Article
Demos can deliver
In an age of (nearly) instant gratification, the humble ATM demonstrator is finding new life as a delivery device for cards and custom PINs.
With ATMs a practically ubiquitious piece of the landscape, is it possible there is an adult out there who doesn't know how to use one? And what does that mean for the few manufacturers still making ATM demonstrators?
It means opportunity, say the manufacturers. Their product has evolved from demonstrating ATM use to issuing instant ATM cards and custom PINs. The addition of these capabilities, along with the soaring popularity of PIN-based debit, has breathed new life into the demonstrators.
"We as a society have become more evolved to seeking instant gratification," said Kiran Gandhi, vice president of marketing for Mag-Tek, a supplier of card-reading, check-reading and card-issuing equipment. "Instant gratification is a demand that consumers have."
Banks and other financial institutions sometimes didn't get around to mailing a new ATM card until some two weeks after an account had been opened. That kind of lag time doesn't work any more, Gandhi said. "If you want to be competitive in the marketplace, then you need to have a solution to instantly give the card to the consumer so he can start using it as soon as he walks out of your facility."
Noe Rodriguez, marketing coordinator for DemoTeller Systems Inc. of Hurst, Texas, agreed. "People want to select their own PINs. Customers like the PIN-selection, instant-card issuing a lot."
Mag-Tek, DemoTeller Systems and Triton Systems of Long Beach, Miss., are the sole manufacturers, reflecting that overall, the market for instant card-issuing and demonstrator machines is fairly stable.
Mag-Tek, of Carson, Calif., which sells the MCAT and MT series of encoders and other PIN products, holds a leading market share in magnetic stripe equipment. The "grandfather" of the business, Mag-Tek delivered the first card encoder allowing customer-selected PINs in 1978.
DSI, founded in 1984 by former Diebold manufacturing rep Charlie East, sells the OSCARE, DemoMate and DataCard 150I card-issuing products. The OSCARE dominates the company line, with more than 30,000 units deployed, Rodriguez said.
Triton's ATMjr-Card Activation System combination is a secondary product line to its well-known 9600 and Mako ATMs. Still, Triton, which introduced its ATMjr demonstrator in 1985, is enjoying renewed customer interest in the product, said sales manager Mark Smith.
"In the past three years we've had record setting sales in this product line. Certainly the popularity of debit cards has increased this," Smith said. He estimated that Triton has sold a total of 20,000-plus card-encoders and ATM demonstrators worldwide.
Banks and other institutions have learned from experience that customers who are allowed to create their own PIN tend to use that card more often. The proliferation of cards and PINs in the 1990s left customers confused and forgetful about PINs, so the ability to create one's own easily-recalled code became an important competitive feature.
Banks have also learned that when they demonstrate all of the banking functions beyond cash dispensing that are available with an ATM, customers are more willing to take these more complicated transactions to the machine instead of a live teller.
Experience has shown that a demonstration can overcome customers' fears of and resistance to making deposits and balance transfers at an ATM, for instance. This is particularly helpful for banks seeking to reduce lines at their teller windows, Smith said.
Equally important to financial institutions is the cost savings in not having to mail out cards and, two weeks later, separate PIN numbers.
The machines all feature security measures ranging from current data encryption standards to offset displays to thwart PIN theft and internal fraud.
Nearly all of the instant-issue cards continue to possess magnetic stripes versus a computer chip. All three manufacturers agree that smart card technology will be slow to take hold in the U.S., where retailers have invested heavily in magnetic stripe technology. To replace swipe readers with chip readers would be cost prohibitive to many outlets in the short term.
"Until you force every Wal-Mart to install a smart card reader, you're not going to see people using a card in that fashion," Smith said.
"Think about this as a momentum," Gandhi said. "A huge ship is sailing in the ocean, and you want to change directions. It takes time to change directions as a ship. That's the problem with infrastructure. To change from mag stripe-only technology to chip-only technology requires some time."
Additionally, changes in magnetic stripe durability standards, known as coercivity, were mandated two years ago by Visa and then MasterCard, forcing card issuers to go through an equipment upgrade. DSI's Rodriguez suggested that financial institutions faced prices ranging from $750 to more than $2,000 per unit, meaning the changeover cost climbed quickly for banks needing to upgrade card-issuing equipment at hundreds of branches.
Nevertheless, smart cards will eventually represent another market opportunity for card-issuing manufacturers. While a full rollout in the U.S. is at least another decade away, some foreign countries may embrace smart card technology much sooner.
Gandhi said Mag-Tek has already added smart card technology to some of its products. But he said he expects the chips to coexist with magnetic stripes on cards for some time.
A technological change Gandhi thinks will hit much sooner is a tougher data encryption standard known as "triple DES." Triple DES encrypts and decrypts PIN information three times on transmission, and three times again upon receipt at the host. Visa has proposed an industry-wide switch to triple DES.
Some systems are starting to switch from single DES to triple DES, and that could mean another round of upgrades, Gandhi said.
The introduction of debit cards has also fueled new interest in the PIN-issuing machines. For now, banks cannot instantly issue debit cards to customers. Visa standards require that the cards conform to their encoding standards, which means a processor must still mail out the new cards. There is also the need to check a customer's credit.
With all that involved, the customer is again getting a pre-determined PIN in the mail.
Yet debit card penetration is increasing, having grown from 30 to 50 percent of a bank's ATM customers in 1999 to 40 to 60 percent this year, according to Jeff Green, editor of Bank Network News. As more customers receive these new cards, they are spurring a new round of demand for personalized PINs.
DSI's Rodriguez thinks there will come a time when debit cards can be instantly issued to customers. He said that will require specialized personnel in a bank's information systems department, and access to reliable instant credit reports.
When that happens, not only banks but retailers who issue loyalty cards will face customer demand for an instant card, Gandhi agrees.
"We are working with an organization right now who came to us and said 'Hey, we are the largest player in this particular loyalty card arena, and we would like to talk to you about this instant card issuance,'" Gandhi said. "It is all driven ultimately by the consumer. We believe the card issuance business, issuing the card at point of demand, is going to be a very good growth area."
Another opportunity for card encoding manufacturers on the horizon is a growing market for card systems to handle electronic benefits transfer (EBT). With EBT, the federal government is trying to migrate benefits programs, such as food stamps, Social Security and disability, from paper checks to electronic accounts. Several states have such programs in place, notably Texas and New Jersey.
As EBT becomes more widespread, card issuers may discover new "unbanked" groups of customers who don't know how to use an ATM and could benefit from sessions with a demonstrator.
But as with all government mandates, decision making grinds slowly, and it is unclear when this market will be fully available to card issuers.
A similar growth area may occur within the migrant worker economy, according to Smith. Triton is working with an Atlanta company called Directo, Inc. that is developing a payroll program for migrant workers that uses electronic funds rather than cash or checks. A farmer can give the workers an ATM-type card, backed by a financial institution, to access their pay electronically. The company then handles payroll disbursement.
"It's an advantage to the worker, who's no longer paying $30 to $35 to have checks cashed because they don't have a bank account somewhere. And in a lot of those situations, as soon as they leave the check cashing facility they're robbed," Smith said.
Smith said the card has been a hit, giving workers essentially a credit card account which they can use to buy almost anything.
The bottom line is that more and more kinds of customers will expect to receive a card almost the instant they apply for it, and that will mean continued business for manufacturers of card-encoding equipment. It's all part of changing expectations.
"See today, they know it is possible. If it's possible, they're seeking it," said Gandhi. "If it was not possible, then it's OK, you can stick to the old infrastructure. But the expectations have changed. We changed it."
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