ATMs in a cashless world? To define is to limit
by Rachel Hunt, Global Director, ACI Worldwide
Happy 50th birthday to the ATM! The humble Automated Teller Machine first made its appearance on the payments stage in the late 1960s, fast becoming a familiar feature on every high street, and has now reached a global installed base of just over 4 million.
The ATM is a workhorse that has survived brute force theft, skimming, malware, industry consolidation, multifunctionality requirements and numerous changes in card schemes and regulations.
Many see the ATM as a lifeline in more rural communities, while others hail its demise as we move toward a more cashless and mobile-first society. But cash is still king in many emerging markets, propping global growth, despite signs of decline in Europe and other mature regions.
With pressure on managing margins, banks are now focused on improving customer service and maximizing the effectiveness and efficiency of their ATM fleets. However, introducing new functionality and adapting to new requirements affects the underlying systems that need to cost effectively combine agility with reliability.
So as one of our most used channels enters middle age, will it remain relevant?
'Where, when and how I want': The demanding ATM user
It seems that the reliance on cash "when I want it" remains and will do so for a while at least. Unless you live in a country where the political will has made cash persona non grata, then even self-styled fintech de novo banks need to take the ATMs into consideration in their business plans.
One such example is that of German startup N26, which last year had to close access to some of its customers' accounts because their reliance on cash was very close to breaking the bank.
N26 made ATM withdrawals at free for the end user, but was covering the transaction fee of 1.5 to 2 pounds ($1.94 to $2.59). People were just going to the ATM too frequently — on average 15 to 30 times a month!
The problem was compounded by the fact that Germany, unlike other European countries, still has very high cash use.
Creating a value-based ecosystem
The competition from startups and alternative payment providers is forcing banks and processors to focus on the ability to connect ATMs seamlessly across different end points, including the broader customer ecosystem.
PSD2 in Europe and the broader adoption of Open environments suggest that the digital branch needs to interoperate across a bank's channels, with other bank and processor networks, and with a variety of potential payment services partners. Some level of openness and harmonization is already underway with the nexo card interoperability standard.
Open API-enabled ATMs and partnerships between banks and fintechs to bring new value-based services is certainly not a distant future. So far, much of the focus has been on making ATM geolocation APIs available, but this is likely to be only the start of a value-based ecosystem in which financial institutions and their partners collaborate to provide a better customer experience and service.
As an example, this could help in providing a unified experience across the different bank channels. This not only requires the industry to break silos between card and account-to-account payments, but increasingly needs to support real time.
Mobile first ... unintended consequences
Many emerging markets rely on digital and mobile-first strategies that have far-reaching consequences for the ATM network.
In Asia, more than any other segment, the younger demographics favor mobile-based payments with 71 percent of 18- to 24-year-old consumers intending to use smartphone wallets in the future.
Governments in the region are also moving towards greater digitalization of payments. India's demonetization of high-denomination banknotes earlier this year is only one of the many policies introduced in a move toward real-time cashless payments.
The unintended consequence of these policies has been a massive rise in the use of bitcoin, possibly as an alternative to cash.
Securely bridging physical and digital worlds
Bridging the gap between physical and digital worlds is a key industry challenge.
Mobile-based ATM locators were just the first step in linking these two worlds. New value-add services need to be introduced that leverage the whole customer life cycle and range of touch points.
Banks continue to adapt to digitalization and cardless ATMs are one of the many new features being introduced. As always, fraud is in hot pursuit, searching for new opportunities, adding to the list of types of ATM fraud.
The ATM will continue to evolve; it may disappear eventually, but 99 billion withdrawals annually is a difficult habit to kick.
Future ATM innovations will likely include blockchain and the Internet of Things; virtual currencies are an interesting secondary market. Who knows, perhaps we will see the return of the virtual ATM!
"To define is to limit." The ATM is dead, long live the ATM!