It’s Back to a Service-Oriented Future for Bank ATMs

Banks are abandoning their dreams of ATMs generating profits and instead returning to their original focus of using the machines for customer service, according to new findings from First Annapolis Consulting Inc.

Linthicum, Md.-based First Annapolis spoke with executives from the nation’s 10 largest banks by assets about their ATM strategies, according to manager Melissa Fox. The banks collectively deploy 67,500 ATMs, about a third of all bank-owned U.S. ATMs. Six of the 10 banks told First Annapolis that the primary focus of their ATM channel was on customer service, not profits. Three more banks are in the process of shifting to a customer-service orientation while only one remains committed to a maximum-revenue, minimum-cost ATM strategy.

Fox says her findings are based on telephone conversations with bankers and are not part a formal study. But considering the size of the banks queried—Bank of America Corp., Wells Fargo & Co., JPMorgan Chase & Co., Citigroup Inc., U.S. Bancorp and others—they give a good indication of how leading American bankers now view ATMs. The coming of ATM surcharging in 1996 was a boon for ATM deployments, with many banks seeking fee revenues from new off-premise ATMs and even machines placed outside their branch footprints. Surcharging also opened the doors for the growth of ATM independent sales organizations that mostly worked with retailers.

In recent years, however, ATMs have encountered headwinds in the form of consumer resistance to fees; saturation, at least of the best locations; and the secular trend away from cash. But ATMs, along with other channels such as call centers remain important for banks. “That’s sort of the analogy—nobody expects the call center to make money, but they do that for customer service,” says Fox.

The leading banks deploy an average of 2.1 ATMs per branch, and as a group deploy 68% of their ATMs on-premise. The range of on-premise deployments among the 10 varied from 46% to 99%.

The move away from an up-front focus on fee generation to the more-fuzzy world of customer service makes quantifying ATMs’ profit-and-loss contribution harder because so-called on-us transactions from bank customers usually don’t generate revenue. But ATMs can help cut teller costs and other expenses, Fox notes. Banks also are sparing themselves capital expenses by striking up deals with ATM ISOs to put their brands on ISO-owned machines. Five of the 10 banks reported expanding their relationships with ATM ISOs, with the number of branded ATMs ranging from fewer than 100 to several thousand.

The banks reported that 44% of their ATMs came from Diebold Inc., 36% from NCR Corp., 17% from Germany-based Wincor Nixdorf and 3% from Nautilus Hyosung. The latter company traditionally served the retail ATM market but lately has been making moves into the financial-institution sector, especially through a deal with Citi, according to Fox.

Regarding technology, First Annapolis found that 85% of the leading banks’ ATMs now run on operating systems from Microsoft Corp., an indication that the move away from IBM Corp.’s once-dominant OS/2 system is in its late stages. Windows enables deployers to offer more features than OS/2, which IBM no longer supports, display better graphics, and makes more software choices possible. Seven of the top 10 banks operate single, multi-vendor software platforms. Some 36% of the ATMs use proprietary software, 36% use NCR’s Aptra application and 4% legacy NRC software, and 16% use Diebold applications. The remaining 8% run other applications. “With the migration and open software, it opens the door to put another’s provider’s software on another manufacturer’s hardware,” says Fox.

The main new ATM services banks plan to offer are imaging of checks and cash for deposits and the related function of accepting notes in bulk. Four of the 10 banks now use imaging ATMs while three plan to add them. Three offer bulk note acceptance, one is rolling it out on a limited basis, and another one plans a future rollout.

Banks are less interested in offering ATM services not directly linked to their own accounts. Only two of the 10 surveyed banks offer cell-phone top-ups through ATMs, two sell stamps and one is testing sales, and one sells coupons. Two banks once sold stamps through their ATMs but discontinued the service, and none sells event tickets or offers prepaid card reloads. “For most banks, alternative media and other non-banking features are not priorities,” the report says.