What Is Off-Premise Banking?

The term off-premise banking refers to any bank location that is not part of its primary branch network. They are often located in areas where customers might need quick access to cash, such as airports, shopping centers, and convenience stores.

Typically, off-premise banking facilities do not have human tellers, but they are instead equipped with automated teller machines (ATMs).

Key Takeaways

  • Off-premise banking refers to the banking locations that are not part of a bank's formal branch network.
  • They are typically found at retail establishments where customers may need to withdraw cash.
  • Off-premise banking locations are generally run without any human staff, instead relying on ATMs.

Understanding Off-Premise Banking

Off-premise banking locations are a way for banks to maintain a widespread network of service locations for their customers without investing in the significant startup, payroll, and lease expenses associated with a full branch. They are generally found close to stores and other locations where customers may need to withdraw cash.

Although off-premise banking locations do not offer the full range of services provided by in-person tellers, such as mortgage loans, personal loans, or investment products, they do fulfill basic functions such as cash deposits and withdrawals. In some cases, off-premise banking ATMs can also accommodate check deposits as well.

From the bank's perspective, off-premise banking locations can be a profitable investment over the long run. This is because they tend to have a superior cost-to-transaction ratio as compared to traditional bank locations staffed by bank tellers and other personnel.

In fact, the costs of maintaining an off-premise banking location are generally much lower than the costs of maintaining a branch or even a mini-branch staffed by a single teller. And as customers increasingly conduct transactions using online or mobile banking platforms, the need for full-service branches has gradually declined.

Another advantage of off-premise banking is that ATM machines can be used by customers of several banks, therefore creating a source of revenue from new customers. Although the usage fees of ATMs may appear small at first glance, they can amount to significant sums when charged across a wide network of off-premise locations. In 2016, for example, the total amount of ATM fees collected by JPMorgan Chase & Co (JPM), Wells Fargo (WFC), and Bank of America (BAC) exceeded $1.1 billion.

Real World Example of Off-Premise Banking

To illustrate, suppose that Bank A has its main headquarters in Pittsburgh. Bank A has about 25 full-service branches that offer customers access to tellers and bank managers, loan officers, and other customer service representatives. These branches also offer a full range of banking products, from demand deposit accounts to mortgages and auto loans.

Bank A wants to make it more convenient for customers to withdraw and deposit money, so it sets up ATMs at local shopping malls, department stores, gas stations, grocery stores, parking garages, and other locations. It establishes a network of about 100 ATMs in the local area that customers can use to withdraw and, in some cases, deposit funds.

These ATMs do not provide access to human teller services, and they are in addition to ATMs that may be located on the premises of Bank A's branches. These are off-premise banking locations, and the transactions that take place at them are off-premise transactions.