Article

Cashing out with ATMs

The idea behind the development of the ATM was to replace teller operations in a bank branch with electronic devices. But is this all an ATM is capable of?

January 23, 2015

by Anupam Garg, consultant, Infosys

The idea behind the development of the automated teller machine was to replace teller operations in a bank branch with electronic devices. To a large extent, this idea has been successfully implemented. According to one study conducted by Financial Management Solutions Inc., the average monthly branch teller transaction rates in the United States have fallen from 11,700 in 1992 to about 6,400 as of May 2013. But is this all an ATM is capable of? If not, then how can we make it to more?

Solve the problem of siloed banking channels

Unfortunately, modernization in ATM technology is limited by the decentralization of channel software. As a result, the growth rate of innovation in ATMs has been comparatively low as compared with e-banking and mobile banking. All these channels have been working in different silos. The ATM infrastructure still awaits rollout in a ubiquitous ecosystem where it can seamlessly access data from other channels and co-run operations smoothly.

To an extent, the blame can be attributed to the low scale of investment made by banks in ATM technology. Hardware comprises only around 18 percent of the total ATM deployment expenditure over a device's average lifetime of eight years. The remaining 82 percent of cost is incurred in improving service offerings, software deployments, customization and other aspects. For instance, when Microsoft removed its support from Windows XP operating system last April, banks in developing countries were faced with security risks because a greater number of their ATMs were not upgraded to higher OS versions.

Replace the bank branch with the ATM — without the ATM investment

In order to entice bank CXOs to increase their investments, ATMs need to replace not just teller operations but the entire branch (of which ATMs typically make up only 10 percent of the overall cost). Banks would be able to reinvest savings in brand-enhancing measures, including advertising, marketing and technology.

The ATM ownership model also makes a huge difference to the bottom line. The "brown-label" model — in which the hardware and its lease are owned by a third-party vendor, and the cash management and network connectivity is owned by the bank — allows the bank to focus on its core business, eventually reducing the operational cost of ATMs.

The introduction of white-label ATMs in the developing countries will propel ATM markets in the years ahead. For example, Tata Communications Payment Solutions Ltd. has launched "Indicash" — a white-label program – to provide broader banking services to customers. Also in emerging markets, the growing use of solar powered ATM machines is leading to minimal operational cost. What is more, the reach of third-party operated ATMs can be far wider than that of bank-operated units, serving the purpose of financial inclusion.

Create a lifeline of new self-service options

Converting an ATM into a self-service kiosk for all banking needs will require a complete revamp of ATM service offerings. Nonetheless, some banks, such as First Hawaiian Bank, have already begun to introduce video teller machines, image-enabled ATMs, and biometric entry systems, bringing the digital appeal of self-service to the basic branch experience. Işbank has rolled out 3,500 ATMs with finger vein scanning — making it the largest biometric ATM network in EMEA. Ziraat Bank is a biometrics pioneer also, having rolled out 1,500 biometric ATMs.

In addition to biometric, near field communication also is being looked upon as an alternate means of ATM access. NFC readers can accept signals from NFC-enabled cards and smart devices.

Next-gen ATMs are being equipped with all the necessary tools for performing conventional and unconventional transactions, such as bill payment, tax return filing, theater ticket purchase, deposit account setup, account transfers, instant issuance of payment cards, and even the purchase and sale of gold at the ATM itself. In case of any dissatisfaction or confusion, customers can request support from bank consultants through video conferencing, which also serves as a medium for discussing loan terms.

Incorporate mobile capabilities

Mobile banking services are being use to upgrade ATM services, as well. The end-user can pre-stage transactions on a smartphone, selecting the amount needed and the account from which it is to be withdrawn. At the ATM, the consumer authenticates him- or herself by scanning a unique quick response code that, via an encrypted connection to the cloud, signals the ATM to dispense cash. Person-to-person fund transfers are also made possible through a smartphone application that can generate an eight-digit code authenticated via the cloud. This code can be sent to another user who can then make a one-time withdrawal in the amount designated by the account owner. This feature is very nifty for transferring funds from mobile wallets.

Address security threats

Anything valuable comes with its set of security threats and ATMs have been no exception. Card cloning and skimming attacks (in which devices are attached to the ATM to capture the security details of legitimate users' cards) have been increasing over past few years. To add to the problem, key parts of the ATM itself are often taken to enable criminals to study how they work and reverse engineer their own devices. The next gen ATMs will need to be armed with denial of attack mechanisms.

Even though mobile and Internet are digitizing currency, the day of the ATM will continue as long as fiat cash is being printed by central banks. According to a new report, "Global ATM Market — Size, Industry Analysis, Trends, Opportunities, Growth and Forecast, 2013–2020," by Allied Market Research, the global ATM market will reach $21.9 billion by 2020, registering a CAGR of 7.6 percent during the forecast period 2014–2020. Advances in ATM service offerings can create a broad scope of opportunities for banks to cash out with cash-dispensing machines.

Anupam has in-depth experience in retail and corporate banking and IT consulting across African and Asian markets. His background includes handling presales demos and post sales projects; business requirement gathering exercises; and gap analysis at various bank clients for the Finacle banking product. He also has played numerous consulting roles, working closely with senior management. Anupam also blogs about banking and IT-related issues.

cover photo quinn dombrowski | flickr