Citibank will convert its ATM network to envelope-free machines from ATMs that accept envelope deposits this year, a bank official said.

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Citibank officials believe envelope-free ATMs will help the bank compete much more aggressively with Bank of America Corp. and JPMorgan Chase & Co. for retail banking customers, ATMmarketplace.com has learned.

"Citi is converting ATMs at its 1,000 plus branches to envelope-free image deposit in 2011. In addition, the bank has more than 6,000 ATMs in 7-Eleven stores which have this functionality," a Citibank spokesperson wrote in an email to ATMmarketplace. Citibank operates more than 3,200 ATMs in over 1,000 bank branches, according to the bank's website.

Citibank has ordered 1,100 intelligent deposit ATMs from Nautilus Hyosung America Inc., a subsidiary of Nautilus Hyosung Corp., an ATM manufacturer based in Seoul, South Korea, ATMmarketplace.com has learned.

The New York-based bank either will install new ATMs or upgrade existing to models to accept envelope-free deposits. It is not known if Citibank is buying ATMs from other manufacturers.

In 2008, Citibank purchased an undisclosed number of ATMs from Nautilus Hyosung to upgrade the bank's ATM network. The Nautilus Hyosung ATMs replaced 2,000 ATMs Citi manufactured in-house.

Citibank bought the 7600D, a drive-up ATM, and the 7600T walk-up ATM. Both machines accept bulk notes and take deposits made with envelopes. Nautilus Hyosung officials said, however, the machines could be upgraded to accept envelope-free deposits.

At the time, Citibank officials decided against deploying intelligent deposit ATMs because they did not believe envelope-free machines would appeal to the bank's cardholders.

Bank officials have since changed their minds. "They are somewhat embarrassed. Citibank at one time considered itself a technology leader. Now, they see themselves as a technology laggard," said one executive who knows about the deal.

Bank of America and JPMorgan Chase have completed their deployments of intelligent deposit ATMs. Officials of both banks also have touted the cost benefits of envelope-free ATMs to industry experts.

Intelligent deposit ATMs cut the cost per transaction to 50 cents from $2, said Gil Luria, senior vice president of research for financial technology at Wedbush Securities in Los Angeles. "They also reduce the frequency of armored car pickups for envelopes, which must be transported elsewhere, where someone opens them to scan and clear the contents," Luria said.

In addition, the financial institutions have aired television commercials, telling consumers how much easier it is use intelligent deposit ATMs.

Bank of America operated the nation's largest bank-owned ATM network with 17,929 machines at the end of the third quarter. JPMorgan Chase operated the second-largest bank-owned ATM network with 15,815 machines at the end of the third quarter, which ended September 30.

Luria predicts that the move to intelligent-deposit machines will drive ATM growth next year in the United States and elsewhere in the world.