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How Innovation Leads to Profit at the ATM

November 4, 2010 by Alan Walsh — Head of US Banking, Wincor Nixdorf

The retail banking industry first introduced self-service banking solutions nearly 50 years ago, with the “Bankograph” – an automated envelope deposit machine that accepted coins, cash and checks. While this first solution did not have cash dispensing features, it is considered by many to be the first ATM in the retail banking industry. This original device, adopted by the City Bank of New York, was removed only six months after it was installed because of lack of customer use.

Hard to believe so much can change in just 50 years.

Since that first machine was developed to automate simple daily banking transactions, retail banks have fully embraced the ATM solution -- leveraging it as another self-service tool for their customer base to deposit and withdrawal money. ATMs have evolved from being a convenient, 24-hour resource for the user to obtain cash, to the primary interaction point that the bank has with their customers. The days of knowing your local bank teller by name and visiting the branch during regular banking hours are dwindling. For many- they’re already gone.

While the interaction between the bank teller and customer has diminished, interaction between customers and their banks has increased. With web-based tools at ATMs and on banking websites, customers are interacting with their banks on a daily basis – sometimes even several times a day. Bill pay, person-to-person payments, budgeting and financial management tools have allowed banks to remain a focal point of their customer’s lives – without ever having direct customer interaction.

The decrease in direct customer communication and interaction at the local branch has challenged retail banks to use tools on their websites and through their ATMs to increase the customer engagement experience and enhance the services and solutions that they offer. Even though they serve as the primary point of contact for deposits and withdrawals for many banks, ATMs are viewed as a cost, not a channel where the bank can turn a profit.

Innovation Expands the ATM’s Role in Retail Banking

Banks need innovative software to fully leverage the ATM. Although costs related to upgrading ATMs may seem daunting, utilizing the most advanced software on these machines is essential- as it will give them the ability to handle any and all applications as needed.

It is important that retail banks are prepared handle the features and functionality of today, tomorrow and 50 years from now.

First and foremost, the software needs to be extremely flexible. With a modular design approach to ATM software, retail banks are able to roll out new features seamlessly, usually without the need to modify or upgrade their backend processing systems. Windows software has opened the door to many new capabilities and, in order to continuously add new functionality, this architecture will be vital to the flexibility of the ATM. A key component of being flexible is to the ability to support hardware from multiple vendors. For example, multivendor software allows the ATM to support deposit automation across vendor/hardware platforms, maintain key management methodologies while at the same time reducing the cost of managing and maintaining the software. Flexibility allows the bank to enhance their ATMs and constantly innovate their offerings to engage, communicate and remain the forefront of the customer’s financial needs.

One way that retail banks will move to become more relevant and aligned with their customer’s needs is through personalization. Just as the bank teller once was the face of the institution and focused on the customer’s banking needs, the ATM will soon become that “face” in many instances. For example, ATMs can be programmed to have personalized fast cash amounts, so the user can quickly and easily withdrawal their most common cash amount. ATMs can also present specific, targeted advertising campaigns to the customer, such as a mortgage rate for 30 year olds or a college savings account for middle-aged users. Lastly, for customers concerned with the environment or the new generation of mobile customers, sophisticated ATM software can text or email transaction receipts.

Additionally, the ATM can also become a central hub for many of the customer’s financial needs such as person-to-person payments or bill payments. More advanced and automated routine transactions will improve customer confidence while making the bank more competitive and profitable.

Advanced software is available to make bulk deposits without an envelope, allowing immediate access to deposited funds and the ability to view the check images on the screen or receipt – enhancing overall customer confidence.

The future of ATMs will reveal new applications and eliminate the challenge of profiting from the use of the machine. For ATMs to become a true revenue generator, retail banks need to be able to offer purchases of different convenience items such as gift cards, stamps, movie theater tickets or bank related items such as checks or money orders.

The right ATM software can also provide a high degree of protection to consumers and banks. ATM security is a primary concern for banks as they face not only risks of fraud and theft, but increasing regulatory demands as well. With the deadline of PCI DSS compliance looming in the near future, banks are scrambling to ensure they meet the requirements. Once best practices, such as carefully restricting and monitoring access to cardholder data and implementing programs to ensure the solution is safe from outside and inside security threats, are now mandatory practices. A strong software solution can help financial institutions build a formidable wall of protection around the ATM network and ensure PCI compliance is not only met, but exceeded. With more sophisticated software, retail bank managers can also monitor and control their ATM networks anytime, anywhere, catching skimming–the number one ATM-related crime–before it causes irreversible damage to reputation and significant monetary loss.

The evolution of the ATM machine will continue on at a rapid, steady pace for the foreseeable future. While the future maybe extremely unpredictable – one thing is for sure; software will be key to driving ATM innovation and profitability.