What do bank tellers, toll booth attendants and mail carriers have in common? Each group has provided decades of specialized manual service, yet is being overtaken by technology alternatives and changing customer behaviors.
The trend of eroding manual transactions is prevalent in U.S. service industries, as also experienced by video store and book store clerks, and even telephone operators. Yet most major banks have not yet set a long-term course to address the growing overhang of underutilized branch tellers.
Our research indicates that of the roughly 500,000 full time equivalent (FTE) teller positions carried in the banking industry today, perhaps only a third will be strictly necessary a short five years from now. The surplus – potentially a third of a million positions – simply cannot be addressed by occasional modest restructuring, as commonly seen today.
Instead, it is time for branch banking companies to adopt a formal multi-year strategy to retrench, reposition and reenergize the teller workforce. The goal is not just to shrink headcount, but also boost productivity by culling the best staff and restructuring job roles.
A simple four-step formula will help to minimize disruption and guide the transition in a socially and fiscally responsible manner. This includes: 1) setting a long-term context and strategy; 2) building a robust forecast for in-branch transactions; 3) clarifying job expectations over the planning horizon; and 4) developing a transition “playbook” at the regional, branch and employee level.
The Cheaper i-ATM
Motorists in 15 states know about the benefits of E-ZPass, a transponder-enabled payment system that allows them to bypass toll booths. The system handled nearly 2.5 billion toll transactions in 2012, allowing toll agencies to steadily reduce booth staffing.
A similar trend is at work with image-enabled automated teller machines, which already have claimed huge volumes of checking activity formerly handled by tellers at some major banks. This trend has a lot more room to run, given that more than 70% of the remaining transaction volume in branches consists of deposit-taking and check-cashing.
The new imaging ATMs handle such transactions much more conveniently, posting credits to accounts more quickly and allowing later cutoff times to make a day’s deposit. They can handle some 8,000 transactions a month without wait-time issues. And though these ATMs do need weekly service to replenish funds and gather deposits, they don’t take vacations, need training, get sick or leave. At a one-time cost of $50,000 for a brand new machine (or a $10k upgrade) they cost about $18,000 annually, including servicing.
By contrast, individual tellers typically handle less than a fourth of the monthly transaction volume of an “i-ATM” but can cost 150% more annually. The $45,000 annual commitment for a teller typically includes $30,000 for salary and benefits, plus another $15,000 for the “linked costs” of recruiting, turnover, training and management.
At the transaction level, our research indicates a future 10-to-1 comparative advantage for i-ATM services. Today each manual checking transaction costs about $2.20, whereas a more fully automated future arrangement will cost about 25 cents per-transaction.
Many predictions in banking have proved wrong in terms of timing, but in this case the evidence of rapid technology adoption is clear. Along with better, faster service, imaging ATMs provide longer cut-off times and better funds availability. They operate at a fraction of the cost of manual processing. And the model has already been proven by large national banks, with a few players reporting high adoption rates that are quickly approaching majority levels, both customers and deposit transactions.
In reviewing the situation, many bankers may feel that they already know the answer – simply cut tellers here and there as needed. But that sort of “case-by-case” approach will fall short at time when a third of a million positions are in question across the industry. Complicating factors include the scale of the effort; the length of the multi-year transition; and the potential impact on the bank’s culture at a time when branch selling is so critical. Keys to an orderly transition include:
Set a vision and context. Management and branch staff all need to be on the same page in understanding that the organization will be working through an era of powerful change. There is no reason to be harsh but also no reason to sugar coat. People read the papers and understand the trends, so it is important to present a balanced picture to the field when introducing change.
The real story is the right one to tell: “Automation is changing how customers want to do business. We need to respond so that the bank can provide better services, but out of this will come a new category of more skilled positions that are better paid.” The best staffers will celebrate the change; others will eventually leave by design.
Develop an intelligent multi-year forecast. This multi-year trend will have predictable elements on a market-by-market and branch-by-branch basis, but also will be subject to the twists and turns of changing markets and technologies. Along with forecasts that define general ranges on a five-year horizon, the bank will need a much tighter set of rolling forecasts for the next one to two years. These will consider the trend of in-branch transaction decline; the bank’s rollout of technology and select functionality; and customer adoption rates of alternative technology.
Importantly, there is a strong proactive component to forecasts, in that there are proven customer adoption rates for imaging ATMs, mobile remote deposit capture, video tellers and sales capabilities, and self service technology expansion. In a very real sense, the bank writes its own future based on technology investments.
Clarify staffing requirements. Line leaders need a clear picture of staffing expectations and requirements over the next six, 12, 18 and 24 months, including headcount, job design and skills.
There is a tendency to sequester this information for fear of creating too much anxiety in the workforce. But this approach is misguided in two important ways: 1) given attrition of 15%-35% annually, banks have more than enough turnover to manage the transition over a multi-year time frame; and 2) proactive employees want to learn about emerging job roles in their quest to be part of the future of the company.
Set transition playbooks. Centering on retention and attrition optimization, locally developed playbooks map out the specific plans needed to meet multi-year targets. Retention optimization speaks to the fine art of recognizing and retaining top performers in a new and deliberate fashion. Attrition optimization speaks mostly to slowing down the hiring and replacing process when people leave.
In fairness, tellers have been serving customers with care and professionalism. Many of these individuals have even more to offer in emerging job roles, and as far as we can tell, people will still be a critical part of banking long into the future. The sooner that banks begin planning the historic teller transition to retain the best talent in a cost-effective manner, the sooner they will build competitive advantage.
Mr. Demos is a managing director in the Boston office and Mr. Johnson and Mr. Teas are managing directors in the Chicago office of Novantas Inc., a management consultancy. They can be reached respectively at firstname.lastname@example.org, email@example.com, and firstname.lastname@example.org.
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