News

A Smarter Future for the ATM

The role of smartcards in the ATM of the future is discussed by Bayberry consultant Simon Rogals.

August 11, 2003

New payment card technology is changing the way we use ATMs and how we will all transact and do business.

ATMs are undergoing massive standardisation and technical improvement. Internet browsers are turning ATMs into colourful interactive devices, connected to banks just like PCs connect to the Internet. For banks, the ATM is becoming the common link between the branch and the Internet, the best of all banking channels- advanced, yet universally accessible. Still, the adoption of the IFX standard for browser-based interfaces has had limited success in developing the ATM as the key customer touchpoint. Now, with banks upgrading their ATMs to support smartcards, the ATM is ready to take centre stage.

The ATM industry is scrambling to deliver innovative self-service solutions to take advantage of this technical innovation. But the critics claim the public will not suffer lengthy queues while people top-up their phones, play the lottery, download applications,and watch slick multimedia adverts, at least not on the high street.

Clever choices for banks

It is clear that banks must be clever in choosing the right products for their ATM channel. They must also deliver those products to the right ATMs in the right places. "Cash is King", say the critics. But EMV is coming, and cash can now be loaded onto smartcards. Soon everyone will have a card capable of more sophisticated interaction at the ATM.

Despite the innovation at ATMs, the main driver for banks to upgrade their ATMs is actually EMV compliance. This is ironic because the Card Associations do not favour the ATM since issuers do not receive interchange fees when their customers use another bank's ATM. But EMV is driving the adoption of smartcards.

In turn, smartcards are driving the introduction of new applications including loyalty schemes, digital certificates, and e-purses. These applications need to be managed and upgraded by banks, and accessed and transacted by customers. The most effective way of doing this is at the ATM.

ISO Growth

The alternative, the Point of Sale, needs to be manned at all times and is subject to arbitrary shop opening hours. Consumer demand for more complex transactions, alongside their groceries, can be frustrating for retailers. The deployment of mini-ATMs will continue to grow to serve this need and, consequently, ATMs will become more critical for retail businesses.

Deregulation in ATM fees will spur further growth in ISOs who thrive on revenue generated by non-financial ATM products, as do their retail business partners. Consequently, ATMs are soaking up third-party products. New ATM technology is bringing us multimedia screens, customer recognition by card type, speech, disabled support, and more. In Tokyo, people can deposit money at ATMs.

In Dubai, they can print chequebooks. In Dublin, you can top up your mobile phone. In the Middle East, and in North America, 'Hybrid ATMs' are being deployed. These machines can accept deposits, dispense cash, issue travel, entertainment and lottery tickets, print and dispense chequebooks, and trade shares. They will increasingly be used as substitutes for branches.

In parallel, EMV is refocusing banks on the ATM as a key touchpoint in creating consumer loyalty. Banks can recognise individual customers when they access one of their ATMs using a bank-issued smartcard and can automatically update the card or send targeted service messages to their customer.

In recent times, many banks have outsourced their ATMs to third-party specialists. Now, some enlightened banks are buying independent ATM networks. ATM ownership will become fragmented with a variety of public bodies, retail businesses, and non-financial services companies, joining banks in the ATM business.

More so than the banks, the public and non-banking organisations are benefiting fromtechnical advances at the ATM and the introduction of smart cards. One important example is governments who are planning to use e-purse applications on smartcards to manage social welfare payments. This will allow everyone from pensioners to the unemployed to receive and access their welfare benefits using a smartcard at an ATM.

The vitally important "unbanked" sector will soon be in reach, connected to the fiscal system by the ATM. Governments could also control where and how people spend their welfare benefits by controlling the e-purse applications so it can be used only in certain places. State-owned ATMs at job centres and social service centres may be the next logical step.

The smart card will cause a shift in the use of ATMs on a scale not seen since the introduction of reusable magnetic stripe cards in 1972. The smart card will change the way the ATM is used, owned, managed, and deployed. The ATM is evolving from a costly dumb terminal owned by banks with the ability to dispense cash to a valuable piece of social infrastructure, owned by, and serving, a variety of public and consumer interests, powered by the smartcard.