considered innovators. So he's got a really, really strong background in this type of thing. Willard has been very generous to share information with me. We had a phone conversation within the last few months, and Willard said, I believe we are the only financial institution in the United States and possibly in the world that operates a 100% ITM— they still call it PTM— network. They do not have a single live teller in any of their offices. As I said earlier, for 99% of you, that's not the right choice. I'm going to give you some information that he shared with me that for them, it has ended up being the right choice. Now, they were actually the bank that operated as the beta for the company that developed the Eugenius software. As I've said a couple times, they deliver teller service exclusively through ITMs. They rolled out ITMs in 2011. He indicated to me that they reduced their teller staffing costs by 40%. Now, they have a staff of 50 video tellers that work from 2 locations. They have a facility in Raleigh, North Carolina, and a facility in Durham, North Carolina. Because they're using this as their sole means of delivering teller transactions, they really need— or delivering teller service, they really need to have more than one location for disaster recovery, business continuity purposes. The other thing that Willard and I talked about is that they really need to be able to pull from more than one labor market just because of various demands. Raleigh is the state capital of North Carolina, so there are going to be times when they are really competing with state government when they have projects going on that they are adding staff. So they are able to do that in addition to the business continuity and disaster recovery needs of having a center in Durham. They're also able to help with their labor, their labor needs. They have a combination of full-time and part-time tellers because of their business model. For most of you, that's not going to be true. Most of you would use full-time tellers. One of the things we really haven't talked about in any level of detail yet is, for those of you that deploy interactive teller machines today and moving forward, More than likely, you're going to deploy a machine that can operate during non-ITM hours as an ATM. Now, because they were early adapters, because they offered this technology early, their equipment today— most of their equipment today will not operate as an ATM. But for almost everyone that goes live from this point forward, from 7 AM to 7 PM or whatever hours you set for ITM, the transaction offers teller assistance through the video teller. By the way, the customer does not have to elect to use the video teller. They can do an unassisted transaction. After hours, the machines can be switched to ATM, which, by the way, also gives you the ability to collect some fees. Trends they've seen nationally: teller transactions have been dropping. Prior to 2015, their transactions have been increasing. Keep in mind, we're delivering service through a mechanism that costs about half what a live teller transaction costs. We're getting customers in a place where they are either inside of a branch or they're coming to a branch or, or a type of branch. So we're really We're interacting with them in a way that we remind them that we're their financial institution. It gives us an opportunity to remind them that we have additional services available, such as loans and other types of things. They currently offer drive-through service at 6 or 7 of their 17 locations using interactive teller machines. Their service scores have been outstanding. Here's a big thing. I actually had a client that was robbed. One of their branches was robbed at gunpoint within the last couple weeks. Interesting thing about this branch that was robbed at gunpoint is it's a branch that you have to come up to the door and someone has to buzz you in. It was early in the morning and probably the person that robbed this branch piggybacked on somebody else coming in. That threat When you're operating in locations that are only offering ITMs, that threat pretty much goes away. Another thing Willard shared with me is that in terms of loans, they're doing twice as many loans. Their branch managers are now sales managers. Not all their branches require a manager. Some of their locations are by appointment only. And I heard this consistently in my research. Training time has significantly been reduced, and quality control has increased. So you can see they're a pretty big credit union, about $2.5 billion, about 205,000 members. Let's look at a bank that may be like a lot of you that are either on this webinar or listening to this webinar, PCSB, which was formerly Page County State Bank, was one of the smallest financial institutions I found using ITMs. This is James Johnson. He's their Chief Operating Officer. They're about $201 million. They were featured in the Des Moines Register. One of the things that— one of the advantages of implementing this type of technology today is it's still considered new and innovative. There's some opportunity to get some press out of it. The Des Moines Register referred to them as one of the oldest and smallest banks in Iowa. It made reference to the fact that they were offering this technology, and they were one of the first banks in the nation to do it. They had five machines that were deployed in April of 2014, and they expect to have eleven in operation by the end of the year. They reported that their ITM tellers handle about. 56.5% more transactions than their branch-based teller. Here's a statistic that I've quoted to you a couple of times. One teller can staff up to 3 machines depending on the time of day. And their ITMs— this is another case just like Coastal Federal— their ITMs created 1,400 transactions, 1,400 additional transactions during their first month or 4 months of deployment. And just to give you an idea of their location, they are in a very rural area. This is where their home office is located, Clarinda, and that is a town of 5,500 people. They're about 85 miles from Des Moines, and they are— this is their branch network. They're operating interactive teller machines at 3 of their locations. They've got vestibule teller machines, and their banking hours, or their ITM hours, are 7:00 AM to 7:00 PM Monday through Friday. On Saturday, they're operating 8:00 AM to 1:00 PM. Same hours for their drive-up ITMs, and prior to implementing this technology, they were operating from 7:45 AM to 5:30 PM. Now, here's an interesting story. This is Ron Tate. He is mayor of Runnels, Iowa. I ran across Ron through an article that was also featured in the Des Moines Register. Runnels, Iowa is a town with a population of 507 people in the 2010 census. It is about 25 miles southeast of Des Moines. This is the picture that actually appeared in the Des Moines Register. Ron is standing in front of what used to be Great Western Bank, and they closed that location on September 17th, 2013. Ron was sort of making a plea in the Des Moines Register for another financial institution to come to his town. They've got a Casey's convenience store, 2 bars, and a winery, and they have no bank now. And he just He indicated what a— really what a challenge it is for the types of businesses that they have being 25 miles from a city that they really can go to for financial services. Now, I traded emails with Ron within the last month or two. I was just curious if they had gotten a bank to come to their town yet, and the answer was no. So if any of you are interested in Deploying ITMs in Runnels, Iowa, there's an opportunity for you. So let's look at a bank in Pennsylvania, Conestoga Bank in Chester Springs, Pennsylvania, about a $700 million financial institution, 15 locations, 138 employees. You can see they're located in and around Pittsburgh. And I want to show you this because they have actually introduced what they're referring to as BankWorks. It's their brand for many branches. They introduced this in 2012, and they're using the Eugenius software with the NCR equipment. And they report that their ITM tellers in these BankWorks branches can perform about 95% of their transactions that a traditional teller can And that's happening about 33% faster. These BankWorks locations are about 1,500 to 1,800 square feet. They are able to provide full-service banking with 2 staff. They have one person that acts as a traditional banker. They have a second person that acts as a concierge that basically meets the customers as they come in. Determines the types of services that they are looking for, and then helps them get access to those services. All right. Eric, last slide before we go through 6 questions to ask to determine where you are in the branch transformation process. Any comments before we go through those?

Nope. Let's just keep rolling. All right, thanks to everybody that are hanging in there. So we're coming close.

Absolutely. Sorry for running over. Number 1, is your organization a candidate for branch transformation in the foreseeable future? If so, what timeframe? It's important to figure out your timeframe because that is really key to what do you want to do next. What are your goals for branch transformation? So some of the things that that you could be looking at is to reduce costs, increase profitability, be an innovator in your market, modernize facilities, increase business hours. So these are just some examples of some of the things that may be your goals. Look to your strategic plan. That's going to help you in answering question 2. Question 3, why are each of these goals important to your organization? 4, what areas of your organization will each of these goals affect? Really, really critical question. ITMs are very different than ATMs in that there are more transaction sets that can be completed with ITMs. Universal bankers, different type of training. So also, what goals— what areas are these goals going to affect? So I'm going to tell you first, look at the underlines. And then read the question. For each goal, without considering costs or current limitations within your organizational control— within your organizational control is important— what timeframe would you like to accomplish each of these by? So what I mean by without considering costs or current limitations within your organizational control is it takes at a minimum 90 days to implement an ITM. That is not within your organizational control. If you're looking at building a new facility, licensing and so forth, permits, any of those type requirements could take 4 months, 6 months. So consider the things that are within your control, avoiding things like cost, because when you look at ITMs, a lot of financial institutions will Look at the number, and they will say, we can't afford that, without looking at the staffing costs. As you can see from some of our previous slides, looking at the total picture is very, very important in this type of decision. For each goal, what is the next best step? And that is it. That is my presentation. I appreciate your time, attention, your questions. Here is my contact information on the screen.

Excellent. Yeah, this was great, and I appreciate the additional slides. I really like the ROI slide because I know these are not inexpensive devices to implement, but even at the $15 an hour rate, you know, you take 3 or 4 employees that you didn't necessarily have to replace, it can be pretty easy to get a payback on one of these devices pretty quickly. considering that it creates some interesting opportunities. So all really, really good stuff. And were you going to say something?

Yeah, it's really important when you're looking at this to look at the full picture. You know, as I've said a number of times, what Coastal Federal has done is very brave. It is probably not the right choice for any community bank to just say we're not going to We're not going to have live teller service anymore. One of the things I didn't have a lot of time to spend on is that example that I gave of the bank that has the concierge. That's also a really key component of making this type of transition a success. If you have customers that walk in and they see a line of machines and there's nobody there, kind of making them feel like they're welcome and helping them understand why this is a positive for them, you're likely to get more resistance than if, at least initially, you don't have someone that acts as a concierge or a host or a hostess and really kind of helps ease people into that transition. If you think about the way airports and airlines have done this, it's a similar model. I mean, you know, 5 years ago, we walked up to the ticket counter and we worked with a person. Today, getting a person to help you check in for an airline flight, it's unheard of. They still tend to have someone that acts as sort of a check-in concierge, but you only see a person when you've got a special circumstance.

Agreed. Agreed. Nope, this is all great stuff. I'm very much looking forward to getting the recording online. I know there were a few people that had to drop off. But I will tell you, a majority of folks stuck in there for the full extra 15-minute bonus round, that we'll call it. And certainly appreciate everybody that's listening live that stuck in there for the extra 15 minutes. But some good stuff. So you've got all of Jeff's information there. If you are interested in joining Jeff and myself on a weekly basis and would like to sign up for Free Webinar Wednesdays, we'd love to welcome you there. And as a reminder, Make sure that you sign up for email reminders over at the Banker Education Series page on my Powered by WSI website. We'll get an email back out to everyone that registered for today's session with some links and other follow-up information as well, and we'll look forward to seeing you next month or possibly in following weeks on one of our upcoming webinars. So in closing, I just want to thank you again, Jeff, for taking the time. This was the second time I've had the privilege of listening to this presentation, and the first time I heard it, I said this has got to come onto the BES show and reach even more bankers. So I'm glad that you were able to do that. Thanks for throwing the extra little nuggets of information in there. That was really helpful.

Thanks for inviting me.

Cool, good. Well, that concludes today's Banker Education Series here in the States. We certainly have Thanksgiving coming up, and I will wish you and yours a very happy Thanksgiving. And like myself, Hopefully you have lots to be thankful for, and I'm certainly thankful for you joining us today. So with that, we'll see you back next month and maybe even next week for future webinars. Until then, take care and have a great week, everybody. Bye-bye.