Article

ATM as vending machine?

ATMs are capable of dispensing stamps, tickets and a bevy of other items. But the industry has yet to find a non-cash product that consumers seem to really want.by Ann All, editor

March 11, 2002

There's been lots of talk about transforming ATMs into "Internet-enabled terminals," but the MAC Network's Phil Valvardi believes deployers may want to think of their machines in somewhat simpler terms.

"I'd like to look at ATMs as vending machines where cash is just one of the items being vended," said Valvardi, president of MAC.

There's just one sticking point: Experiments with postage stamps, phone cards, tickets and other media have failed to yield the "next best thing" that can be dispensed from an ATM.

"So far, there's nothing that looks like an across-the-board success story," Valvardi said.

The surcharge may be at least partially to blame.

ATM deployment grew steadily in the 1980s and early '90s, then skyrocketed after the Cirrus and Plus networks lifted restrictions on surcharging in 1996. Following widespread adoption of the convenience fee, deployers rushed to find newly viable locations -- with little or no thought to adding features to their machines.

What else is there?

Now, with surcharge-related deployments waning, there is a renewed emphasis on creating new applications. Thermal printers, color screens and Pentium chips are becoming common fixtures on hardware as the prices drop, and advances in software are giving deployers more flexibility.

"The industry is looking back and saying, 'What else can I do with these locations?' " Valvardi said.

Joni Floyd, executive vice president of ACS' Electronic Commerce Group, believes that using the existing infrastructure to expand product offerings is the best response to an ATM market where declining transactions are the norm.

"We already have the railroad. We just have to figure out how to put more cars and passengers on it," Floyd said.

Working with NCR, Dallas-based ACS designed sophisticated kiosks called Financial Service Centers that offer a variety of non-cash products, including money orders and electronic wire transfers. An initial rollout of 37 of the kiosks at 7-Eleven stores in the Austin, Texas area was so successful that the companies plan to deploy more of the machines in 2000.

The investment, while substantial, is fixed. As technology makes new types of transactions possible, they can be added to the Financial Service Center platform.

"We're creating a long-term deployable platform that isn't going to work its way into a profitability squeeze, because we're always going to have the opportunity to add more applications," Floyd said.

Rob Evans, director of marketing for NCR's self-service division, said the second generation of Financial Service Centers, which are based around NCR's personaS-75 ATMs, will have a footprint that's about half the size of the original. A separate terminal that was provided for lengthier transactions such as registering for check-cashing services will be eliminated.

"All that can be done on an ATM, and our research shows that volumes are such that you won't significantly impact customer satisfaction if you go ahead and do registration on the same terminal," Evans explained.

Don Jarecki, business manager of retail ATMs for EDS, isn't so sure. Pointing out that an ATM is "inherently supposed to be convenient and quick," he said dispensing certain products could stretch transactions to unacceptable lengths and test consumers' patience.

"If you put together something that requires a transaction in excess of two minutes, you're going to have consumer backlash and they're going to look for alternatives," Jarecki said. "You might make $4 on a transaction with alternative media, but if you lose 15 or 20 customers because they're standing in line, you'll give up a lot more than that in surcharge revenue."

Non-cash niche

Jarecki, for one, isn't convinced that there is a single non-cash item that will win broad acceptance among ATM users.

"Any product you develop for the ATM is going to be a niche product, whether it's a gift card, movie ticketing or whatever," he said. "Outside of advertising, I don't think there will be any products that will be as universal in terms of generating revenue as the surcharge."

EDS has dabbled in a variety of non-cash products, including tickets, prepaid phone cards and stamps.

A test with airline tickets showed promise but quickly faded when airlines introduced e-ticketing. A TicketMaster pilot looked like a winner, but was killed after six weeks because of legal and licensing issues. A movie deal never materialized because of several problems, including difficulties associated with the film industry's complex distribution networks.

Prepaid phone cards simply didn't sell when EDS offered them at several hundred ATMs in 1998. According to Jarecki, at least part of the problem was the cards' ready availability at convenience stores and other common ATM locations.

"Every one of our retailers was already selling them, and we just couldn't give them the margins they were making selling them over the counter," he said.

Scott Hackl, vice president of sales for Siemens Nixdorf's Banking Group, agreed that the cards may be just too ubiquitous to score at the ATM. "What extra value is there (to ATM users) when right there at the counter they can buy 10 different brands of phone card?" he asked.

Pittsburgh-based PNC Bank dispenses phone cards at about 30 of its ATMs, at branch locations or at malls. Jim Walker, manager of self-service banking, said early returns have been inconclusive and PNC hasn't yet decided whether to expand the service to other machines.

PNC recently debuted gift certificates at ATMs in 17 shopping malls owned and managed by Glimcher Properties Limited Trust. The preprinted certificates may be used at any store or for any service at the malls. A successful pilot in 1998 on three machines at malls owned by the Rouse Company led to the expansion of the gift certificate program.

To advertise the service, Walker said PNC developed color screens which run during the "welcome" and "please wait" portions of a transaction. Software was programmed to offer "purchase gift certificate" as one of the options on the selection screen.

The malls have pitched in on publicity, paying for and posting signage. That makes sense, Walker said. "If I give you a gift certificate, it pretty much guarantees you'll return to the mall."

From the bank's perspective, "we hope that adding these features will enhance the experience of using PNC Bank," Walker said.

Pleasing, Mr. Postman

Postage stamps have been a strong performer for EDS. Like most ATM deployers offering them, EDS sells sheets of 18 stamps for the price of 20. Noting that EDS' average stamp sale is one and a half sheets per transaction, Jarecki said the program's cost is covered if a consumer purchases just one sheet. "Any additional sheets are gravy."

Jarecki also believes that stamps fill a customer service niche and may help build repeat business at some machines.

Another stamp peddler is Cleveland, Ohio-based KeyBank. According to Ken Werner of the bank's Key Electronic Services division, stamps are sold at 585 ATMs and account for approximately 2 percent of overall transactions. They are most successful at locations like office buildings, which have a strong base of regular users.

"Sales there are probably four or five times higher than at our other locations," Werner said.

The number of cassettes dictates whether or not stamps are sold at a given machine. Most KeyBank ATMs have either two or four cassettes; Werner said the bank won't give up one of only two cassettes for stamps.

Cassette space is a valuable commodity. According to NCR's Evans, a single cassette upgrade costs "a couple thousand" dollars. And filling a cassette with anything other than cash drives up a deployer's cost of operation because the machine will likely require more frequent cash runs.

Floyd, of ACS, said, "If you have to yank cash to put incremental products in a canister, your cash replenishment costs go up significantly. My financial results have never been able to justify that initiative."

No card, no problem

The user demographics for certain products, such as phone cards and money orders, don't match those of a typical ATM user. NCR and ACS tackled the problem by including a cash acceptance module on their Financial Service Centers. Other manufacturers, including Tidel and Triton, also are developing modules that accept cash.

Tidel showed a product called ValiCash at last spring's National Association of Convenience Stores (NACS) show. The module, which is not yet in production, can accept cash and dispense phone cards or other media. It earned mixed reviews from retailers, however. Among their concerns: a possible loss of "impulse buys" made by customers queuing up to buy at the counter.

John Perry, a regional sales manager for Tidel, said cash acceptance is one of the features being added to the Chameleon, the company's new Internet enabled, multimedia kiosk. "We think (the Chameleon) will answer a lot of the questions and address a lot of the concerns about non-cash dispensing at the ATM," he added.

Another option offered by Tidel is a software package that allows prepaid phone minutes to be printed directly onto an ATM receipt. A minor caveat: all such transactions must be processed by Core Data.

The 'virtual canister'

The MAC Network's Valvardi believes that high-quality thermal printers, coupled with the appropriate software, could transform the ATM into what he calls a "virtual canister." He said, "If the software would support it, it would be like having an almost unlimited number of canisters."

At least one manufacturer is gearing up for those types of applications with a product upgrade. A second, separate print mechanism enclosed within a cassette is newly available in Siemens Nixdorf's line of ProCash machines.

According to Hackl, the extra printer offers more security and more flexibility for targeted marketing efforts in which ATM users could receive coupons geared to personal preferences, for example.

Another breakthrough that Valvardi thinks could help make the case for non-cash dispensing is the migration of Internet technology to the ATM. It's not actual Web access that's important, stressed Valvardi, but the HTML-type screens with their enhanced flexibility.

"They get us out of the situation where many screens are hard-coded and changing them is not as easy as it appears from the outside," he explained.

For Jarecki, of EDS, it all comes down to whether the ATM is the best delivery channel for non-cash products.

"I believe a lot of this stuff is probably better served on a separate terminal," he said. "You can make an ATM do almost anything, but can it do it more efficiently and better than a stand-alone kiosk?"

NCR's Evans predicts an outcome squarely in the middle of Valvardi's "ATM as vending machine" and Jarecki's "strictly a niche" market.

"In the real world, I think what we'll see develop will be a little bigger than a niche, but there may be no 'killer application' to drive it," Evans said.

Hackl, of Siemens Nixdorf, identified "density" and "promotion" as two keys to any non-cash dispensing program. "If I put something out there on two machines, and I don't advertise it or don't have the right interface or application, then it's probably going to fail," he said.