The ATM of the future
A critical one-to-one marketing channel
Source: www.spss.com
Copyright SPSS, Inc. 2004


The ATM of the future has started to take shape as a key touchpoint with banking customers — and even customers of competing banks. Advertising and cross-selling through ATMs is on the horizon while ATM technology improves. However, there are barriers to making ATMs a strong one-to-one marketing channel. To position your bank as a leader in this arena, you must take steps now to: 

Ø Manage your ATM operations strategically
Ø Prepare your bank to target segments with personalized cross-selling at ATMs
Ø Create ATM-based cross-selling opportunities before your competitors

High cost of customer acquisition drives inbound marketing
The cost of acquiring new customers is a key reason to focus your efforts on inbound marketing opportunities, such as through ATMs. According to the American Banker’s Association, a U.S. bank’s average cost of acquiring a new customer is $3,500 — so focusing on the profitability of existing customers should be top priority. And once you’ve acquired a customer, about 75 percent of contacts with that customer will be face-to-face, which costs you about $1.00 per transaction. Overall those transactions cost the banking industry an estimated $33 billion every year. Conversely, the cost of the 11 billion transactions through ATMs are each only cents on the dollar — and an excellent opportunity to promote your services.

Capabilities of today’s ATMs
Today, ATMs are equipped to allow bill payment, cash disbursement and deposit processing. As manufacturers offer new selling capabilities such as video, calculators, coupons, survey collection and Internet access, ATMs will be better positioned to become sales kiosks. In fact, some ATMs are now capable of delivering advertisements. These ATMs may be able to deliver 20 to 30 ads, which could be for third-party products, such as Compaq computers, or for banking products like home equity loans. According to Ernst & Young, 27 percent of banks intend to cross-sell non-banking products through ATMs. Banks that are currently experimenting with ATM advertising include PNC Bank, Bank One, Union FSB and Wells Fargo. Simple advertisements may not be the best use of ATMs from a promotional standpoint. The revenue stream a bank might receive from advertising third-party products may help recover interchange costs. However, this promotional approach is not any better targeted than the third-class packet of coupons mailed regularly to every household in the US. Advertising that isn’t targeted won’t help a bank achieve its core strategy or develop a competitive advantage. In addition, advertising non-banking products might seem confusing to the customer and dilute the bank’s value proposition.

A better use of ATMs
Most of today’s ATMs are not prepared to handle cross-selling to targeted segments — but they should. Effective cross-selling is a science, and requires analysis and action. Knowing the right offer and the right time for the right customer could make a large difference in your profitability from each customer. Central to an excellent cross-selling program is the creation of market baskets. Market baskets are products and services that correlate with each other. A simple example is bread and butter. They sell well together. However, banks might have many segments with many different products and services — and the best market baskets may not be as readily apparent as bread and butter are. Some example market baskets might be:

Ø A previous mortgage customer would be interested in insurance
Ø A home equity loan customer may want a student credit card account for their college-bound student
Ø A customer who regularly invests in CDs and mutual funds want to open a trust fund

If a bank had ready segments of its customers and could predict a customer’s likelihood of wanting certain products and services, that bank could effectively use ATMs to generate inbound responses to ATM-based advertising. In order to effectively increase inbound marketing overall, not just with ATMs, banks will need a deeper understanding of their customers. Deeper customer knowledge comes from performing market-basket analysis, customer segmentation, response rate prediction and personalizing offers. Furthermore, the segments could be specific to ATM users and their usage patterns, as well a specific to each customer touchpoint like call centers or you Web site. 

Armed with models that help you predict customer behavior, it would be easier to switch your competitor’s customers to your bank. Any ATM user who isn’t using your ATM or your bank’s card could be fair game — especially at non-bank ATM locations like malls and convenience stores. Most banks today are in the process of consolidation, and are acquiring new branches throughout the country or region. With 227,000 ATMs in the U.S., the possibility to sell in new geographic territories to support new or acquired branches is unprecedented.

Identifying barriers
As you position your bank to be able to effectively cross-sell, you should consider the following:

Ø Do you have a solid understanding of your ATM transaction data, such as which ATMs are most active?
Ø Do you know the profiles of your customers who use the ATM the most?
Ø Do you know what offers ATM users are likely to respond to?
Ø Do your ATMs and your transaction processor have a strategy to develop the infrastructure that will allow you to establish a cross-selling program?
Ø Do you see a solution to any ‘Interchange’ and ‘foreign fee’ complications?

You may not have immediate answers to some of these questions. As the answers become clear, your bank will have a solid picture of your customers and a lasting competitive advantage.