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The ATM from invention to innovation

In the latest installment of 'On the High Road,' ATM Industry Association International Director Mike Lee visits with John Shepherd-Barron, the inventor of the ATM, and shares some visions of the ATM's future at De La Rue's Solutions Suite.

March 17, 2003

I have just put the telephone down after one of the most privileged conversations I have ever had. I have just spoken to the inventor of the ATM.

It is fitting that the interview was telephonic, because this is a man whose name deserves to stand alongside that of Alexander Graham Bell. But the inventor of the cash dispenser is virtually unknown.

ATM International Director Mike Lee

Nonetheless, his invention has changed not only the face of banking but also the way we conduct our daily lives. It is a technology that has altered our lifestyles more significantly than most other inventions. 

The name of this inventor is John Shepherd-Barron.

I believe he deserves to be classified as a technological visionary, due to the way the ATM is shaping the evolution of a 24-hour, self-service society more than perhaps any other technology.

He comes across as dynamic yet friendly, incisive yet good-natured, saying more than once when recounting his story of the quiet revolution his invention brought about: "It was all good fun really."

Today, Shepherd-Barron lives in a remote spot in the far north of Scotland, enjoying his hobbies of fishing and shooting, far removed from the 24/7 self-service consumer society he helped create.

His achievement in bringing about the creation of the ATM industry is no less than visionary. Today there are an estimated 1,200,758 machines worldwide with a new one being installed somewhere in the world every seven minutes or so. So while I was speaking to him, three more machines were installed in the world. Furthermore, Retail Banking Research predicts a 35 percent increase in the global installed base between 2001 and 2007.

An idea born in the bath

Shepherd-Barron's vision for a 24/7 cash dispenser was conceived one night in the bath back in the mid 1960s when the Beatles were at the peak of their fame,"flower power" had taken over San Francisco , human beings had not yet walked on the moon, and PCs and cell phones did not exist. At the time, he was managing director of De La Rue Instruments. He knew that if the business unit he was managing did not create a new product soon, it would fail.

The installation of the first ATM, at a Barclays branch in 1967."

"I remember being infuriated that I could not always get access to my money when I needed it, especially over weekends when banks were closed," he told me. "I started thinking of a way of getting money around the clock."

Shepherd-Barron's method of thinking was to conceive the end product first, in this case a machine that could deliver money 24/7. Then he worked backwards from that concept through all the "hows" of development.

"Think out a new idea, working out what you are trying to achieve, including the specs of the product, and then work backwards -- never the other way around," he advised.

The invention of the ATM brought different ideas, different experiences and different technologies together. For example, Shepherd-Barron's armored trucking division was then responsible for moving most of the cash in the UK. He had earlier brought over the idea of armored trucking from the U.S. But he had started his career with De La Rue on the currency printing side of the business.

"I had been heavily involved in printing money, and then moving money," he said. "The next step that seemed to follow was dispensing money automatically, to complete the process."

Another element that went into the creative mix that led to the ATM's creation was the Carbon 14 system developed for using secure tokens at Shell petrol stations by big commercial companies in exchange for filling their tanks with fuel. The Carbon 14 technology provided the security for the token.

"I thought, if a secure token can be used in exchange for petrol, why can't we use a secure check, impregnated with carbon 14, in exchange for cash at a suite of machines out in the High Street?

"The big break came when I asked the General Manager of Barclays Bank for 90 seconds of his time to share the new idea I had. His reply came after 85 seconds: 'If you can make this device you are speaking about, I will buy it right now.'"

The first machines

Soon afterwards, a deal was signed with the bank to develop six ATMs (called then a DACS -- De La Rue Automatic Cash System) for trial, followed by 50 more machines.  It took one year to develop the machine and make it work.

"Devising the coding was the complicated part," he commented on the initial development phase. "We wanted the end product to deliver batches of 10  £1 notes - enough cash for a weekend."

The world's first ATM, or "DACS," was installed outside a north London branch of Barclays Bank in 1967. Shepherd-Barron's invention had become a reality. The next cash-dispensing machine was produced by Chubb and deployed by Westminster Bank the very next week!

ATMs around the world

Shepherd-Barron took the concept to both the U.S. and Japan, destined to become the world's biggest ATM markets. At a 1967 conference of 2,000 U.S. bankers in Miami, shortly after the first ATMs had been installed in England, Shepherd-Barron was given 12 minutes to talk about the new self-service banking device.

At first, Shepherd-Barron said, it was received as "a wacky European idea that wouldn't sell in America." Few of the 2,000 delegates took brochures away with them. But soon after, he got his first U.S. order, from First Pennsylvania Bank for six machines to be installed in Philadelphia. "Then things began to snowball. The check token originally used to initiate transactions switched to the card," he said.

"Later, I took the idea to Japan and they told me 'Thank you very much but we are going to develop our own machines in Japan. However, we will pay royalties for your idea for seven years.' Typically of the Japanese, they honored this commitment and paid the royalties religiously. So our own machines were never sold in Japan," he said.

Never patented

One of the many twists in the ATM story is that the device has never been patented. This allowed rival machines to enter the market quickly, which resulted in a rapid rate of growth for the industry. Shepherd-Barron shed light on why he never had his invention patented.

"We asked our legal team about that. They advised us that applying for a patent would have involved disclosing the coding system, which in turn would have enabled criminals to work the code out," he said. "So for security reasons, we never proceeded with the patent in order to protect the coding process."

Did the inventor of the machine believe the industry would become as big as it has?

"Yes, I thought it would. I knew it would change banking."

Ironically enough, though, Shepherd-Barron thought cash would eventually be replaced by EFT/POS, as cash distribution is expensive. Fortunately for his invention, cash has refused to go away and today is stronger than ever in most countries of the world.

The future of cash

So, what is the long-term future of this trusted consumer device, invented in a bathtub over three decades ago?  How will the story of the ATM continue to unfold in a multi-channel environment? What is the future of the cash Shepherd-Barron wanted to get hold of over weekends when the banks were closed?

Fittingly, De La Rue still provides the mechanisms for one in five ATMs worldwide. De La Rue recently went "back to the future" by purchasing the Portuguese banking automation business, Papelaco. This no doubt pleases former Managing Director Shepherd-Barron, showing faith in the OEM production of the machine he invented, and enabling its Cash Systems business to offer its customers an end-to-end cash handling solution for their bank branches.

Where does the company that first produced the ATM see its future?

De La Rue rightly maintains that cash is still the preferred global payment method, with an estimated 180 to 190 billion notes in circulation and over 50 percent of all payments worldwide made with notes and coins (source: De La Rue's 2002 Annual Report).

Cash's refusal to die the death predicted by proponents of the cashless society can only be good for the future of the ATM industry! De La Rue's cash handling solutions enable 12 million transactions in financial institutions every day.

Germain Roesch, managing director of DLR's Financial Institutions business stream, said,  "Every available study shows that the amount of cash in circulation is increasing year by year in almost every country in the world. A recent RBR report states that in the U.S., for example, the increase is from U.S. $217 billion in 1988 to U.S. $458 billion in 1997 (in value)."

This is a world flush with cash! Cash has resisted numerous attempts to replace notes and coins with other, less expensive technologies. Plastic money, paper money (checks) and e-money all provide alternative payment mechanisms, but culturally they lack the raw appeal of cash in the hand. 

I, for one, would love to read a qualitative research study on worldwide trends in consumer attitudes toward cash vis-a-vis all the other alternative payment technologies. I would predict that the level of trust in cash displayed by people from a vast range of cultures and income groups would be higher than for alternative forms of money. If you disagree, please email me at mike@atmia.com as I welcome debate and discussion!

And Shepherd-Barron's invention continues to be the principal means of dispensing this favored form of money.

Bye-bye branch?

What are the implications of this continuing popularity of cash for banks of the future? Hand in hand with that question is a related question: What is the long-term popularity of the bank branch? Will automation replace the branch?

According to U.S.-based ATM research specialist, Peter Kulik, managing director of KLCI Research Group, there is an increasing re-appreciation of the role of the bank branch as a retail delivery channel. 

"Contrary to the belief that the Internet and the ATM would end branch banking as we know it, many bank customers still prefer the human interaction they get in a branch -- and the branch is the only channel through which they can get this interaction," said Kulik.  "As such, it is also the most efficient channel for relationship building and CRM."

In financial services, new delivery channels seldom succeed in fully replacing older delivery channels. What happens instead is that one gets a multiplication effect: new channels complementing, rather than replacing, older channels. The result is wider choice for the customer, but a headache for financial institutions trying to optimize multi-channel delivery of products and services.

De La Rue's Solutions Suite at its Basingstoke offices in England offers a look into the future of banking in a multi-channel world flush with cash. Roesch explained that their futuristic Solutions Suite has been built around the cash cycle.

"We believe that every player in the cash cycle we serve (central banks, cash-in-transit companies, retailers, financial institutions), not only needs to consider the flow and process of cash in their own organization, but they also need to be aware of what is happening up and downstream from them," Roesch said. "They can't act in isolation from other stakeholders in the cycle. What we want this Solutions Suite to be is a brainstorming environment for our customers, so together we can generate ideas around ways of re-engineering their cash-related processes."

De La Rue's Solutions Suite offers a look into the future of banking in a multi-channel world flush with cash.

"We see more and more in the markets in which we operate, the requirement from banks to have their strategic suppliers as a 'one-stop-shop provider.' Of course, this approach is not limited to hardware (self-service, teller automation and back office automation). It has to encapsulate software, connectivity related or application software; but also a range of support services, from maintenance to full facility management," Roesch added.

What we may be witnessing is the reinvention of the bank branch with a modern, multi-channel, "one-stop" feel to it. Roesch elaborates: "For a few years, the banking community was predicting that the new channels (Internet, telephone, etc.) would replace the presence of the physical bank branches. We are seeing more and more -- globally -- that financial institutions are implementing a true multi-channel strategy."

The challenge for banks becomes to cost effectively manage the proliferation of channels. "In this respect the branch, as well as ATMs, have a big role to play in the delivery of services and information to the end customer. And it is recognized that the bank branch is key for cross-selling financial products and enhancing customers' loyalty," Roesch said.

Encouraging innovation

So far, then, the story of the ATM has been one of three I's: Invention, Investment and Innovation. The middle 'I' is mission-critical -- unless the business model of ATM operations produces sufficient profitability for bank and independent deployers, whether through interchange fees, surcharging or new killer applications, funds for investing in the continued technological development of the ATM will dwindle and the spirit of invention and innovation in our industry will fall into decline.

It is the role of ATMIA to help keep that virtuous cycle going: happy suppliers providing trusted ATM technology to happy deployers who, in turn, provide "money around the clock" to happy customers.

Then we can all look forward to being in this industry long enough to retire to a remote and beautiful spot and, like Mr. Shepherd-Barron, take up fishing or some such pastime good for the active, restless minds that make inventors and innovators who they are.

Included In This Story

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ATM Industry Association (ATMIA)

The ATM Industry Association, founded in 1997, is a global non-profit trade association with over 10,500 members in 65 countries. The membership base covers the full range of this worldwide industry comprising over 2.2 million installed ATMs.

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