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A Five Year Window on the ATM Industry

ATMIA's Mike Lee sees the ATM industry of the future as a Dagwood sandwich, multi-layered and tasty to millions.

August 11, 2003

How much will the ATM industry change in five years? This is not quite the same as asking, "How much will the ATM change in five years?" although the two questions are very closely interrelated. A change to the industry can change the ATM and vice versa.

Will there be any major paradigm shifts in our industry in the period 2003-2008, equivalent to the explosion of ATM off-premise installations in the United States after 1996? Or will the industry simply get bigger and better? In other words, will the next five years see "more of the same" or will radically new markets, technologies and customer behavior patterns be created? In this essay, I predict that a radical shift will occur.

In my view, the ATM industry by 2008 will resemble a Dagwood sandwich, multi-layered and tasty to millions of customers in all but the least developed countries. A Dagwood sandwich apparently contains five slices of bread stacked up with meats, cheeses, salads and condiments. We will see that the ATM industry will be increasingly characterized by multiple machine types, multiple markets and multiple business models. There will also occur, I hope, a major qualitative change to the ATM itself, in response to phenomenal growth in internet banking and other kinds of sophisticated automated self-service. By 2008, we will still see the ATM holding its own in "cash is king" cultures in both emerging and more mature markets from Italy to Tanzania, functioning as an ever-popular cash dispenser. But will ATM technology in this period stay relevant to the new, younger, internet-savvy and cell-phone addicted generation entering the mass consumer culture of the expanding 24 X 7 society?

Macro Factors

I would like to suggest that we need in our predictions to take into account six mega-trends that will intensify over the period 2003-2008:

• The war against terrorism will dominate the political landscape
• The size and influence of organized crime will grow exponentially due to loopholes and a vacuum in international law enforcement
• Economic globalization will expand, sucking new economic giants like China and India into this vast process of multinationalisation, free trade and unchecked capitalism
• Consumerism will intensify as the 24 X 7 self-service society gradually spreads outward into new markets and into new urban areas within existing consumer societies
• The Internet will march on to become the information superhighway it was destined to be, becoming by far the dominant communication and transaction medium of the mature phase of the Information Age we live in, more powerful than even its nearest rival for that position of dominance, namely, mobile telephony
• The gap between rich and poor, between developed and undeveloped economies, between the Electronic Haves and Have-nots will widen, deepening the gulf between information-rich societies and information-poor countries, and increasing political tensions at flashpoints like the Middle East

Key Driver of the ATM's evolution

We are entering the peak of the Information, Electronic and Convenience Society. The ATM has helped to create the convenience and consumer society but now it must adapt to become a transaction and information portal for value-added services at the high end of the market. My view is that the key driver for ATM evolution is going to be consumer behavior and customer expectations. If the top end of the ATM range does not become more customized, more personalized, with more wide-ranging functionalities for the electronic wizards of today, then it will be rejected by the new generation and its decline will have begun. Cash dispensing will continue to dominate the middle and lower end of the ATM markets and the future of the cash dispenser is secure as the majority of countries will still possess "cash is king" cultures in 2008. In fact, we will see cash dispensing being extended to the "unbanked," creating millions of new ATM users during this period.

The macro effects on our industry of the above six mega-trends will be, broadly:

• Security will be a key and critical issue for years to come, with global crime syndicates and mafias continuing to target card fraud, skimming, ATM scams and old-fashioned armed robbery
• Economies, including the world economy, will be vulnerable to fluctuations and even crises, so that pressures may increase for cost-cutting strategies and the search for new, experimental revenue-generating opportunities
• Electronic money will grow in importance, eventually eclipsing cash in a few atypical countries like Belgium and reinforcing the decline of cheques (checks)
• Increasing numbers of consumers will be internet-savvy and the ATM will have to modernize to remain attractive to internet-banking customers and the Information "Haves"
• The market for ATMs in convenience and off-premise locations will increase in size and the bank branch location for ATMs will decrease in importance
• China and India and other large emerging markets will see phenomenal growth in their installed ATM base, where cash dispensing will be the primary function for several years until Internet penetration in these countries reaches critical mass

Five Years, Five Predictions

• There will be more than 1.7 million installed ATMs by this time in 2008, and 2 million before the end of 2010
• There will be more convenience-location ATMs than bank branch ATMs by a margin of 65 percent to 35 percent.
• By 2008, there will be two entirely different types of ATMs serving fundamentally different customer bases and markets -- (a) cash dispensers and (b) sophisticated transaction and information portals which are more advanced and more highly customized and personalized than today's multifunctional ATMs, allowing some exotic functions like online shopping for pre-registered customers at ATMs. This divergence into two different machines will increase until it may no longer make sense to call both types of machine by the same name
• The ATM industry will have succeeded in reducing threats to its security and integrity to the extent that consumer confidence in the channel will be strong, although physical crime at, and around, ATMs, including armed robbery, may persist in a roving pattern of migration to machines in less secure, under-lit, under-serviced areas
• Internet banking will become the dominant form of self-service banking in information-rich countries well before the end of 2008 and will provide the benchmark for speed, service, quality, convenience and 'look and feel' of interface for all other self-service channels

Footnote

1 We saw this when the introduction of ATM surcharging in the United States in 1996 produced a major shift in the industry, effectively creating the convenience or off-premise market for stand-alone ATMs. A major shift of this magnitude results in qualitative and quantitative changes in the industry and in its technology. Likewise, a brand new model, for example, the desk-top ATM, can create new markets and new industry challenges.