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Panelists see opportunities, challenges for ATMs

The old ATM isn't what it used to be -- but there may be some new opportunities for continued growth. That was the consensus of panelists at a 'town hall meeting' that kicked off Thomson Media's ATM & Debit Forum earlier this week.

October 5, 2004

BALTIMORE - The old ATM isn't what it used to be -- but there may be some new opportunities for continued growth.

That was the consensus of panelists at a "town hall meeting" that kicked off Thomson Media's ATM & Debit Forum here Sunday. As the more mature of the two products spotlighted at the annual event, the ATM is experiencing declining usage -- due in part to the growing popularity of debit.

According to several speakers at a network showcase session that preceded the panel discussion, growth in debit volumes exceeds 20 percent a year. In contrast, annual growth in ATM volumes has slowed to two to three percent. Yet ATMs cannot be counted out.

"I think you'll continue to see ATMs be an important tool in a retail delivery network," said Betty Cowell, director of deposit and access products and senior vice president at Wachovia.

New users, transactions

Many financial institutions, including Wachovia, are adding more capabilities to their aging ATM fleets during the upgrades necessary to comply with Triple DES and other regulatory requirements, Cowell said. While consumers' willingness to use debit to make purchases at the point-of-sale has reduced their need to visit ATMs for cash, some of them might be willing to conduct new transactions such as ticket purchases at ATMs.

Cindy Ballard, executive vice president of communications and public affairs for the Pulse EFT Association, isn't sure that many American consumers will want to use the ATM for non-traditional transactions. "I think we're trained to just get our cash and go." But, she added, there are "a lot of opportunities for the old workhorse."

Younger consumers will use both ATMs and debit more than their older counterparts, Ballard said, and FIs' focus on wooing formerly unbanked consumers will bring new users who may be willing to consider new transactions.

Check 21, please

Check 21, which goes into effect on Oct. 28, will likely positively impact both ATM and debit volumes, panelists agreed.

Many FIs will consider adding imaging capabilities to their ATMs in a bid to boost deposit activity, Cowell said. Consumers may be willing to use debit for more payments when they realize the float -- the period between when checks are written and funds actually debited from their accounts -- will be reduced due to speedier, image-enabled processing, Ballard said.

However, it will take time for these benefits to be realized, said Brian Egan, vice president of the Federal Reserve's Retail Payments office. "We need to realize that when we wake up on October 28th, it's going to look a lot like October 27th."

Egan believes that many FIs will concentrate imaging efforts on their commercial clients first. Indeed, Cowell said that 50 of Wachovia's commercial clients are eager to test remote deposit capture.

Egan and Cowell agreed that substituting check images for paper will be a trickier task with consumers. Wachovia identified some 2 million of its customers who were still receiving original checks with their monthly statements and sent them information on converting to images. Nearly half of them decided to switch, Cowell said.

"I think financial institutions will need to communicate with their customers, and with their own staffs, over longer periods of time than expected," she said.

Egan opined that FIs will need to be creative when it comes to using new technologies to drive down costs.

"When you have multiple payment systems doing the same thing, it costs a lot of money," he said. "Could ACH (automated clearinghouse) be merged into other payments? Financial institutions need to be more single or dual minded rather than triple or quadruple minded."

Cowell expressed concern with the growing use of ACH as a channel for POS transactions. "(ACH) was not built to handle those types of volumes," she said.

On the debit side

Despite its status as a fast-growing channel, debit is experiencing problems of its own, including a continued emphasis on interchange rates.

While interchange rates have returned to rates similar to what they were before the settlement of the Wal-Mart lawsuit last spring, "retailers have a better understanding of this business and will continue to look at their costs," Ballard said. "They will continue to apply pressure to make sure their voices are heard."

"It's going to be really important to strike a balance between the interests of issuers, merchants and consumers," Cowell said.

In the coming months, Cowell said Wachovia will focus on rewards/loyalty programs associated with debit card usage. She expects to see more industry wide experimentation with card design, such as the smaller cards that are designed to be worn on consumers' key fobs. New markets, in particular quick-serve restaurants, are "ripe for a move to debit," she said.

The panelists agreed that new ways of offering access to consumers' funds, including contactless payments facilitated by RFID (radio frequency identification), appear to be on the horizon. "We need to be careful that all new products are safe and secure," Ballard said.