Article

Why the ATM Industry should embrace Apple Pay

The potential for interaction between the ATM and the device consumers see as key to their lifestyle — the smartphone — could increase the perceived value of the ATM in their banking routine.

September 25, 2014

by Lee Williamson, research analyst, Cash Management Solutions

There is no doubt that the digital revolution has already struck the banking sector.

According to an American Bankers Association study released in August, 31 percent of survey subjects said that online banking was their preferred channel.

It’s easy to understand why Internet banking would be favored in today’s digital world: It offers consumers the ability to access their accounts and make transactions from home and when on-the-go.

The obvious next step is mobile banking: It offers consumers the ability to bank from the palm of their hand via smartphone, a device that's already become central to their lives.

Alongside this comes a new opportunity to integrate payments and other functions into the financial ecosystem — and this is something the ATM industry should be aiming for.

Many organizations will see the recent release of the iPhone 6 and Apple Watch — complete with NFC and digital wallet — as an attack on cash and ATMs. But for the ATM industry, it should come as a strong guide for the innovation that could occur within the industry.

What guidance can the ATM industry take from iPhone 6 and Apple Pay?

Apple announced that the iPhone 6 (and we can safely presume all future iPhone iterations) will include near field communication technology. This allows the device to communicate with other devices around it, be they other smartphones or completely different devices such as POS systems.

Apple’s primary feature built around this is a digital wallet and payments system, Apple Pay, which lets users to store their debit and credit cards on their iPhone and pay for items in stores using just their phone.

This functionality builds upon preexisting technology used in contactless debit and credit cards, of which there are now more than 250 million in circulation around the world.

While the vast majority of NFC cards today found in the Far East, China and Western Europe, it is expected that their circulation and use in the U.S. will increase dramatically following the complete rollout of EMV chip and PIN.

While NFC has been included in Android devices for the past few years, it has yet to catch on in mobile use and there has been speculation that it would take Apple’s adoption for consumers to begin to view it less as a novelty and more as a useful convenience.

For the ATM industry, the recent unveiling of an NFC-enabled iPhone suggests that contactless will be a key part of the future of transactional banking — and a feature that could offer ATM users great value.

If the direction that Apple is taking is to try and transform the smartphone to also being users’ wallets, then users will expect to be able to interact with ATMs and withdraw cash using these.

Challenges are good for innovation

There are two main uses for plastic cards: 1) as a means of payment; and 2) as a means of withdrawing cash.

The first objective of any mobile wallet, replacing a card as a means of payment, competes with cash as a payment method — there’s no getting around it. However, the second objective helps encourage greater access to cash by giving the user more options for withdrawal at the ATM.

For example, if an ATM is enabled for contactless withdrawals (as a large number of La Caixa ATMs across Spain have been since 2012), a customer who forgets his debit card but has an NFC-enabled smartphone with debit card information uploaded can still get cash.

The ATM industry should embrace this opportunity rather than view it only as a threat. The potential for interaction between the ATM and the device consumers see as key to their lifestyle could increase the perceived value of the ATM in their banking routine.

Apple Pay might increase awareness of other payment methods competing with cash, but it won’t change the underlying value of what cash provides — choice.

The ATM industry now needs to innovate and embrace the opportunity (and challenge) this technology brings, introducing new features and the potential for a stronger role in the future of banking.