Article

2004: The year in ATMs

Optimism is a quality that has been in relatively short supply in the ATM industry over the past few years, with many companies feeling the impact of a tepid overall economy. But 2004 yielded a brighter outlook, with vendors issuing rosier financial forecasts and more deployers dabbling in advanced ATM technology.

January 4, 2005

Optimism is a quality that has been in relatively short supply in the ATM industry over the past few years, with many companies feeling the impact of a tepid overall economy. But 2004 yielded a brighter outlook, with vendors issuing rosier financial forecasts and more deployers dabbling in advanced ATM technology.

ATM manufacturersDiebold, NCRandWincor Nixdorfall posted better-than-expected financial results and issued strong earnings estimates for 2005. Diebold, for instance, predicts its earnings per share will grow 18 to 20 percent in the coming year.

Their results were buoyed by financial institutions upgrading and/or replacing ATMs to meet network requirements for Triple DES, a trend that should continue throughout 2005.

Trying out technology

Deployers, particularly financial institutions, used the Triple DES mandate as an impetus to migrate at least some of their ATMs from OS/2 to Microsoft Windows-based platforms. The TowerGroup consulting firm estimated that large FIs would spend $1.8 billion on their ATM programs in 2004, 12 percent more than they did in 2003.

Jerry Silva, TowerGroup's senior analyst of Delivery Channels, said that 70 percent of ATMs manufactured by vendors serving the FI market would ship with Windows as the default operating system, a number that has risen dramatically from just 10 percent of shipments with Windows in 2001.

"We're getting to the point in the replacement cycle where it makes sense for (FIs) to get machines with new technology," Silva said.

While not all deployers are using the new technology to introduce new transactions, at least some are dabbling with advanced functionality.

J.P.Morgan Chase is outfitting its entire network with browser-based capabilities and calling them eATMs. The new features include allowing customers to personalize transactions with preferred withdrawal amounts, see and print out copies of cancelled checks, order new checks and, in some cases, print out statements.

U.S. Bank is testing a Windows-based ATM it's calling Prodigy. Like the eATMs, it offers customers the ability to personalize transactions. It also accepts envelope-free deposits and produces receipts with images of deposited checks. In the final months of 2004, U.S. Bank installed 49 of the machines in Minneapolis, Cincinnati, Phoenix and Portland, Ore.; it will roll out more in 2005.

U.S. Bank also introduced prepaid cellular phone top-ups at some 4,000 of its ATMs in November, on a legacy OS/2 platform. Though the service has been popular in other countries for some time, U.S. Bank became the first FI to offer it in the States.

James Anderson, vice president of Payment Services for Boston Communications Group, U.S. Bank's partner in offering top-ups, believes the bank's brand will drive adoption of top-ups. He also thinks other deployers will follow U.S. Bank's lead. "A lot of people generally want to go second, so we're pretty optimistic."

Revamping the infrastructure

A number of vendors and deployers made strides in increasing industry acceptance of a message protocol called the Interactive Financial eXchange (IFX), which will make it easier to introduce new ATM transactions and to swap transactions with other channels such as teller stations, point-of-sale terminals and voice response systems. Nebraska's First National Bank of Omaha, partnering withACI Worldwideand NCR, plans to roll out its first "live" IFX ATMs in 2005's first quarter.

U.S. Bank, the first financial institution in the United States to offer prepaid cellular phone top-ups at its ATMs, is promoting the service with ads like these.

Those two vendors, along with Diebold, Brixlogic,Phoenix Interactiveand Wincor Nixdorf, ran a production-quality system utilizing the latest version of the IFX message format at last month's Retail Delivery Conference & Expo. All of the ATMs involved in the demonstration communicated using a single IFX device handler, rather than the usual multiple proprietary device handlers.

Interest in wireless telecommunications grew among both FIs and independent ATM operators. Transaction processorsColumbus Data Services,Genpass, Lynk Systems and Metavante all announced support for the emerging Code Division Multiple Access (CDMA) technology, which provides faster and less expensive ATM transactions than traditional landlines.

Access to Money, aTritondistributor, is testing CDMA technology for Lynk, which recently certified it. Triton also entered into an agreement with Verizon Wireless under which the wireless provider will support a CDMA option on Triton ATMs. The option will be offered on all new ATMs; an upgrade will be available for already installed machines currently using dial-up. 

Ventus Networksannounced contracts to provide cellular ATM service for several FIs via its virtual private network. In September, the company partnered with Diebold to provide four wireless ATMs at the 35th Ryder Cup Matches.

With the October passage of Check 21, interest in image-based check deposits also grew. Fiserv began testing the transmission of check images and creation of substitute checks in an October pilot with the Endpoint Exchange Network. The first two participants were Marshall & Ilsley Bank and Intrust Bank, which settled transactions through the National Clearing House (NCHA).

Under the pilot, check images captured by Intrust are routed through the Endpoint Exchange Network; checks payable on non-Endpoint Exchange participants are forwarded to Fiserv, which routes them into its national image distribution and substitute-check print network. Fiserv then prints substitute checks and presents them on behalf of M&I Bank. The transactions are then settled by NCHA through Federal Reserve Net Settlement Services.

Also in October, WSFS Bank subsidiaryCash Connectbegan offering image-based, envelope-free deposits at ATMs located at the University of Delaware. In a news release, WSFS said student acceptance of the service was "overwhelming."

Due to continued concerns over fraudsters harvesting card data with skimming devices at ATMs, several vendors introduced anti-skimming technology. The new technology typically utilizes sensors in card readers that detect skimming devices and can shut down ATMs if desired. In the UK, Barclays earlier this month announced plans to outfit nearly 200 of its ATMs, including those in busy train stations, with such devices following a successful pilot.

The Global ATM Security Alliance (GASA), founded by the ATM Industry Association in 2003, had a busy year in 2004. It introduced a global ATM crime database called Cognito, designed to help keep its members apprised of developing security trends, and published several manuals intended to be part of a comprehensive series on ATM security.

Buyers' and sellers' market

Investment in the ATM sector appeared healthy. Wincor Nixdorf raised €327 million (U.S. $446 million) in May. While the stock issue price of €41 (U.S. $49) was at the low end of the expected range of 41 to 50 euros, Wincor Nixdorf Chairman Karl-Heinz Stiller said that "under the current conditions, the final issue price is appropriate and offers potential for attractive development in the future."

Other financial services companies fared well raising capital, either through investment or acquisition.TNS(Transaction Network Services) raised $79.6 million in an initial public offering in March, selling 4.42 million shares at $18 each. The Royal Bank of Scotland purchased third-party transaction processor Lynk Systems for $525 million in August.

Metavante Corp. in May agreed to pay $610 million in cash for the NYCE network. NYCE had been majority owned by First Data until it agreed to divest NYCE to earn Department of Justice approval to purchase Concord EFS in 2003. According to the Wall Street Journal, 30 companies expressed interest in buying NYCE.

Cardtronics, the largest ISO in the United States, in March announced plans to raise up to $115 million in an initial public offering. A few other U.S. independent deployers, most notably TRM Corp. andNetBank Payment Systems, are publicly owned -- but the strategy is one that hasn't been popular for ISOs in the States.

The largest ISOs continued to get larger, with Cardtronics doubling its ATM network to 25,000 machines in June with its acquisition of E*Trade Access' 13,200 ATM contracts for $106 million. TRM purchased 17,000 ATM contracts fromeFunds Corp.for $150 million in November, making it the largest international ATM operator, with some 22,000 ATMs in the U.S., Canada and the UK.

Cardtronics in July closed a new $180 million credit facility, to pay for the E*Trade purchase and to repay existing debt.

American Express exited the ATM business with its sale of some 5,400 ATMs located in 7-Eleven stores to 7-Eleven for approximately $44 million in August. Amex never seemed to develop a workable business model for its ATMs; it began divesting machines within a year of its purchase of 6,500 ATMs from EDS in 2000.

Acquisitions among large FIs also swelled ATM fleets. A merger of Bank of America and FleetBoston Financial created a combined network of 16,500 ATMs. The J.P. Morgan Chase/Bank One deal spawned a network of some 6,000 machines. 

Independent ATMs are "quite a sexy little sector" in less mature ATM markets such as the UK, said Ron Delnevo, managing director of Bank Machine Ltd., an ATM business created when transaction processor Euronet sold its 745 ATM contracts to Bridgepoint Capital Limited for $29.6 million in early 2003.

One of the UK's largest independents, Moneybox, listed its stock on the Alternative Investment Market (AIM) in March, raising £21.8 million (U.S. $40 million). It joined another large British independent, Cardpoint, which listed on the AIM in 2002. Moneybox shares fell later in the year when the company said its earnings would be £500,000 (U.S. $971,000) below analysts' estimates of £3.4 million (U.S. $6.6 million).

Several international financial institutions purchased independent ATM operators. The Royal Bank of Scotland paid a reported $143 million for Hanco ATM Systems Limited, one of the UK's largest operators with some 6,000 machines under contract, in July. In Ireland, Ulster Bank in March paid an undisclosed price for Easycash, a company it had earlier partnered with on a rollout of ATMs at retail sites.

Oh, that old thing?

The surcharge, after years of being paid more or less willingly by ATM users, is back in the spotlight.

In the UK, after months of brewing controversy, MPs have launched an investigation of machines that assess user fees, about 40 percent of the country's 55,300 ATMs, most of them operated by independents. MPs are expected to question consumer groups, ATM operators, the Link network and executives of the country's Post Office, which has contracts with operators that collect fees at some 1,400 ATMs located in its branches.

The Allpoint Network, which includes 30,000 ATMs managed by ISOs Cardtronics and NetBank Payment Systems, garnered increased interest from financial institutions in 2004, as did competitors like the MoneyPass network.

In Illinois, Lt. Gov. Pat Quinn revived the "double dipping" term coined by former Sen. Alphonse D'Amato in the late 1990s to describe the practice of FIs collecting ATM user fees in addition to the interchange they collect from other FIs when their customers use machines. According to a report that aired on a Chicago television station, Quinn said banks doing business in the state should stop charging "artificial" ATM fees.

Publix Super Markets, one of the last U.S. ATM operators to offer widespread free access to its machines, said it received few customer complaints when it began assessing a $1 user fee at Presto! ATMs located at its stores. According to a report in the Lakeland (Fla.) Ledger, a Publix spokesperson said the chain "made a tough decision" to begin collecting fees.

In the U.S., surcharge-free networks, comprised of deployers who offer access to their ATMs to the customers of FIs willing to pay a fee for the privilege, experienced an upswing in 2004.

In its first year of operation, the MoneyPass network, operated by transaction processor Genpass, signed FIs with a combined total of more than 6 million cardholders, including marquee client Citibank. In November, MoneyPass established a reciprocal alliance with CU Here, a surcharge-free network run by Credit Union 24. The combined networks include some 11,000 ATMs.

The Allpoint network added some 6,000 ATMs operated by NetBank Payment Systems, bringing its nationwide total number of machines to 30,000. Like MoneyPass, it signed a number of new FI members in 2004, including the $4 billion Amalgamated Bank of New York. It also garnered agreements with large FIs, including Bank One and J.P. Morgan Chase, which offered access to the network to holders of their prepaid cards.

The transaction electric

Overall ATM volumes appeared to be flattening, based on numbers contained in the 2005 edition of the EFT Data Book published by ATM&Debit News. Monthly per-ATM volumes fell from 2,432 in March of 2003 to 2,400 in March of 2004. The number of ATMs deployed grew 3.2 percent, to 383,000 in 2004 from 371,000 in 2003.

On a more positive note, however, several studies confirmed Americans' growing acceptance of electronic transactions.

According to a Federal Reserve study released earlier this month, Americans made 44.5 billion electronic payment transactions in 2003, up from 30.6 billion electronic transactions in 2000. Americans wrote 36.7 billion checks in 2003, down from 41.9 billion in 2000.

"At current growth rates, credit cards and debit cards will both surpass checks in terms of total annual transactions in 2007," said Richard Oliver, senior vice president of the Federal Reserve Bank of Atlanta and the Federal Reserve Banks' product manager for retail payments.

Mirroring the Fed's findings, the Packaged Facts consulting firm, in its Third-Party Processing in North America report, predicted that electronic payments would grow from 33 percent of consumer payments in 2002 to 43 percent by 2007.

Dove Consulting and the American Bankers Association reported that, for the first time, electronic payments exceeded cash and checks as Americans' preferred payment method for in-store purchases in 2003/2004.

Cash and checks accounted for 47 percent of in-store purchases, down from 51 percent in 2001 and 57 percent in 1999. Debit was the biggest beneficiary, growing from 21 percent of in-store transactions in 2001 to 31 percent in 2003/2004.

Included In This Story

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ATM Industry Association (ATMIA)

The ATM Industry Association, founded in 1997, is a global non-profit trade association with over 10,500 members in 65 countries. The membership base covers the full range of this worldwide industry comprising over 2.2 million installed ATMs.

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Triton Systems

Triton FI based products • NO Windows 10™ Upgrade • Secured locked down system that is virus/malware resistant • Flexible configurations - Drive-up and Walk-up • Triton's high security standards • NFC, anti-skim card reader, IP camera and level 1 vaults are all options • Triton Connect monitoring • Lower cost

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Diebold Nixdorf

As a global technology leader and innovative services provider, Diebold Nixdorf delivers the solutions that enable financial institutions to improve efficiencies, protect assets and better serve consumers.

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