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Do banks need all those tellers?

By Claes Bell, CFA · Bankrate.com
Friday, December 9, 2011
Posted: 8 am ET

Banks are fond of saying they have to raise fees to make checking profitable. But could cutting costs be a better option?

If you've been watching President Barack Obama's speeches lately, you'll know he has often used the example of ATMs replacing human bank tellers to illustrate how increasing automation has permanently reduced employment in some professions. Problem is, a number of bloggers have been fact-checking that claim and have found it to be false. From Kevin Drum of Mother Jones magazine:

In fact, the number of bank tellers and the number of ATMs has gone up over the past decade. In 1999, American banks employed 1.62 tellers per 1,000 people, and by the peak prerecession year of 2007 that had gone up to 2.02 per 1,000.

So Obama is wrong about this. But what I'm really curious about is something else: What are all these tellers doing?

That last question has been bugging me as well. Like Drum, it seems like every time I go into a bank now, there is either an empty teller window waiting for me, or I have to wait maybe five minutes to see a teller. Now as Drum says, that's great from the customer's point of view. That is, until you consider that banks are desperately trying to figure out a feasible way to raise fees on customers to pay for all these tellers salaries and the upkeep of thousands of square feet of seldom-used space.

I'm not trying to pick on tellers, or say that they're not important, because I believe there will always be a segment of banking customers that prefer to do their transactions through face-to-face interactions. But that share is shrinking every day as bank customers do an increasingly large number of transactions online or at ATMs, and bank staffing should reflect that. My sense is, if you asked consumers whether they'd be willing to pay an extra $10 a month to ensure they'd be in front of a teller within 5 minutes of stepping into a branch, they'd turn you down.

It seems like bank CEOs are starting to get this. As I noted yesterday, Wells Fargo CEO John Stumpf recently acknowledged that cost cuts were going to be needed to make checking accounts profitable in the current regulatory environment.

Right now I'm seeing some uncanny parallels between where retail banking is now and where a lot of the old media companies were a few years ago: still concentrating on reaching customers via analog methods (tellers for banks, newspapers for media companies) and struggling with finding a way to charge for what people are used to getting for free.

They complain, with some justification, that the Durbin amendment and Regulation E have overturned their business model, but I think it's fair to say that what it's actually done in a lot of cases is expose retail banks' underlying weaknesses. After decades of bank consolidation, "lean and mean" may be a better goal for banks than "too big to fail."

What do you think? Are big banks too big? Should they cut costs or boost fees to make their checking accounts profitable?

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11 Comments
Bill
January 17, 2012 at 8:49 pm

Bankrate is a shill for the big banks; keep churning out the puff pieces, Bankrate.

Paul and Eric have the solutions exactly right.

Paul Z
December 16, 2011 at 8:05 pm

GET RID of the fat cats, CEO's assistant's. Assistant to the assistant and so on. Start from the HIGHEST level then if needed, work your way down to the poor hard working slaves, I meant to say tellers. Yes, the ones that can not even take a lunch because they do not want to hire other workers. That next CEO golf game is a must!!!

Ex-Teller
December 10, 2011 at 1:04 am

The few remaining tellers at branches, numbers dwindling due to cost-cutting, are overworked and underpaid, and the stress results in high turnover, which in turn ensures that the dream of providing perfect service never happens. Why? Because we're run too ragged and held to too-high standards by management. Yes, we're a cost center, if you want to put it bluntly. Maybe they should realize tellers are also customer retention measures.

Eric Lindeen
December 09, 2011 at 6:00 pm

Since 2007, not only has the economy changed, but mobile and online usage has significantly increased and alternatives to traditional banks have become more popular. Many bank branches today are minimally staffed, but there are more of them in more convenient locations. That goes back to your point, we’re improving a channel based on 1970’s theory. Consumers aren’t willing to lose their nearby branches, so we need to update the definition of the branch. I wrote a little more about bank branches and customer advocacy in a recent blog.

Cole
December 09, 2011 at 1:50 pm

I don't think lay-offs are the answer... I may be wrong...