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Breaking the bank -- of cash habit

Few things seem as counterintuitive as a financial institution that does not give cash to customers at its branches. Yet the policy works well for a California credit union, which cites big savings on cash handling costs as well as improved customer service.

October 5, 2004

Few things seem as counterintuitive as a financial institution that does not give cash to customers at its branches.

Yet the policy works well for California-based Honda Federal Credit Union, which cites big savings on cash handling costs as well as improved customer service.

Branches are not entirely cashless, of course. Customers can make deposits -- but tellers do not dispense cash to them in return.

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Honda FCU has been cashless since it first introduced checking accounts to members in 1986, said Jim Updike, president of the $370 million FI. Today, some 76 percent of its 46,000 members have such accounts.

Clean slate

Because Honda FCU was "not burdened with legacy policies and procedures," Updike said it was not difficult to ask members to visit ATMs for their cash needs. "If we had started with traditional accounts for our members and then tried to take them away, it probably would have been ugly.

"But we were able to explain to them, 'You can have cash in the branches if you want, but it's going to add a tremendous amount of cost.' By and large, members didn't object to the tradeoff."

Interestingly, several large FIs in the United States and elsewhere are now piloting programs in which customers entering branches for simple transactions -- including cash withdrawals -- are directed by a "concierge" to ATMs rather than to teller lines.

ATM impact
 
Free access to "lots of ATMs" is a key to making Honda FCU's policy work, Updike added.

Honda FCU supplements its 32 ATMs in four states -- many of them located at Honda plants where members work -- with ATMs in the Co-Op Network and Alliance One, both of which offer surcharge-free ATMs to cardholders of their member FIs. Co-Op Network has 19,000 ATMs in the United States and Canada, and Alliance One has 3,200 ATMs in 38 states.

The FI works to make its machines as accessible as possible to members, Updike said. Members who forget ATM cards are typically issued temporary ones on the spot. They are also usually allowed to override daily withdrawal limits if they need extra cash, a policy that became easier to implement when Honda FCU recently began driving its own ATMs via a Mosaic Software switch.

Because Honda FCU is a single-sponsor credit union, with membership open only to Honda employees and their family members, the FI is "liberal when it comes to placing holds" on members' funds, Updike said. "When they make a deposit at the ATM, they can immediately withdraw those funds."

Not surprisingly, volumes are high -- 250,000 total monthly transactions -- at the 32 Honda FCU ATMs. That number would be more common for FIs twice the size of Honda FCU, Updike said.

Staying in contact

Updike believes the cashless policy helps his FI offer better interaction with its members, using fewer branch employees. "Because they don't have to concentrate on handling routine transactions, they can concentrate on better customer service instead," he said.

Honda FCU receives high marks from "mystery shoppers" it contracts with to visit its branches every quarter, Updike said. "We were number one among the credit unions (the company) visited last year."

Updike has some concerns that Honda FCU may miss some opportunities for cross-selling products like loans and CDs to its members because of their relatively infrequent visits to branches.

However, the FI plans to counteract this impact by linking its member database and ATMs and presenting targeting marketing offers to its members at machines, a process Updike said will be facilitated by the Mosaic Software switch.