The Renaissance of the ATM

 

Components

Jane Adler

The 40-year-old automated teller machine is hardly thought of as a springboard for innovation. Yet new technology is giving rise to a raft of services that promise to bring renewed purpose to the humble bank machine.

 

Now 40 years old, the ATM would seem to be headed for a mid-life crisis. The U.S. market is saturated with cash-dispensing machines. Makers and distributors of ATMs are focused on replacing old units instead of finding locations for new machines because the best spots have already been taken.

At the same time, the young generation of tech-savvy bank customers isn’t afraid to try something like mobile payments, which could mean less cash and fewer visits to the ATM.

Despite these challenges, ATMs are getting a new lease on life lately. ATMs with fresh functions are being rolled out. New machines offer sophisticated automatic deposit features. Customers can deposit cash or checks without an envelope, get a receipt, and have the money available the next day.

Other new machines are being planned with dazzling graphics, teller-type services, and video connections to real tellers in a customer-service center.

The machines themselves are changing too. Some of the newest ATMs are slim versions of their beefy older brothers, with sleek touchscreens and the ability to handle a high volume of transactions.

“People have been predicting ATMs would be obsolete in five years for the last 30 years,” says Sam Ditzion, chief executive at consulting firm Tremont Capital Group, Boston. “But ATMs aren’t going away.”

A Popular Channel

Currently, there are about 401,500 ATMs in the United States, according to Tremont. There are about 1.75 million machines worldwide. About half of the ATMs in the U.S. are operated by financial institutions. The other half are operated by independent sales organizations. Growth of ATM deployment started to level off around 2002, according to a Tremont report.

Consumers haven’t abandoned cash. Quite the contrary. According to the U.S. Treasury Department, about $978 billion in cash was in circulation in 2010, compared to about $829 billion in 2007.

Meanwhile, ATM cash withdrawals are on the upswing. A January 2011 report by the consulting firm Aite Group LLC says ATM transaction volume grew 0.8% annually between 2006 and 2009, but dollar volume of ATM withdrawals increased by nearly 3% a year.

A poor economy and the credit crunch probably pushed more consumers to use cash, experts say. And, interestingly, the Aite study says young adults are using more cash than they did two years ago, while older adults are using less cash. Still, the Aite report predicts that consumers’ use of cash will decline by 4% a year from 2010 to 2015.

While that may not be good news for ATMs, a recent survey by IDC Financial Insights shows that the use of all banking channels has grown except for the call center. The ATM ranked second to a branch visit in usage rate.

The study also found that the Internet and ATMs were the most frequently used channels over the course of a month. “From the bank’s standpoint, they can’t afford to cut back on any of the channels,” says Aaron McPherson, practice director for financial services in the payments practice at IDC Financial Insights, Framingham., Mass.

Another factor that could positively impact ATMs is the so-called Durbin Amendment that limits debit-interchange fees. The Amendment is included in the Dodd-Frank Wall Street Reform and Consumer Protection Act that was signed into law by President Obama last summer. The comment period on the Amendment recently ended. The final rules are expected to be announced in April by the Federal Reserve Board.

Some say the amendment could encourage cash use if merchants can offer discounts to consumers for paying with cash. Others wonder whether financial institutions might raise ATM surcharge fees to make up for lost debit-interchange revenue. It is also unclear what the impact might be on prepaid cards used at ATMs.

‘The Next Big Thing’

Still, no factor is boosting ATMs more than a recent—and surprising—renaissance in technology. Take the advent of check imaging. With imaging technology, a consumer can feed checks and cash directly into an ATM and into their account. There’s no envelope to fill out. Funds deposited up to 10 p.m. are usually available the next day.

Consumers also get a receipt and confirmation of the transaction. “These machines make it easy to deposit checks and cash,” says Robert Meara, a senior analyst at consulting firm Celent LLC.

In 2010, about 40% of all U.S. deposit-taking ATMs owned by banks, or about 54,000 machines, had some kind of imaging or intelligent deposit capability, according to Celent research. This number is expected to grow by 50% by 2012.

So-called intelligent deposit has been slowly rolling out over the last two years. NCR Corp. offers an ATM with a deposit function that accepts cash and checks in a single slot. “We have mixed-media capability,” says Bob Tramontano, vice president of marketing at Atlanta-based NCR.

Consumers receive a receipt that lists deposits along with a photo of any deposited checks. NCR says its bank clients that have deployed ATMs with intelligent deposit solutions report a 50% to 100% increase in ATM deposits year-to-year. (No actual numbers were available.)

In October, NCR announced a Scalable Deposit Module (SDM) technology that makes no-envelope deposits twice as fast as the previous deposit process. NCR estimates that a typical deposit of five bank notes and two checks takes less than 60 seconds to complete. The company said in January that it would install the SDM solution at hundreds of JPMorgan Chase ATM locations in 2011.

Intelligent deposit offers financial institutions big operational savings too, according to John Deignan, vice president and chief marketing officer at Diebold Inc., which makes intelligent-deposit ATMs. With the new technology, envelopes don’t have to be opened by staff and entered into the system. This frees time at the branch for tellers to concentrate on customer service and sales. “There’s an enormous opportunity there,” says Deignan.

While many big banks have already upgraded their ATMs to offer intelligent deposits, Deignan notes that regional banks are now adopting the technology. “We have reached the tipping point,” he says.

ATMs with deposit automation are most likely to be deployed by financial institutions, not retailers, says Rick Updyke, president of the U.S. business group at Cardtronics Inc., Houston. The company operates 36,000 ATMs in the U.S., U.K., Mexico, and the Caribbean. Customers include seven of the top 10 retailers and eight of the top 15 financial institutions

Advanced-function machines are expensive, he notes. The company has about 2,200 of the machines. “We continue to evaluate the potential for more advanced-function machines in our portfolio,” says Updyke.

In an effort to push more bank-branded machines into retail locations, Cardtronics and NCR recently unveiled a new compact ATM with the power of a larger machine, but suited for supermarkets, office complexes, convenience stores, and other non-bank locations.

Daryl Cornell, president and chief executive at Triton Systems of Delaware, an ATM maker, says, “Everybody is looking for the next big thing.” But for an ISO and its retail partners, the real goal is to “get a cheap machine, keep it running, and drive transactions.”

A new product Cornell finds promising is person-to-person payment. A parent, say, would be able to transfer money to a child at college via the ATM. The product also shows promise for those without bank accounts. A recent report says the Arab African International Bank in Egypt offers person-to-person transfers to non-customers through its ATMs.

Eyes on the Cash

Lately, ATM providers are trying to find ways to link mobile applications and the ATM. One idea is to offer a way to “pre-stage” ATM transactions on a smart phone. The consumer would sign on to his account, request an ATM withdrawal, and enter a security code to authenticate the request. When the customer arrived at the ATM, he would hit a single button to receive the cash.

“The ATM is the physical touch point to complete the transaction,” says Updyke at Cardtronics. “We are in a great place to play in the evolution of mobile payments.”

Cardtronics currently offers an iPhone application that locates ATMs in the company’s AllPoint surcharge-free network. About 85,000 users have downloaded the app for the Cardtronics channel. About 275,000 use the application under a bank-branded channel.

Still, the revolution in mobile payments could also hurt ATMs. A rival to intelligent deposit at the ATM is remote deposit capture via the smart phone. With this technology, users log on to a banking application on their phone. They take a picture with the phone of the front and the back of the check made out to them. After a few more clicks the check is deposited into the selected account and the user receives an e-mail to confirm the transaction.

A recent Chase TV commercial shows a newlywed couple happily taking pictures of their gift checks and depositing the checks via their cell phone.

Some of the most interesting ATM experiments are taking place overseas. Cardtronics recently partnered with iDesign in the U.K. to place ads on ATMs. Ads are available at three points: as the consumer approaches the machine; the so-called “attract loop;” when the consumer hits the touchscreen to start the transaction; and as the transaction is being processed.

A store coupon can be printed on the bank receipt. Pizza Hut, Vodafone, and KFC have all advertised on the machines.

“Advertisers are looking for ways to get eyeballs,” notes Updyke. “People don’t look away when they’re waiting for their cash.”

So far, the program has had success selling ads on the machines. However, it’s too early to tell if the ads have boosted store traffic, Updyke says.

ATMs ‘Warm up’

Another company experimenting overseas is Payment Alliance International, an ISO based in Louisville, Ky. The company has more than 52,000 ATMs in retail locations, mostly in the U.S. The company’s machines dispense cash, but plans are under way to upgrade machines with more touchscreens.

“That would give us the ability to add other services, such as couponing, merchandising, and content management,” says Donna Embry, senior vice president of strategic development at Payment Alliance.

A big change will arrive with EMV technology, Embry notes. EMV (Europay, MasterCard, and Visa) is the global security card standard using a computer chip instead of a magnetic stripe. The technology is prominent overseas but not in the United States.

Payment Alliance’s ATMs in Canada have already been converted to the EMV standard. “We are well positioned when EMV hits the U.S.,” says Embry. She believes EMV technology will expand the ability of the machines to perform tasks such as bill pay, prepaid card issuance, and money transfers.

In Spain, Banco Bilbao Vizcaya Argentaria and NCR announced plans in January to roll out a new ATM called ABIL. The sleek, streamlined design changes the traditional look and feel of the ATM. The machine has a touchscreen and sits perpendicular to the wall. The screen uses animation and graphics to guide users through simple as well as complex transactions.

“You will see ATMs warm up,” notes NCR’s Tramontano. “They will have more visual appeal. They will speak to you.”

Another innovation on the horizon is an ATM that uses so-called “cloud computing.” It would link display terminals via the Internet to operating systems located elsewhere, instead of a computer that resides inside the machine.

“Remote computing opens up the possibility of offering more services,” says Lewis Kubitz, head of business development at Lexcel Solutions Inc., a Scottsdale, Ariz.-based testing company for payment processors. He foresees a hybrid ATM/bank kiosk that offers traditional banking services, plus cash dispensing, bill pay, and loyalty points, say, if the machine were located in a store.

The ATM industry may not have long to wait to see the next innovation. “These machines are on the verge of being produced,” says Kubitz.