Launching an Unmanned Pod into the Branch Space

Diebold CEO Andy Mattes stirred up a Twitter debate in November when he predicted that despite current trends, there will be more bank branches in the future. Part of Mattes’ vision for the future is a fully digital mini-bank branch being developed by Diebold.

Diebold put "hackers, hustlers and engineers" together to build the prefabricated micro-branch, which is entirely unmanned. The pod consists of two separate rooms, one for quick transactions and the other for consultation on more complicated services such as mortgages or small-business loans.

The transactional side is "manned" by artificial intelligence. The AI teller appears on a screen on the wall, and a speech engine picks up on specific words spoken by consumers to take care of their transaction.

Consumers, for instance, can say, "I'd like to move $200 from my savings account to my checking account and then withdraw $60 from my checking account." The AI will then present its understanding of the commands on a screen embedded in the table below the wall screen and ask the consumer if it is correct. Consumers can answer out loud and receive their cash.

The consultative room connects consumers by video with a teller who specializes in the area the customer is interested in discussing, or the product the consumer is interested in purchasing.

Since the summer, Diebold has been rebranding itself, moving beyond its focus on ATMs and pushing its branch-transformation consulting services.

The new prototype is being promoted at a time when banks across the country are rethinking their branch strategies.

Eastern Bank in Massachusetts recently opened a micro-branch — 350 square feet — on the Northern Essex Community College campus. PNC and Wells Fargo have been testing smaller models in an effort to cut the costs of maintaining branches, where transaction volume is slumping, but also continue to have a presence since the branch is where most product sales are done. Bank of America has been testing the use of video tellers who work from a central location but communicate with customers all over the U.S.

The pod is equipped with near-field communication tags that let consumers use their electronic devices to interact with it. The facility also includes directional audio to protect consumers’ privacy, and in the future is expected to include Microsoft Kinect sensors to read consumer hand gestures.

Banks are likely to adopt elements of the pod, observers say.

"Despite the promises and relentless march of digital, the branch remains a key channel for most banks," said Zil Bareisis, an analyst at Celent who has seen the pod. "Banks are looking to bring digital technologies into the physical retailing space, but I expect they will be selective about which of the technologies they adopt first, which will depend on their specific market and their objectives."

Devon Watson, vice president of new business and solution incubation at Diebold, also believes adoption among banks will depend on the markets they are trying to reach. "The first thing you'll see live [are Lego-like] components of this. That'll start happening in January." Banks in Latin America, Watson said, are particularly interested in the scheduling and cue management aspect of the Diebold pod.

When customers walk up to the branch, they interact with a touch screen on the outside of the pod. They input their name and pick a product or service they are interested in. Consumers could also schedule a time to come to the branch through a mobile app. Using Bluetooth beacon technology, the branch is able to identify consumers that walk up.

In Latin America, banks have a very diverse clientele. Sometimes there are dozens of people in line to do very basic transactions intermingling with rich individuals coming to talk about more complex products. These financial institutions are interested in a system that can identify customers and direct them to the right side of the pod, Watson said.

Diebold's mini-branches and its software have also gotten interest from banks looking to differentiate themselves from the thousands of competitors in the U.S. and Europe, where real estate is expensive.

Diebold is not discussing pricing yet, but Watson said: "A typical branch can be upwards of 3,000 square feet…and if you're going to build it, in a lot of geographies, that's a million-dollar facility potentially."

While a pod would be cheaper to build, it offers cost savings beyond construction and real estate.

"The big aspects of cost for the bank are around, one, the tellers that staff the branch and two, the experts who are the sales force and the service arm," Watson said. "Experts are more expensive but drive very meaningful sales for the bank…so where and how you deploy them is very important for banks as well."

For example, trying to find a notary can sometimes be challenging for consumers, since several banks might share the same one. But deploying the notary through video teller technology would allow the notary to serve consumers from multiple areas. Notaries could also manage their time better since consumers could schedule appointments beforehand.

Sometimes consumers reject new technology that affects their finances because they worry about security. However, consumers are interested in efficient experiences and specialized advice, Watson said.

And the video-teller portion of the pod could enable consumers to ask bank specialists detailed questions about products that might help them.

Various industry analyst reports say that in many countries up to 70% of the population lacks adequate financial literacy skills, Watson said, although many people make banking decisions without help from experts.

"We take the sales aspect out of [the experience] and make it feel more consultative," he said. "Bankers are here to help, but it doesn't always feel that way."

Digital branches could also be beneficial for consumers in less affluent areas where banks have been pulling out. Many Diebold customers have deployed self-service banking technology to comply with regulations that require them to have a presence in these low-income areas, Watson said.

"If your fear is security, then a branch that doesn't have on-site staff is a great way to enter neighborhoods that wouldn't be secure enough or would be harder to get employees to," said Gil Luria, an analyst with Wedbush Securities.

Malls, college campuses and airports are other good spots to test a digital branch like Diebold's since space is limited but traffic and use of banking services such as cash withdrawals and foreign currency exchange is heavy, Luria said.

College campuses would likely be particularly effective since millennials are tech savvy.

Luria also thinks transportable versions of these pods could prove attractive for events and festivals.

But the fact remains that "very few banks are rushing into branch transformation," said Robert Meara, another Celent analyst who has viewed Diebold’s micro-branch.

In 2012, 41% of banks thought branch design would change significantly compared with 37% of banks in 2014, according to a Celent report written by Meara.

"I'd expect early-mover banks and credit unions to do some experimenting with [the pods]in the short term," Meara said. Luria agrees. "For now there are only experiments. Big banks are all trying to find a better model that's more accommodating of the new consumer purchasing pattern," he said.