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Are We to Blame for the Stall, and Can We Fix It?

As ATM hardware becomes more and more commoditized, and as the value of each consumer transaction drops, the key to the ATM's future lies in its ability to deliver functionality that the consumer wants and will actually pay for, directly or indirectly.

November 9, 2003

Mr. Silva is a senior analyst, retail banking, TowerGroup.

Today's ATMs are wonders of technology. They can recognize you just by looking at you, speak and understand speech in multiple languages, and deliver almost any item of value one can think of. They can even tell you if your son or daughter over-extended themselves at the mall last night.

Yet the reality is that most ATMs don't do any of this. And the fault isn't with the technology-the technology is arguably as reliable as the dial tone and as complex as a jet fighter. Perhaps further progress in ATM functionality has been stymied by the consumer's unwillingness to do business with a machine.

Or maybe financial institutions, through years of using the machine to advertise products and services without regard to demand, succeeded in conditioning the customer to ignore any option but "withdraw."

Both probably are to blame-especially when you add a pinch of non-ATM alternatives to those same products and services, and some of the most recent news surrounding identity theft and the apparent vulnerability of modern ATM technology to the ravages of Internet hacking. Therein lies the challenge to the ATM industry today.

The ISO explosion of the late 1990s was good for the whole industry in that it led the way to innovation in ATM functionality. Unfortunately, the stigma associated with surcharging tempered that innovation and limited the number of organizations who could afford to experiment with new products.

But companies with a vision for the future, like 7-Eleven and Wells Fargo, are forging the way for the rest of the industry. As ATM hardware becomes more and more commoditized, and as the value of each consumer transaction drops, the key to the ATM's future lies in its ability to deliver functionality that the consumer wants and will actually pay for, directly or indirectly.

This means that today's machine vendors must become primarily software houses, or risk a frenzy of mergers and acquisitions brought on by an increasingly marginalized business. It also means that issues of customer and system security must be addressed before widespread adoption of the "next generation ATM" becomes reality. Banks and convenience stores will not compete directly to provide ATM-based products to consumers - each of these institutions has an inherent and different value to that consumer, and the best strategy will be to leverage those values. Customer re-education will be critical to the evolution of the ATM, and evolution takes time.

In areas of the world where bank customers are using ATMs perhaps for the first time, this is the best chance the institutions have to start on the right foot. Banks in Eastern Europe and Asia have already proved that de novo ATM markets can be as sophisticated as their North American or European counterparts, and sometimes even more so.

The next five years will see advances in the underlying technologies, partnerships and capabilities of the ATM industry. It will be a stealthy movement, mostly taking place under the covers, but it is one that is necessary to the well being of the ATMs future. Hardware vendors will become or partner with software vendors to provide solutions, the EFT networks will become more streamlined and efficient, lowering the hurdles to global commerce at the ATM. Banks will begin using the machine to communicate with their customers much more intimately than they do today, and the customer will (eventually) come around to using the machine more effectively, relying on it more and more for non-cash functionality.