The Other Side of Efficiency [Podcast]

The best banks don’t look at efficiency as merely a way to cut down on something – costs, time, etc. – they also look at it as a way to free up resources to do something else. Mort O’Sullivan of ARCA will talk about this. ARCA makes cash recycling machines, which have the dual purpose of speeding up transactions at branches while also freeing up tellers to be more to their customers than just bean counters.

Podcast Transcript

Dallas Wells: Welcome to another episode of The Purposeful Banker, the podcast brought to you by Precision Lender where we discuss the big topics on the minds of today’s best bankers. I’m your host Dallas Wells, and thank you for joining us. Today we’re going to be talking about efficiency. In this current environment of shrinking margins, efficiency is a topic near and dear to the hearts to many bankers. We’re going to come at it from a slightly different angle. To help us do that today is Mort O’Sullivan, founder and CEO or ARCA. Mort, thank you for coming onto the podcast today.

Mort O’Sullivan: I’m glad to be here.

Dallas Wells: Mort, why don’t you start by just telling us a little bit more about ARCA?

Mort O’Sullivan: Sure. ARCA is a technology company focused on automating cash transactions for banks and retailers. We have deep expertise in mechatronics and image processing and artificial intelligence. This combination allows us to create machines that can do everything from assisting bank or store employees in processing their transactions to fully automating the transaction process, even eliminating the need for employee involvement.

Dallas Wells: Before we get into the implications of that technology and what that means for the banking industry in general, let’s back up for just a second and talk about you. You didn’t exactly follow a straight line to banking technology, right?

Mort O’Sullivan: No, not exactly. I would say that when I was finishing college, I can’t say that I saw myself jumping into banking technology but I’ve always been willing to pursue opportunities as they present themselves. It’s that willingness to try something new that’s gotten me where I am today. I think that spirit led me from my first job out of college which was in Japanese investment banking to a boutique software company to studying brewing and distilling in Scotland, and from there to starting my own banking technology company. 15 years since I started ARCA. I’ve been with this for quite a while now. I’d have to say I’m having more fun today than I ever have. A company that’s growing as fast as we are always presents new, interesting challenges.

Dallas Wells: Yeah, why don’t you tell us a little bit about the growth? Where you started the firm and where you guys are today.

Mort O’Sullivan: Yeah, so I started in 1998. It was just me. Started in my apartment in New York City. Realized I wanted to grow the company and relocated to North Carolina. Started hiring people and growing from one person to five people to ten people. Today, we are in four countries around the world and over 600 employees.

Dallas Wells: That’s pretty impressive growth rate there. Of course the technology that you all are talking about has become has become really top of mind at a lot of banks, and really not just banking of course, in lots of industries. From high tech robotic automotive factories to driverless cars, we see automation and machine learning popping up everywhere and just becoming more prominent. You touched on it briefly in your intro, but in a little deeper detail where does ARCA technology fit in that spectrum and where are you guys headed with it?

Mort O’Sullivan: That’s a good question. I think ARCA’S role is to enable businesses to move toward a more automated environment, but at a pace that’s comfortable to them. I think one of our key advantages is the modularity and flexibility of our systems. For example, this allows a bank to deploy our cash recycling technology to help tellers do their job better today, but later they can deploy that same recycler out in the lobby to be customer-based and it’s part of a self-service solution. For banks that know they need to automate more than they do today but they’re not quite sure to what degree they want to commit to that fully automated branch, then I think out technology is a perfect.

Dallas Wells: We talk a lot about that in everything from technology to even just internal processes. How banks have been reluctant to change because it’s big and scary. What we talk about a lot is just breaking that into just what you described there: small little manageable bite-sized chunks where you try something, you test it, you get comfortable with it, and then you take the next step after that. There’s a tendency out there to hear the word “automation” and immediately jump to job cuts and having machines replacing humans. We actually wrote a blog post on this a couple weeks ago about commercial lending and the rise of the machines, and even very white collar functions. What’s your view on this? Is this something that bankers should be concerned about, that there’s a machine coming for their job?

Mort O’Sullivan: I think automation is not new. Automate more and more processes is accelerating the pace of change that we see. The biggest drivers of change that we see in banking and retail today is the shift to using internet and mobile channels for more and more transactions. This is, I think, forcing anyone who’s running a brick-and-mortar shop, whether it’s a bank or a retailer, to rethink how to remain relevant in a world of decreasing foot traffic and following transaction volumes. I think the knee-jerk reaction a lot of times is to cut jobs, shrink the number of physical locations, but we’re seeing that there’s a real limit to how effective that can be. A physical presence is still really critical to engaging with customers, comes to acquiring new customers or handling complex transactions.

I think the way that our machines can play a role in this is to allow businesses to use technology to handle the mundane or what we like to call the “everyday transactions” and really free their employees to focus more on engaging with customers to better meet their needs. The result is not necessarily lost jobs, but a different kind of job that actually requires a higher level of skill and provides more value to customers.

Dallas Wells: So really letting the machines do the very repetitive things and making the highest and best use of that human capital that’s already there. You guys, one of the terms that we see in a lot of your content is the term “universal banker” instead of just “teller.” How much do you see employee empowerment really shape and change how you develop and market your products? I know that’s one of the things that’s happening across the industry, is more things being asked of employees. Is that what you’re after here, is helping them move up the scale of difficulty of task there?

Mort O’Sullivan: Yeah. I think that is somewhere along the spectrum of where the branch of the future is going. When we talk about the “universal banker,” what we’re really talking about is enabling an environment where the first employee that a customer engages with can handle all their needs without passing them off to someone else. By automating the process of authenticating and counting and storing currency, we allow banks to hire with customer skills in mind rather than someone who will never discount money. When I think about employee empowerment, it’s really at the core of what ARCA does. We believe that our purpose is to reimagine everyday transactions to enable people to focus on what matters most to them. I think enabling people to focus on what’s really important to them whether that’s getting home to be with their kids 30 minutes earlier, spending more time focusing on the customers, that’s really what drives us to improve.

Dallas Wells: I think there’s an important point there which is that as we see technology like yours make its way into the banking world, there’s been this temptation from banks to say, “Well, now we have this extra capacity so let’s move some of these back office functions out to the branches.” We see branch staff doing things like reconciling general ledger accounts and doing all this kind of system maintenance stuff. It sounds like your view is more that, “Let’s take that extra capacity and turn it around to be customer-facing and really make a better customer experience instead of just more back office stuff.”

Mort O’Sullivan: Yeah, and a good example of that is the recent announcement by Walmart. They just announced an initiative to automate their back office cash processes that will allow them to eliminate 7,000 jobs in the back office across the US, but they’re not letting those people go. Instead, they’re going to re-deploy those back office people into customer-facing roles, often with higher salaries. That’s a win-win, one for the employee, one for the customers, and it gives Walmart and advantage in better efficiency and better customer service.

Dallas Wells: One of the things we hear often and read about a lot when it comes to this whole concept of automation, it has a fairly futuristic ring to it which is not really an adjective that you often associate with bankers. Bankers are, for lots of reasons, very cautious, just the nature of their business. In your view and in your experience, how receptive are bankers to these sort of changes and the idea of automating more and more parts of their business?

Mort O’Sullivan: I think bankers do tend to be conservative, but they’re also quick to adopt technology when it meets a real business need. If you look at ATMs which are one of the most common examples of automation in our society, banks have supported double-digit growth in that space for decades in an effort to reach and retain more customers. With our technology, which is primarily used inside the branch, we see it’s much more widely deployed in Europe today where branches for a long time have tended to be smaller. Banks have looked to leverage technology to have more locations but with fewer staff in each location. In the US, we see a trend toward banks focusing on smaller branch designs going forward and the demand for our technology has grown tremendously in recent years. We see the deployment of cash recyclers in the US increasing at a rate over 30% a year right now.

Dallas Wells: I think that speaks to, and I can’t remember where I saw this, but banks are essentially now technology companies with this financial plumbing that they’re really using to service their customers. As the money moves around back and forth and as they’re facilitating credit, they are first and foremost technology companies and they have to really embrace that to be able to survive in the new world.

Mort O’Sullivan: That’s true, absolutely.

Dallas Wells: You mentioned there a couple things about branches, and of course there’s been lots of talk about the declining utility of the bank branch. You’ve talked about how your technology fits in with that and the role it can play there, but where do you see retail banking heading in the next five or ten years? Do you see big fundamental shifts or is it going to continue to be this piecemeal change that we’ve seen recently?

Mort O’Sullivan: If you look at recent history, you’ve seen the number of bank branches peak in 2008 and it’s been declining by about 2% per year since then in terms of the number of branches in the US. If you look into that a little more closely, most of those cuts have been at the larger banks and banks with 50 branches or fewer have actually been increasing their branch networks over the last eight years. What we’re seeing now is that even the larger banks are slowing down the process of closing branches as they reach a point of diminishing returns. People realize that the physical branch is still one of the core channels for interacting with customers. There’s a lot of talk about the need for smaller branches though that are technology-enabled, and I think our portfolio really fits into that strategy well.

Dallas Wells: You still see those walk into some of those bank branches that were built 80 years ago, and they’re just these giant cavernous places. You can see the bank struggling figuring out what to do with that space. Everything echoes and there’s five employees in a space that was designed for a hundred. I think that that will be the really interesting transition to see, is how those conversions are done.

Mort O’Sullivan: Yeah. Not only will you see traditional branches becoming smaller, you’ll also see more micro-branches popping up that do more than a traditional ATM would but they fit into environments where customers already are like Starbucks or a grocery store. I really think this is where our future products are headed.

Dallas Wells: There’s a fairly obvious automation component when it comes to cash handling, but what about some of the other operations in the bank? Do you see some of those more complex transactions and functions being automated as well?

Mort O’Sullivan: Well, I think cash is definitely the core of what we focus on today. I think that’s because accurately counting and securing cash drives so many of the traditional and resource-heavy processes in both banks and retail stores. We already do more than just cash. ARCA has document processing capabilities for things like bills or checks. We integrate other technologies like NFC and barcode scanning into our platforms to really allow customers to interact with our systems using mobile devices, for example. We’ve got a new product called My Teller. This is a customer-facing self-service device. We can already automate over 80% of the transactions that are performed by traditional tellers, so I would say we already do more than cash and will continue.

Dallas Wells: We’re finally, after years of promise, getting closer and closer to that paperless version of the bank. Thankfully in our world in the commercial lending process, we’re seeing a lot less of the “print something out to sign it and check a box and then scan it back in.” Those really cumbersome processes that just slow everybody down.

Mort O’Sullivan: Yeah.

Dallas Wells: Well Mort, this has been good stuff and good food for thought, I think, for everybody. I think that’ll wrap it up for the episode, but thanks again for taking the time. We really appreciate it.

Mort O’Sullivan: It’s my pleasure.

Dallas Wells: Also, big thanks of course to everyone for listening. I will provide links to Mort and a few resources about ARCA, and a couple things we talked about today in the show notes for this episode. You can always find those at precisionlender.com/podcast. If you like what you’ve been hearing, make sure to subscribe to the feed in iTunes, SoundCloud, or Stitcher. We’d love to get ratings and feedback on any of those platforms. Thanks for tuning in. Until next time, this has been Dallas Wells and you’ve been listening to The Purposeful Banker.

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