ATM Operations: In or Out?

Amid mergers and consolidations, industry upheavals, technical change, competitive pressures, and compliance deadlines, how does a financial institution decide whether to take on the task of in-house ATM operations or to outsource this critical member service function? The question is a complex one, but once we cast aside the jargon and hype, the answers are surprisingly simple.

Consider the following scenarios and see if you recognize your financial institution.

A $100 million credit union has a network of 10 ATMs. The credit union says their in-house ATM solution permits them to customize services and promotional offers to members, offer integrated check imaging functions, manage cash and deposits more effectively, and deploy new terminals at low cost. The solution has paid for itself over time by saving the credit union money each month on network charges.

A $1 billion bank with a widespread network of 80 ATMs outsources the responsibility for operating and monitoring the terminals to their ATM switch processor. The CFO considers the monthly charges from their processor a small price to pay for peace of mind.

A $500 million financial institution operates a network of 20 ATMs using an in-house platform that integrates with its core data processing system. They also partner with a third party provider to deploy 15 additional low cost ATMs in outlying locations based upon a cost model tied to transaction volume. The VP of IT believes that he has accomplished the best of in-house processing and outsourced solutions with his hybrid network.

Is outsourcing of ATM operations an idea whose time has once again arrived? Or does the new generation of in-house ATM processing platforms offer more powerful features and control, with the advantage of saving the cost of outsourcing? Are your ATMs “in” or “out,” and which is the right choice for your financial institution?

Answer the questions below to determine if “in” or “out” is the best fit for your financial institution.

Does your financial institution maintain a profitability-based view of ATMs and other electronic operations? If so, a basic return on investment (ROI) analysis can be performed. Typically, in-house ATM operations become profitable once a financial institution has a network of 8 to 10 terminals. The exact break-even point depends upon volume and other factors.

Question – How many terminals does the financial institution currently own?

ATMS

Where an outsourced solution is often selected to simplify operations, an in-house solution typically provides the greatest opportunities for integration into the financial institution’s network and core data processing environment. Financial institution representatives have access to greater detail regarding activity at financial institution ATMs. With an outsourced model, transactions at the financial institution’s ATMs typically come in the same channel as all network ATMs. Very limited information in regards to foreign activity may be available and manual entries may be required to general ledger accounts.

Question – How would you rate your financial institution’s need for operational efficiency?

While maintaining an eye towards costs, many financial institutions make their operations decisions from a member service perspective. In-house operations offer financial institution staff greater access to information related to ATM activity, and they can provide direct responses to member inquiries. In an in-house environment, daily limits, promotional messages, deposit holds, fees and other member controls can more easily be tailored to the individual. Financial institutions driven to provide a premium level of service are more inclined towards in-house ATM operations, where those that maintain a fairly standard offering in the ATM area are more likely to select the outsourced model.

Question – How would your rate your financial institution’s member service focus?

Financial institutions with in-house expertise required to administer servers and communication links see greater benefit in the in-house environment. The ability to easily add new ATMs, manage screens and monitor uptime and performance are each important aspects of an in-house environment. Financial institutions with limited staffing who do not have technical personnel to administer systems may prefer to leave the control in the hands of outside experts.

Question – How would you rate your financial institution’s staff in the ATM area?