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Until recently, choosing ATM software couldn't have been simpler -- because hardware and software always came in a proprietary package deal. But that's beginning to change, with all major ATM vendors now offering software based on the eXtensions for Financial Services (XFS) standard...

July 23, 2003

Until recently, choosing ATM software couldn't have been simpler -- because hardware and software always came in a proprietary package deal.

But that's beginning to change, with all major ATM vendors now offering software based on the eXtensions for Financial Services (XFS) standard, an interface used to support banking peripherals from multiple vendors. Software based on XFS has the capability to run on a variety of different hardware platforms.

This clears the way for financial institutions and other ATM deployers to separate their hardware and software buying decisions. In fact, their software shopping no longer is confined to the usual ATM suppliers. Thanks to XFS, third-party software companies, such as Canada'sPhoenix Interactiveand the UK'sKAL, are making inroads into the ATM market.

Not necessarily a package deal

"The hardware and the software aren't necessarily included in the same RFP anymore," said Margie Buchman, manager of ATM Solutions forIBM, which is a reseller ofWincor Nixdorf'sProTopas software.

"RFPs are structured differently," agreed Kent Schrock,Fujitsu'sdirector of marketing. "In many cases, they break out hardware, software and services separately."

Aravinda Korala, chief executive of KAL, said that today's customers are savvier in their software demands -- and this is reflected in their RFPs.

"They used to say, 'I'm interested in software. What have you got?' Now they specify XFS, and many of them want a migration path to IFX (Interactive Financial eXchange, a still-developing specification that will eliminate the need for proprietary message formats such as Diebold's 911/912 and NCR's NDC) as well," Korala said.

Why change?

ATM deployers have several reasons to consider open, or multi-vendor, software. Jerry Silva, aTowerGroupanalyst, in his "Open Architecture ATMs: The Reasons Become Clearer" research note, cites regulatory changes such as Triple DES; interest in providing advanced functionality; an increasingly commoditized ATM hardware market; and financial institutions' desire for more sophisticated ATM interactions with their customers.

All of those reasons factored intoFleet Financial'sdecision to move to a multi-vendor platform, said Jim D'Aprile, the Boston-based bank's vice president of ATM/Self-Service Banking. But the clincher was the cost savings.

"If you develop a transaction for your ATM platform in an NCR-only environment, let's say it costs you $100 on the front end and another $100 on the back end," D'Aprile said. "If you've also got Diebold and maybe some Fujitsu machines, you're going to have to spend another $100 to develop the same application on each of those platforms."

Since implementing NCR's APTRA software in early 2002, Fleet has introduced a variety of personalization options, such as allowing its customers to select language, receipt and Fast Cash (standard withdrawal amount and account) preferences. In the third quarter of last year, Fleet rolled out a bill payment application. Initially deployed only on NCR ATMs, Fleet added the application to a number of Diebold ATMs in March.

With APTRA, Fleet simply tweaked an already existing Web application, which was designed to allow users of Fleet's HomeLink to pay their bills online, rather than building an ATM application from scratch.

"You're not reinventing the business logic. You're just developing a method to present it appropriately to the customer," D'Aprile said.

This flexibility -- combined with lower development costs -- gives Fleet the ability to consider other new Web-based applications, D'Aprile said. "Let's say we wanted to try ticket sales; we could just use the existing logic from bostonredsox.com."

Fleet also has an automated software distribution system that allows new applications to be downloaded only on certain groups of ATMs and to be changed rapidly when necessary.

"Pilots have truly become viable again," said D'Aprile, noting that because of the high costs of traditional ATM development and implementation, it wasn't feasible to create a new application unless a deployer knew it would advance beyond the test stages.

David Denny, manager of Self-Service forBank of New Zealand (BNZ), said that BNZ's new multi-vendor platform has given it the ability to bring new applications to market far quicker than before. Software vendor Phoenix Interactive helped BNZ design its ATM user interface, but BNZ's in-house development staff now designs most applications using a Phoenix toolkit.

"Now, we just say 'Hey I want to do this' and write our own application whereas before we had to write up a project plan, get a couple of managers to sign off on it, get the money approved and get the vendors to submit proposals for it," Denny said.

Like Fleet, BNZ has introduced several new ATM applications based upon applications created for other channels: bill payment, from the Internet, and currency conversion, from the branch.

"Everything is developed behind the back end and then goes through middleware, which gives us consistency across all of our channels," Denny said.

BNZ's goal, Denny said, is to improve its customers' experiences with self-service channels in order to migrate most transactions away from the branch. As part of that effort, BNZ upgraded its existing 200 ATMs and added another 200 machines to its fleet and invested in a new transaction processing system.

The incremental approach

Many deployers "don't want to reinvent the wheel," said Steve Grzymkowski,Diebold'ssenior product marketing manager. "Financial institutions in general are risk averse, and they're looking at an evolutionary approach to open systems."

Noting that Agilis, like other multi-vendor software platforms, gives deployers the ability to offer Web-based transactions, targeted advertising campaigns and other advanced functionality, Grzymkowski said, "Agilis can take them to where they want to be, but in a more incremental way."

Installing multi-vendor software effectively "opens the door to doing a lot more in the future, when they are ready," Grzymkowski said.

More drivers

Another key driver of multi-vendor software is the increased migration from the longtime ATM operating system OS/2 to Windows-based platforms such as NT and XP.

"When our customers go through the pain of moving to a new environment, they want to take a holistic approach," said Bob Tramontano, vice president of marketing forNCR'sFinancial Solutions division. "They don't want to spend the money on software just to emulate the path they're already on."

Europeans were quicker to embrace both the XFS standard and Windows-based ATM platforms, said Gregory Riche, systems engineering manager for IBM's ATM Solutions. Riche estimated that there are currently "tens of thousands" of ATMs running Wincor Nixdorf's XFS-based software alone there, compared to fewer than 20,000 total XFS-based ATMs in the United States.

Because of that, Riche said, IBM's software partner has an edge over many of its competitors. "Open software is all they've been doing since the late '90s. Until recently, most of the other vendors simply took their proprietary systems and modified them upon request."

Banks also want to use a single software platform when integrating their networks, which contain a diverse mix of ATMs following a heated period of acquisitions and mergers.

Fujitsu's Schrock said that his company faces a challenge with its target market of smaller and mid-size financial institutions. Because those institutions typically haven't undergone as many acquisitions, they aren't facing the same kinds of integration costs as their larger counterparts.

On the plus side, he said, they are often quicker to make technology decisions because they typically have smaller management teams. "Fewer people have to review a proposal before it's approved," Schrock said.

All deployers face the prospect of ATM replacements and upgrades to comply with regulations like Triple DES. Because those conversions will cost more in a proprietary environment, IBM's Bachman said that compliance issues will drive even more interest in open software -- particularly among smaller financial institutions.

The RFP process

BNZ submitted RFPs to all of the usual ATM vendors along with several software companies like Phoenix, Denny said. The bank narrowed it down to three finalists, Phoenix and two ATM vendors, before conducting a proof-of-concept with Phoenix and one of the vendors -- and ultimately selecting Phoenix.

Steve Hensley, KAL's director of marketing, said such "live" tests are becoming a more common part of the RFP process. "For the banks, seeing is really believing. They don't necessarily believe the hype. They're setting up labs with ATMs from different vendors and running transactions on them."

Fleet's D'Aprile said his bank also narrowed the field down to three -- two traditional vendors and a newer player -- before selecting APTRA. Fleet was swayed by the number of ATMs already running APTRA and by NCR's participation in standards committees such as the European Committee for Standardization (CEN). NCR's ATM lineage played a part as well.

"Quite frankly, we worried that it might be more difficult to maintain an ongoing relationship with a third party that didn't have as much vested interest (as a traditional ATM vendor) in continuing to work with us," D'Aprile said.

Traditional vendors' broader knowledge of ATMs gives them the edge over other software companies, said NCR's Tramontano.

"We understand all of the aspects that go into ATM availability," he said. "We know how message formats work with the host and the monitoring system, how applications work with the device, and ultimately how people interact with it."

Shares well with others?

The new software environment is fostering some heretofore unheard-of relationships among vendors. "When you walk into a Diebold software lab, you're going to see an NCR machine," Tramontano said. "Who do you think gave it to them? I did! And they do the same for me. We understand that in order to actively deliver the solutions our customers need, we must sometimes work together."

Perhaps most notably, ATM vendors must now share their proprietary service providers (also called device drivers), the protocols that define how software communicates with their ATM peripherals such as card readers.

BNZ's Denny said that while vendors are still "very protective" of their service providers, they must share them in order to win software business -- as well as the more lucrative hardware contracts.

"They make a hell of a lot more money on hardware than on software," Denny said. "If they can't sell their software because it lacks the ability to run on a standard environment, then they're not going to sell a lot of hardware either."

Brad Evans, Phoenix Interactive's general manager Australia/New Zealand, agreed that reluctance to offend a customer -- or potential customer -- makes vendors more inclined to share.

"If a particular vendor doesn't want to play in our sandbox, the customer is usually willing to give them a push," Evans said.

Fujitsu's Schrock said it's a challenge to remain up-to-date on service providers because new peripherals such as special printers and check imaging modules are being introduced into the ATM environment all of the time.

"It's not good enough to get the service providers from your competition if they turn around and update their platform six months later," he said.

Software companies like KAL and Phoenix compete against ATM vendors for software deals --yet they continue to count vendors among their customers.

KAL's Korala said his company helped create one of what it believes was one of the first implementations of XFS on an NCR ATM for a large UK bank in early 1995. NCR contracted with KAL, Korala said, because it hadn't yet decided to develop its own version of multi-vendor software.

"We decided to invest in the necessary R&D because we believed we could sell XFS-based software to other vendors, not just to NCR," Korala said.

Indeed, ATM vendors remain some of KAL's largest customers; some use its Kalignite platform exclusively, while others use it on a case-by-case basis. When KAL competes with these same vendors for software deals, it is generally through its network of systems integration partners rather than on a head-to-head basis.

Both the traditional vendors and newer entrants refer to these somewhat tenuous relationships as "co-opitition." The awkward combination of "cooperation" and "competition" aptly describes the industry's response to a multi-vendor market.

Getting the message out

Evans said that traditional ATM vendors' entry into the multi-vendor market has benefited Phoenix's business by reinforcing the message that an open platform will play a key role in future ATM deployments.

"When the hardware guys started talking to their clients about software, it created more of a buzz," he said. "It definitely makes more of an impression on someone when they're getting the same message from three different directions."

While traditional vendors present the stiffest competition in the short term, Evans said, he believes that deployers are beginning to realize that they have other options -- especially if they are considering any type of advanced ATM functionality.

"I think until the last couple of years, people just said, 'Oh they did states and screens really well, let's just call them.' But perceptions have really begun to change, and people are starting to realize they don't necessarily need an end-to-end solution from one provider," Evans said.

Diebold's Grzymkowski isn't so sure. The increased competition has caused all ATM vendors to look at their customers in a new way, he said.

"Providing the best hardware isn't enough. You have to provide the best hardware, the best software and the best services," he said. "If you can do that, I think most customers prefer to buy from the same vendor."

Whether they choose to work with traditional vendors, with new players or with a combination of the two, KAL's Korala believes that -- after years of proprietary systems -- ATM deployers welcome the freedom of choice.

"They want to be able to get their hardware from one place, their monitoring system from one place, their software from another," he said. "It's all about creating a best-of-breed enterprise solution."

Included In This Story

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KAL ATM Software

KAL is a world-leading provider of multivendor ATM platform, application and management software, specializing in solutions for bank ATMs, self-service kiosks, and bank branch networks.

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Diebold Nixdorf

As a global technology leader and innovative services provider, Diebold Nixdorf delivers the solutions that enable financial institutions to improve efficiencies, protect assets and better serve consumers.

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