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Spain: Ahead of the ATM curve

Tourists enjoy Spain's sunny beaches, flamenco dancing and historic buildings. ATM watchers, however, admire the Spanish market for its large number of machines and emphasis on advanced functionality.

April 7, 2002

Spain is a country that's known for its sunny beaches, flamenco dancing and historic buildings. Tourist attractions, however, are not the only areas where Spain draws attention from international observers.

Its ATM market is one of the most mature and advanced in the world. Banks like Caja Madrid are used as case studies by manufacturers like NCR.

For the ATM and bank communities, Spain has become a true world-class attraction.

Welcome to ATM land

Only Germany, with its 60,000-plus ATM park, beats Spain in number of ATMs in Europe. Spain is by far the European nation with the most machines per habitant. With approximately 46,500 ATMs and 40 million habitants, the ratio is approximately 1,150 machines per million people.

That density is similar to the United States and Japan (with approximately 324,000 ATMs and 281 million residents and 144,700 ATMs and 126 million residents, respectively), the world's ATM leaders in ATM density.

"The density is an important figure because it shows that we're a country with a lot of self-service, and if you take a walk around any city, like here in Madrid (the capital) for example, you will find an ATM on every street corner," said Santiago Pérez-Bedmar, NCRSpain's marketing manager.

Even though the Spanish ATM market is mature, manufacturers expect it will continue to grow.

"The Spanish market should grow by between 6,000 and 7,000 ATMs per year in the future," predicted Diebold Spain's marketing manager Enrique Arrufat.

NCR's Pérez-Bedmar expects the market to grow by eight or nine percent annually over the next three years.

"The future growth trend on the Spanish ATM market is more machines at off-premise sites and the renewal of old ATMs - there is where the growth will be," Arrufat said in reference to where the continued growth will come from.

Pérez-Bedmar identified the Madrid subway as a good example of new off-premise locations that will see the installation of ATMs in the next couple of years. The Madrid subway began deploying ATMs at its different stations last year and is expected to install about 300 ATMs before year's end.

Supermarkets, commercial centers, cinemas, theme parks and companies are other off-premise locations that will demand more ATMs in the future, according to both Pérez-Bedmar and Arrufat.

Even if they cannot find an ATM at the subway today, Spaniards are used to see ATMs wherever they go -- so much so that when they travel abroad they are sometimes surprised when they have to look for an ATM.

"When I was in Paris on a business trip I was surprised that I had some problems finding an ATM quickly, because here (in Spain) they are everywhere," a spokesperson from Spanish bank BBVA (NYSE: BBV) said.

Abundance of ATMs and branches alike

While Spanish banks have been on the cutting edge in Europe -- and the world -- in implementing electronic banking solutions, they have also maintained extensive branch networks.

Spain has approximately 39,000 branches, with some 19,000 belonging to the Spanish savings banks and some 16,000 owned by the commercial banks. The rest are run by smaller rural savings banks.

"The banks do not see electronic banking as a substitute for the branches but more as a complement," said NCR's Pérez-Bedmar. 

According to industry analysts, local culture is the reason why Spanish banks rely heavily on both ATMs and branches.

"If you ask any Spaniard where he opens an account or takes out a loan, he will tell you at the branch - not by phone or over the Internet and not even at an ATM, if he could" said Pérez-Bedmar.

"Closeness is the most important thing for the Spanish bank customer - even more important than price and quality," said Maria Cabanyes, a banking analyst in Spain for rating agency Moody's.

"I believe it's about our culture that we like to be out on the streets a lot and we feel a special bond to our local neighborhoods, said the BBVA spokesperson.

A notable characteristic of Spanish branches is that they are small, with an average of two or three employees. Banks have cut costs by relocating branches and closing redundant branches following mergers.

"What the banks are doing is not to reduce the size of their branch networks but to make the branches more efficient," Pérez-Bedmar said, adding that banks want to convert the branches into true points-of-sale by convincing their clients to use more ATMs and other electronic channels.

Elena Iparraguirre, rating agency S&P's banking analyst in Spain, agreed that the banks have been seeking to convince clients to conduct more of their daily banking affairs using ATMs and other electronic banking channels.
 
"It's expensive to run large branch networks, and I think (banks) are preparing for the next generation," Iparraguirre said. "You can promote (electronic banking), but you can't force it because you risk losing clients."

The networks

Spain has three nationwide ATM networks. The largest, ServiRed, boasts approximately 23,600 ATMs and is made up of 106 financial institutions. The most important members are Spain's second largest bank, Banco Bilbao Viscaya Argentaria (NYSE: BBV), Bankinter, Bancaja, Deutsche Bank and the country's two largest savings banks, La Caixa and Caja Madrid.

ServiRed has seen a huge increase in its ATMs during the second half of the 1990s; the network increased from some 6,500 ATMs in 1995 to 22,450 ATMs at the beginning of 2001.

Red Telebanco 4B is the second largest network, with 11,000 ATMs, some 25 percent of the Spanish ATM park. Member banks include Spain's largest bank, Santander Central Hispano (NYSE: STD), Banco Banesto, Banco Sabadell, Banco Zaragozano, Banco Popular, Banco Pastor, Banca March, Banco Mapfre, Banco de Valencia, Banco Gallego and Banco Guipuzcoano.

The rest of Spain's ATMs belong to the Red Euro6000 network, with most of the country's savings banks as members.

Leading with innovation

Two Spanish savings banks, Barcelona's La Caixa and Madrid's Caja Madrid, have adopted aggressive ATM strategies -- especially through the deployment of so called multifunctional ATMs, which allow users to perform a whole range of services that a traditional ATM can not offer.

Wincor Nixdorf's managing director in Spain, Juan Muñoz, said one possible reason why the two savings banks have been on the forefront in terms of ATM strategies is because Spain's largest commercial banks have been occupied with mergers in the last couple of years. Meanwhile, La Caixa and Caja Madrid have been able to conduct "business as usual."

Many industry watchers believe that La Caixa, Spain's third largest bank, is the most advanced in terms of ATMs.

La Caixa owns the most ATMs, 6,500 machines. Nearly 1,300 of them are multifunctional machines, which permit users to buy tickets to cinemas, theaters, sporting events and concerts, as well as pay bills, make cash or check deposits and load prepaid cellular phone cards.

La Caixa has steadily increased its number of multifunctional ATMs during the second half of the '90s.

"We have practically multiplied by three the number of multifunctional ATMs during the last four years," said La Caixa spokesperson Javier Zuluaga. "The idea is to continue to replace the traditional ATMs with multifunctional machines."

La Caixa recently installed 50 ATMs that can be used by visually impaired users. The first installations are in Madrid and Barcelona, and the bank will continue to roll out the new machines in other cities this year, Zuluaga said.

La Caixa's closest rival, Caja Madrid, has 3,300 ATMs, all of which are multifunctional.

This year the savings bank will add functionality that will permit users to get change back in the form of coins when they pay their bills at the ATMs, said Pedro Garcia de Teson, Caja Madrid's means of payment director.

"In the last couple of years, we have done a great effort of technological renovation of the park as well as installing new ATMs," Garcia de Teson said. "At Caja Madrid the ratio of ATMs per branch is 1.7, and the forecast of installation for the next couple of years is to extend the park of multifunctional ATMs all over Spain."

He added, "Although Spain is a small country, it's the world leader in means of payment solutions, way ahead of other developed countries. On the national panorama, the savings banks (Caja Madrid and La Caixa) are the ones that are on the front of the avant-garde."

(See related story Spanish bank pushes services to ATMs.)

Yet  S&P's Iparraguirre believes that Spain's savings banks are no more advanced than banks such as Bankinter and Banco Popular in terms of ATMs. She said the additional services that the savings banks' multifunctional ATMs offer is a "parallel business" and that cash dispensing is still the most important function for the majority of the Spanish public.

NCR and Diebold -- they meet again

International business theory states that when there are two dominant players in a big market like the United States, and one of those players expands abroad -- then the rival is likely to follow suit.

Just as with soft drink titans Coke and Pepsi and burger barons McDonalds and Burger King, that has been the case with ATM archrivals NCR and Diebold.

In Spain, NCR has been the dominant player for years with approximately 50 percent of the market. Until recently, Diebold had an insignificant presence.

"In the U.S., Diebold is a terrible competitor but in Spain it has been slow moving," said Muñoz from Wincor Nixdorf.

During its first years in Spain, Diebold operated through a partnership with IBM, which sold the Diebold machines. Sales were lukewarm, perhaps since ATMs are not  IBM's core business.

"We began a little bit from behind, but now we're the owners of our own house," Arrufat said, referring to Diebold's decision three years ago to take full control of its Spanish operations.

Diebold currently holds the fourth position in Spain, behind NCR, Fujitsu and Wincor Nixdorf - a spot that is apparently not satisfactory for the global giant.

"We have gone from a very small presence to a 10 percent market share in three years, which is good but not enough," Arrufat said, adding that the manufacturer hopes to win the first or second place in the next few years.

NCR plans to retain its leadership by selling new ATMs, replacing old ones and attacking banks that have previously only worked with a single manufacturer, Pérez-Bedmar said, adding that a growing trend is for Spanish banks to work with two or three ATM suppliers.

According to Pérez-Bedmar, NCR and Fujitsu must focus more on renewals in the future, since most of their installed machines are older than those of Diebold and Wincor Nixdorf.

Last year marked the first time in Spain that NCR replaced more old ATMs than installed new ones and that trend will continue, Pérez-Bedmar noted.

"I think that now we can begin to talk about 40 percent new ATMs and 60 percent substitutes," he said in reference to future sales.

Wincor Nixdorf, which also aspires to become one of the top two players, is banking its future growth on another trend - deposits and cash recycling.

Muñoz sees the company's new machines that accept deposits and recycle money as having great sales potential in a highly advanced ATM market like Spain.

The ATMs with the recycling function will represent a great cost reduction for banks in terms of maintenance and cash replenishment, Muñoz said.

By all accounts, the Spanish public has been one of the most receptive in the world for innovative ATM technology. No matter which manufacturer sells the most machines, all of them will likely continue to use the market as a testing ground for advanced functionality.

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