Due to low interest rates, persistently stagnating opportunities to improve profitability through returns on assets and other factors, financial institutions have turned elsewhere to generate revenue growth – focusing instead on lowering their efficiency ratio.
BankRegData.com, a site that collects data from the Federal Deposit Insurance Corp., reports the average second quarter efficiency ratio for banks is at 57.95 percent – a fairly significant drop from the second quarter of 2015, which was 59.75 percent. According to American Banker, this improvement in efficiency can be attributed to a reduction in headcount, consolidation and shrinking of branches and renegotiating of vendor contracts.
The efficiency ratio is calculated by dividing noninterest expense, minus amortization of core deposit intangibles, by the sum of net interest income and noninterest income. A good portion of this expense exists in vendor contracts and employee salaries and benefits.
“We just renegotiated our janitorial contract and we expect a meaningful savings from that line item,” said Donna Tonsell, vice president of corporate efficiency at Centennial Bank’s holding company - Home BancShares, in a July 21 conference call.
Efficiently Operating ATMs
However, renegotiation is not the only way in which banks and credit unions can increase their efficiency ratings. Another favorable strategy is to outsource ATM operations.
While ATMs are an expected and relied upon avenue for most accountholders, financial institutions hold thousands of dollars in capital expense to purchase these machines. In addition to significant capital expenditure, there are regular maintenance costs and operational expenses including, but not limited to:
- Cash Insurance
- Cash Loading (Employees or Armored Car)
- Service Agreements - Parts and Repairs
- Receipt Paper
- Customer Support
Banks and credit unions have also been faced with additional ATM costs over the past few years in the form of compliance and security updates. The American’s with Disabilities Act (ADA), PCI security, triple DES and, most recently, the EMV liability shift.
- Outsourcing ATM ownership and/or management can directly impact efficiency ratios by:
- Taking capital investment and depreciation off the books.
- Significantly decreasing the amount of employee time and effort needed to maintain fully operational and stocked machines.
- Increasing up-time and customer satisfaction by placing ATM operation in the hands of experts 100 percent focused on ATM operability.
- Eliminating the additional costs of updates, upgrades and repairs by rolling costs into a single monthly fee.
While interest rates continue to remain low, reducing opportunities for banks and credit unions to grow revenue, efficiency is a key component to remaining viable and accountholder oriented. Outsourcing ATMs has helped many financial institutions meet their needs for ATM satisfaction as well as efficiency in regards to the bottom line.
An industry leader in the payments space, Paul Albright is Executive Vice President of Outsource ATM. Connect with Paul on LinkedIn or follow him on Twitter.
President & CEO of Outsource ATM, Troy LeBlanc has been helping financial institutions address their ATM needs for almost 20 years. Connect with Troy on LinkedIn or follow him on Twitter.