From basic cash-dispenser functionality automated teller machines (ATMs) have evolved to provide many of the services available through a branch. These range from basic account management services such as transferring funds from one account to another, paying bills, setting up standing orders and so on, to more sophisticated functions such as buying mutual funds or subscribing to an Initial Public Offering (IPO).
The costs of transactions carried out in branches scale with the volume of transactions. This is not the case with most other delivery channels. The marginal cash cost of a transaction carried out at an ATM or through the Internet or other electronic means is close to zero.
Branches provide a relatively expensive delivery channel. The cost of a simple transaction, such as depositing a check or making a cash withdrawal, in a branch is many times higher than if the transaction was carried out through an ATM.
In the early days of the introduction of ATMs many US banks made the mistake of tr ying to use ATM networks as a way to generate revenues and to differentiate their service. In many cases they actually discouraged usage by charging fees for transactions carried out using ATMs. This is understandable. The initial investments were high and banks sought to recoup their costs but this policy was also shortsighted and misguided. The initial competitive advantage from being able to offer a differentiated ser vice was soon lost once other banks introduced their own ATMs.
Over time banks have realized that the key beneﬁt of ATMs lies in cutting, or at least containing, costs. Now, many banks provide an incentive to customers to use ATMs by not charging for ATM transactions but imposing a charge for transactions done in a branch. Some banks have gone as far as to actually pay their customers for carrying out cer tain transactions made through ATMs!
Branches have been the traditional means banks have used to provide services to their customers. In many countries local banks have been protected from foreign bank competition by restrictions imposed on the number of branches the latter can open. This is proving less effective as a barrier to entry as more delivery channels are now available.
The main issues concerned with providing basic banking services through branches will be described in this series of posts.