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How the ATM revolutionized retail banking: Part II

Blogger Bernardo Batiz-Lazo traces the history of Diebold and its contributions to the ATM industry.

June 10, 2013

[Editor's note: Recently ATM Marketplace introduced new blogger Bernardo Bátiz-Lazo with his first post, "How the ATM revolutionized retail banking." Several readers commented on the absence from the article of Diebold Inc. So, as a follow-up, Bátiz-Lazo has written this account of the company's contributions to the rise of the ATM.]

By Bernardo Bátiz-Lazo

In a recent piece, ATM Marketplace reported on the disappointing Q1 performance of Diebold, a company with a long pedigree in our industry. Although unfortunate, it is but a small dip compared to the company's history of performance.

What follows presents a broad-stroke review of this most interesting history. I am sure a thousand-word article is not enough to do it justice and I will appreciate any comments here or privately that help to fill in the gaps.

The roots of the company go back to Cincinnati, Ohio, where Diebold was established before relocating to Canton, Ohio, in 1871 to take advantage of the available workforce and resources.

Like England-based Chubb & Son Lock and Safe Co., another longstanding key player in the history of the cash machine, Diebold safes, office automation and security equipment brought them into regular contact with retail banks. Indeed, as close competitors, it was not surprising that in July 1970, Diebold's Daniel Maggin and Ray Koontz approached Chubb CEO William E. Randall with a proposal.

Diebold considered the Chubb machine a better answer to the Docutel system — another cash machine offering of the day. Wanting to get into the U.S. market, Chubb senior management believed that an association with Diebold offered better prospects than going it alone against the likes of IBM, NCR, Burroughs and Mosler.

As a result of conversations between the two companies, Diebold entered into cash dispensing as a distributor of the Chubb MD series machines to U.S. banks. Tom Graef, a developer for Diebold in that era remembers:

"The Chubb units were never really suitable for the U.S. market. They didn't really meet customer expectations based on repeated failures and limited availability of parts. So not surprisingly, sales never really picked up."

One deployment of the TABS 500 was as a through-the-wall, drive-up ATM, shown in 1973. (courtesy Diebold Inc.)

The need for a much more robust machine became evident to Diebold. This led to the development and eventual launch of its own Total Automatic Banking System 500 in 1973.

 Developed by a team that included Robert W. Clark, Phillip C. Dolsen, Donald E. Kinker and the Diebold development staff, this was a "complete teller" concept. The machine had a depository mechanism and a selection of cash withdrawal amounts (the Chubb machine had a fixed amount).

TAB also had an internal MICR-printer to issue balance documents (to help reconcile offline transactions to the mainframe at the end of the day), and it could be fitted with a telephone and CCTV camera for two-way video on the screen (available during banking hours to help customers with transactions).

It is important to note here that while early devices such as the TAB 500 automated cash dispensing to consumers, they still required manual back-office work by banks to process transaction slips. Indeed, as Tom Harper and I argued in "Cash Box" with the exception of the IBM system, most cash machines in the 1970s operated offline.

For some devices it was possible to create a record on the bank's central computer, but only after the transaction had ended or after hours (with the help of communication devices such as the IBM 3981). Hence the establishment of online, real-time communication was the next goal in transforming the cash machine into the automated teller machine we know today.

Diebold developed the prototype for a video ATM in the 1970s (courtesy Diebold Inc.)

In this regard, Diebold's continued progress in the U.S. market included the development of both online cash machine systems for transaction processing and cash dispensers with secure cassette-based containers. Both of these were important elements in the making of ATM systems.

Diebold was the first company to offer a solution for off-premises cash dispensing, allowing banks to install their machines in retail stores or free-standing locations such as parking lots. The company was also an innovator in the development of ATMs for drive-up banking and programmable buttons alongside the screen.

In 1984, IBM introduced the 4731 and related IBM 4736 series of cash machines. But they were a fiasco because they were incompatible with previous models — particularly the otherwise successful and widely deployed IBM 3624 cash machine.

IBM sold only a handful of 4731 machines and banks began to consider other vendors; especially NCR, who built market share using software that emulated the IBM.

IBM successfully approached Diebold to form a joint venture in 1990, called InterBold, aimed at leveraging the self-service technology of Diebold with the global distribution system of IBM. Seven years later and despite growing sales, the joint venture ended as Diebold had not achieved the breakthrough it hoped for in the international market.

The partnership did, however, give Diebold the international presence to build a global business on its own. For IBM, the joint venture failed to generate expected returns, partly as developments elsewhere had invalidated its strategy to link ATMs to expensive mainframes.

Coincidentally, in the same year that it ended its JV with IBM, Diebold became a $1 billion company, having used the IBM partnership as a springboard to expand its international success based on global recognition of the convenience, security and positive user experience the company had demonstrated in the United States.

Bernardo Bátiz-Lazo is Departmental Chair in Business History and Bank Management at Bangor University in North Wales and a Fellow of the Royal Historical Society of Great Britain. He co-authored "Cash Box: The invention and globalization of the ATM," with Tom Harper, president of Networld Media Group. 

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photo: "Old-school ATM" by renaissancechambara

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