Convenient Banking Through Retail Convenience
By Costantine Jeha
Today, few people would imagine visiting a teller at their local bank branch to check a balance, pay a bill or grab spending money for the weekend. Indeed, the shift in banking from physical interactions at the branch to digital interactions on devices has been profound, though the changes have happened gradually enough that we barely realize them. According to the Canadian Bankers Association (CBA), 78 per cent of Canadians use digital channels for most of their banking transactions while nearly half of Canadians never stepped into a branch once in 2021.
The tremendous convenience of digital banking has created a sea of change in how Canadians access their money and spend it, and yet there is still a critical need to connect the zeroes and ones of digital finance with the physical world. It’s just that the connection point is less and less often tied to a banks’ own property. Per the CBA, the number of bank branches declined by about 400 from 2016 to 2020, a drop of over 6.5 per cent, and a statistic likely higher today following the closures driven by the COVID pandemic.
The rise of digital banking has very much mirrored the rise of digital payments in Canada. However, hard currency is still a thriving part of the overall payments mix. In fact, the Bank of Canada released research in its August 25, 2022 publication “Cash, COVID-19 and the Prospects for a Canadian Digital Dollar” showing that notes in circulation actually increased by 16 per cent from 2019 to 2020.
While Canadians are holding many of those dollars for a “rainy day,” much of that money is making its way into commerce. In fact, the Bank of Canada report showed that the number of consumers who paid with cash in the past month was virtually tied with debit, at around 60 per cent. Only credit showed greater penetration with 71 per cent of consumers having swiped or tapped a credit card in the past 30 days. In terms of usage in commerce, cash accounted for just under a quarter of all payments, while about 40 per cent of payments under $15 were made in cash and over a quarter of all payments for lower-income groups were in cash.
For banks and retailers alike, the data shows that Canadians value payment choice and include cash in their regular payment mix, highlighting the importance of supporting physical banking and accepting a broad array of payment types.
This juxtaposition, however, is not easy for banks who are shifting their consumers to digital channels at pace. What is a bank to do, after all, with those expensive branch assets? One solution has been to shift more of the physical side of banking off the branch and into allied retail stores through the ATM channel. This strategy allows banks to maintain great service with a smaller branch footprint while realizing cost and operational efficiencies.
ATMs, also referred to as ABMs for automated banking machines, are the physical counterpart to digital banking. Where a smartphone or computer can enable the easy monitoring and movement of digital funds, these devices have no way to transfer that digital value into cash. And, Canadians have embraced the ATM. Today, Canada ranks fourth in the world in ATMs per capita, at around 210 devices per 100,000 adults, according to World Bank data.
As a convenience retailer, these statistics are more than interesting data points, they showcase the importance of making financial self-service a primary category alongside such traditional categories as fuel, beverages and salty snacks. The question then becomes how to profit from consumer cash demand and the importance of the ATM.
The ATM has traditionally provided two paths to profits for retailers – direct fee income from convenience fees paid by customers and store sales tied to the visits of ATM users. How an ATM is deployed, and the partner chosen to help run the program, directly impacts these two sources of revenue as well as the counteracting costs associated with the device. Today, many retailers are choosing to outsource the ATM program to balance total revenue with costs, including capital allocations, staff time and operational expenses.
In an outsourced model, retailers typically trade some amount of direct revenue for other benefits including more modern and resilient ATM hardware and software, the elimination of direct costs, protection from fraud and compliance concerns and the ability to tap into new innovations as they emerge. Examples of innovation in the ATM space include the ability to purchase bitcoin at the ATM, foreign currency exchange at the device and the ability to market products and services. An outsourced solution opens up a host of service differentiators for retailers, differentiators that entice more store traffic and lead to more sales opportunities.
Another benefit of an outsourced ATM model is the ability to connect with financial institutions. Banks for years have successfully applied their brand to third-party owned and operated ATMs in Canadian retail stores. This provides a means to expand access for their customers while building their brand away from costly branches. In most cases, institutions will partner with a large independent ATM operator who can bring both scale and quality of locations through its allied retail customers along with operational expertise that ensures a good customer experience. This becomes the connection point between banks who must provide physical currency access cost effectively and their customers, who demand cash for everyday spending occasions. For retailers, hosting these ATMs can drive significant rewards.
For the convenience retailer considering ATM outsourcing, finding the right ATM solutions provider is critical. Key questions to ask of any potential provider should include:
What mix of direct and indirect revenue can I expect in my locations?
What transaction innovations do you offer today and are you bringing to market that could increase the value of the program in the future?
What is your historical business record and how is your business likely to grow or decline in the future?
What hardware, software, processing and security systems will you implement in my stores, and how will those be updated over time?
How satisfied are your existing customers?
The convergence of digital banking, consumers and the cash they need is increasingly found in retail locations where convenient banking comes to life. Convenience retailers are well positioned to benefit!
Costantine Jeha has worked in the Payments industry since 2008. He leads the outside sales team and heads the Indirect ATM ISO business in Canada for NCR.