By Jennifer Alsever, contributor
FORTUNE -- Something's missing at the Coastal Federal Credit Union in Raleigh, N.C. Walk into any of the bank's 15 branches and you'll find not a single bank teller behind the counter. In fact, there's no teller counter at all. Instead, a line of ATM-style machines greets visitors, encouraging them to log in and chat via video-conferencing with bank tellers located in an office located miles away. Welcome to what may become the future of banking.
Facing increased costs and demand from consumers for more mobile transactions, retail banks are now turning to "personal teller machines," akin to video-conferencing with centralized tellers, for branch service. These virtual tellers can do things like write checks, open and close accounts, even handle loans in addition to the typical ATM functions.
"Video banking is still nascent but there will be lots of change in retail banking over the next five years, and personal teller machines will be a big part of the emerging landscape," says Bob Meara, a banking analyst at the Boston research and consulting firm Celent. In fact, nearly two-thirds of credit unions and one-third of banks surveyed by Celent this summer say they already use or plan to use personal teller machines, self-service terminals or kiosks within the next year.
Credit the decline in consumer lending, the drop in credit card spending and new regulation that limits fees banks can charge on overdrafts and debit card transactions. And as fewer people write checks and more people prefer online banking and ATM transactions, banks get fewer face-to-face opportunities to cross-sell new services to customers. "Recent years have not been kind to retail banking," says Meara.
Coastal Federal, a credit union with $2.1 billion in assets, began moving to the video teller machines in 2008 with hopes of better managing its teller downtime and over-staffed branches. The credit union now relies on 64 machines created by uGenius, a startup in Salt Lake City, while its 44 bank tellers sit inside a call center-like setting at the credit union's Raleigh headquarters handling customer transactions via computer screens.
The move seems to have paid off. The credit union not only reduced the physical size of its branches but cut teller costs by 40% while increasing teller hours 45%. Customers can now do their banking with tellers seven days a week 7 a.m. to 7 p.m.
The credit union also reduced the training time to one week from three for those employees, and teller turnover also dropped. The job is easier since there's no more cash drawers to count, no long hours on your feet and no safety worries about a potential robbery, says Joe Mecca, Coastal marketing manager. Customer satisfaction has also climbed since lines are shorter, service is faster and tellers are reportedly more focused. "It has made it easier," says Mecca.
Those kinds of success stories have helped drive sales at uGenius, which now has 31 financial institutions using its machines. The four-year-old startup watched its revenues grow 40% last year, and in January, it attracted ATM-provider NCR Corp. (NCR) as an investor. The $5.2 billion NCR, which has ATMs in 150 countries, rolled out its own interactive teller ATMs using uGenius' software last spring. Some banks are installing NCR's interactive machines inside office buildings and university campuses, turning an ATM machine into a "micro-branches" for banks. "People can do up to 90% of their teller transactions 24 hours a day," says Brian Bailey, NCR's general manager of branch transformation.
Video banking is also being tested by ATM competitor Diebold (DBD) and Cisco Systems (CSCO), which installed video systems at branches for Citizens Bank and Charter One in Illinois, Massachusetts, New York and Pennsylvania.
Still, not everyone is embracing the virtual teller trend. A number of consumers vent about their disdain for video banking, and some financial institutions claim they will not add them any time soon, says Meara, who interviewed both large and small banks for the Celent survey. "In conversations, several banks were adamant: 'If a customer enters one of my branches, I'll be darned if they are greeted by a machine,'" Meara says. "Some banks won't budge -- at least, not for a long while."
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