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Insight: BofA cuts foretell a downturn in branch banking

Sep 15, 2011, 3:37 p.m.
A Bank of America customer uses a Bank of America ATM in Charlotte, North Carolina May 11, 2011. REUTERS/Chris Keane

Bank of America is moving to a single deposit system, Moynihan told the conference. He also said that Bank of America's second wave of expense reduction efforts in other businesses may be smaller.

A THIRD OF THE COST

Rationalizing acquisitions is one source of cost cuts, but technology is important too. Automated teller machines have been accepting deposits for decades, but customers were long hesitant to use them for anything but withdrawing cash and checking balances.

Older ATMs require customers to put their checks and cash in envelopes, which remain in the machine until bank employees collect them and process them by hand. It is safe, but for many customers it feels like putting a message in a bottle.

For most banks, the check processing happens off site, meaning an armored truck has to pick up the deposits and take them to another location.

Scanning ATMs allow an image of a check to be sent to a processing center, which can now be much farther away from the bank. The ATMs often recognize the dollar amounts mentioned on the check, allowing money to be posted to an account faster. Cash deposits can be posted immediately to the customer's account. Customers can make payments for credit cards, home equity and personal loans linked to their accounts on Bank of America's new ATMs.

"Our customers don't want to wait. There's this expectation they can come in and get out quickly," said Shelley Waite, the bank's ATM channel executive, in an interview with Reuters

The popularity of the spiffed-up machines is clear: just a quarter of the bank's customers used to deposit money through ATMs while today half do -- and the percentage is growing, Waite said.

That translates into real savings. Check deposits at a scanning ATM cost the bank about 59 cents per transaction, compared with about $1.48 for teller deposits and about $1.82 for conventional ATMs, according to research firm Tower Group.

Or look at it this way: a scanning ATM can cost $45,000 and last five years for an annual cost of around $9,000. A teller typically costs around $30,000 a year, including benefits, said Darryl Demos, a managing director at consulting firm Novantas.

A branch has about seven employees on average, three or four of which would be tellers. With scanning ATMs it can likely reduce that staffing by one or two tellers, said Demos.

Scanning ATMs also allow banks to reduce their deposit processing staff.

And longer term, banks may be able to take tellers out of branches entirely, and have them work with customers remotely through video conferencing technology. Citigroup and other banks are experimenting with that kind of technology now.

Bank of America has taken other steps to reduce its branch personnel costs, including moving clients with low balances into accounts that charge a fee for using a teller.

Not every bank and every branch will use scanning ATMs to slim down staff levels. Some will replace tellers with investment advisors, mortgage lenders, or other product specialists. And some banks that pride themselves on personal service will still keep large numbers of staffers.

But new ATMs and narrowing bank profits should result in more branch reductions, and more staffing cuts for branches that stay open, experts say.

Bank of America, which boasted a record 6,100 branches in 2008, today has 5,700 and plans to close around 10 percent of its branches in the coming years.

"I've been helping banks with branches for decades," Novantas' Demos said. "There's never been the sense of urgency that there is now to get it right."

(Reporting by Joe Rauch in Charlotte, North Carolina and Dan Wilchins in New York; Editing by Tim Dobbyn)

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