News

Banks spend more on ATMs, buying new technology

December 29, 2004

Banks and other financial institutions are facing IBM's eventual withdrawal of support for its OS/2 ATM operating system and the need to comply with regulatory mandates such as Triple DES. Vendors are also offering the ability to introduce check-imaging and other new features.

Yet many banks appear to be taking a fairly conservative approach to updating ATMs - boosting attrition rates but frequently opting for upgrades rather than new machines.

"As long as the machines I have can keep me compliant, I'm content," said W.R. Holman, vice president of electronic banking for Louisiana's Iberia Bank. "I've got some good machines. There just aren't enough reasons right now for me to swap them all out."

Iberia replaced 10 machines not capable of running Triple DES, purchased seven new ATMs to deploy in sites with the highest transaction volumes and upgraded the remainder of its 42-machine fleet.

Connecticut's Peoples Bank replaced eight machines and upgraded the rest of its 240-machine fleet. The total cost was in "the high six figures," said Ted Josephson, vice president of Direct Banking and Operations.

Josephson will boost his normal annual replacement rate of approximately 10 percent over the next few years - but only slightly.

"In a perfect world, with no budget constraints, I'd buy more new machines. But I know I can get at least another couple of years out of the machines I upgrade," he said.

Show me the money

A recent TowerGroup report estimates that large U.S. FIs will spend $1.8 billion on ATMs in 2004, 12 percent more than they spent in 2003.

Year-over-year ATM expenditures normally grow at a more tepid 3 percent to 5 percent, said Jerry Silva, the report's author. Because maintenance costs have remained stable, much of the spending is on new machines and software development.

Silva said that 70 percent of ATMs geared to the bank market will ship with Windows as the default operating system in 2004, up from 10 percent or so in 2001. "We're getting to the point in the replacement cycle where it makes sense for (banks) to get machines with new technology."

Ohio-based National City is spending some $30 million to upgrade 600 ATMs and replace 1,400 machines, a project it hopes to complete in 2005's first half.

"When I passed the hat to get the funding, the first comment I heard was, 'We won't have to have this conversation again in a couple of years, will we?'" said Matthew Burns, senior vice president of Electronic Banking. To minimize that possibility, all of the machines, new or upgrades, will run Windows and have at least a Pentium III processor.

Burns said his main aim was to "create a consistent baseline from which we could evaluate any future enhancements."