Article
How the ATM revolutionized retail banking - Part I
A brief history of the machine everybody takes for granted ... and nobody wants to be without.
March 15, 2013
By Bernardo Bátiz-Lazo
Most adults living in urban areas around the world have come in contact with an automated teller machine. But for all the ATM's ubiquity and cultural significance, few people reflect on how the backbone of today's retail payments ecosystem came about.
The development of automated cash dispensing is best understood as having occurred at a time when, with the exception of the U.S., most people worked in a cash economy, and personal checks were largely a remittance form for the well off.
As with any other complex technology, cash-dispensing machines resulted from a long chain of innovations — in this case, rooted in the rise of self-service in the 1950s as evidenced in gas stations, public transport, drive-up windows and candy machines.
A cash-dispensing device seems to have been deployed in Japan in the mid-1960s but little is known about it. In Europe, bankers responded to increasing unionization and rising labor costs by soliciting engineers to develop a solution for after-hours cash distribution.
'Clunky, unfriendly and inflexible'
This resulted in three independent efforts seeing the light of day in 1967: one in Sweden (the Swedish savings banks' Bankomat by Asea-Metior) and two in Britain (Barclays Barclaycash by De La Rue; and Chubb and Westminster Bank's Chubb MD2). By 1971 other manufactures operated in Britain (Speytec-Burroughs-Midland Bank), the U.S. (Docutel) and Japan (Omron Taeishi).
These early devices were all standalone, clunky, unfriendly, and inflexible. They could do one thing: dispense cash when activated by a token. Operation was highly unreliable and there were no standards. Some banks would keep the token in the machine and return it to the customer by mail once the account was debited.
But engineering challenges had been significant. For instance, never before had electronic equipment been put to the test in outdoor conditions, and security was paramount; the priority of bankers was to make sure that the accountholder was the one debiting the account at the point of the transaction — hence the patent by Chubb for the first personal identification number.
In the 1970s, the development of online communication with a central computer became the overriding concern. In this regard, the work of IBM has perhaps been greatly unappreciated. The company started the first online trials in Sweden as early as 1968, promptly followed by the deployment in the U.K. of an online device for Lloyds Bank in 1972.
IBM builds the rails, then misses the train
For most of the 1970s, IBM engineers toiled to develop the rails, pipes and standards upon which other elements of the payments ecosystem (e.g., credit cards and point of sale terminals) would run, eventually.
By the early 1980s, pioneers such as Chubb, De La Rue, Docutel, and Asea-Metior had fallen behind in computing and electronics; others that had kept up, such as Burroughs, hadn't achieved critical mass. Citibank had effectively abandoned its idea to commercialize devices of its own design.
Not so IBM, which had the marketing muscle, engineering expertise and business network to own the market. But in a strange twist of fate, top brass at "Big Blue" decided against further investment in payment technology, thus abandoning the growing ATM market (as well as R & D in chip-based activation tokens that are now popular in many countries).
Around this time, Ohio-based NCR relocated the manufacturing of its ATMs to Dundee, Scotland. From here, the company would effectively dominate the world's supply of ATMs for the next two decades.
The age of expansion
Capitalizing on deregulation and bank diversification across retail markets, NCR proved instrumental in turning the cash dispenser 'dinosaur' into today's sleek, multi-function ATM. This at a time when large European banks were developing proprietary networks comprising thousands of ATMs, while U.S. banks pursued shared networks (and their associated fees). Indeed, at one point, there were some 200 different networks in America.
Not surprisingly, the growth in the number of banks deploying ATMs brought about an increase in the number of manufacturers. These included big names such as Honeywell in the U.S.; Phillips, Olivetti and Siemens-Nixdorf in Europe; and Fujitsu, Hyosung and Hitachi in Asia. Growth in supply attested to consumers' active and growing engagement with this technology.
But in spite of innovations in modular manufacturing and an associated increase in reliability and reduction in service costs, the operation of ATMs remained expensive. The need for dedicated telephone lines limited them mainly to bank branches or very high volume non-bank locations such as busy train stations and big airports.
Cutting the telephone line
This was to change with the advent of digital telephony and the introduction of Microsoft Windows as the core of the operating system. The ATM then effectively became a terminal of the bank's central computer, enabling functions such as remote diagnostics and integration with credit card clearing networks (thus ending the need to have a dedicated token for activation).
Meanwhile, non-bank independent providers, known as independent ATM deployers, such as Mississippi-based Triton and Texas-based Tidel, brought to market the first dial-up ATMs in the mid 1990s. Their advantage was that they connected with the bank computer only when activated by the transaction (as opposed to continuous connection with dedicated telephone lines), thus allowing the location of machines in off-bank premises such as pharmacies, supermarkets, commuter railway stations, universities and casinos.
In the 1990s, renewed growth in the ATM market followed the advent of IADs, the end of Visa and MasterCard exclusivity, the integration of local ATM networks with the international network of Visa and Mastercard affiliates, and widespread use of the debit card as an activation token.
Different, but the same
From humble and uncertain beginnings 45 years ago, the ATM and associated technologies have grown to become ever-present in our daily lives. We are asked for PIN in libraries and self-service checkouts at supermarkets.
Thanks to integration, we can travel almost anywhere in the world with just a plastic card in our wallet, confident of access to our bank accounts and the ability to obtain local currency in places as far afield as the beaches of the Caribbean or the streets of Paris.
What's more, multi-function ATMs are on the increase today. Some machines act as Internet kiosks while others integrate with mobile telephony.
Despite all of these advances, the core purpose of today's ATM is exactly the same as it was in 1967 — providing after-hours access to cash.
Continue to "How the ATM revolutionized retail banking: Part II."
Read more about bank automation.
ATM Marketplace is pleased to introduce new blogger Bernardo Bátiz-Lazo, Departmental Chair in Business History and Bank Management at Bangor University in North Wales and a Fellow of the Royal Historical Society of Great Britain. Bátiz-Lazo co-authored "Cash Box: The invention and globalization of the ATM," with Tom Harper, president of Networld Media Group. Bátiz-Lazo's blog will focus on the history of the ATM.
photo: "Old-school ATM" by renaissancechambara
Included In This Story
Hyosung Americas
Hyosung Americas is a global human experience maker that bridges the physical and virtual worlds. We do this by harnessing our unique combination of a manufacturer’s soul with an innovator’s mindset to build a platform of integrated products, services, and ideas that improve life’s day-to-day interactions for everyone.
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
