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Unwired: Wireless ATM connectivity continues to grow

Retailers and FIs had concerns early on about data-transmission security over the Internet. Now it appears some of those fears have been assuaged.

July 9, 2006

*About the author: Missy Baxter is a regular contributor to ATMmarketplace. Her recent work includes a tribute to the late Joe Kniceley and an in-depth look at the battle between merchants and the card associations over interchange.

With the expansion of high-tech connectivity options, ATM deployers are pulling the plug on old-fashioned phone lines. Aiming to boost transaction speed and security, cut costs associated with leased lines and increase deployment flexibility, deployers of all sizes are replacing analog lines with wireless/cellular connections.

San Francisco-based Swipe USA Inc., an independent sales organization that manages ATM contracts on 500 machines, is moving closer to its goal of becoming "totally wireless" by 2007. Most of Swipe's placements are retail.

"If the store already has high-speed Internet for its credit card machines or a wireless hot spot for customers, such as in a coffee shop, then they can save money by dropping the phone lines," said Ron Christensen, Swipe's chief executive. "With an SSL (secure sockets layer), the transactions are more secure than on analog lines. And with a TCP/IP, the speed is much quicker, with five- or six-second transactions."

To make the switch to wireless, Swipe is partnering with Reston, Va.-based Transaction Network Services Inc. TNS vice present of self-service solution sales Kent Phillips said more dial-up has shifted to wireless over the last 12 months.

In 2005, TNS deployed more than 1,000 wireless ATMs for the retail/ISO sector. Phillips attributes that surge to CDMA (code division multiple access) and lower costs.

But a growing track record of reliability and improvements in CDMA takes most the credit. Experts say CDMA - the new standard for many cellular providers, including Verizon, Sprint and Alltel - and GPRS (general packet radio service), CDMA's equivalent in Europe, have opened doors for wireless ATMs.

A connectivity bridge

Wireless ATM connectivity is being bolstered by the introduction of black boxes that spoof the ATM into thinking it's using a phone line. Though black boxes aren't expected to be around forever - they serve as a bridge between old and new tech - they provide deployers with an inexpensive way to get their feet wireless wet.

St. Louis-based JBM Electronics has designed a spoofing black box that converts dial-up ATMs to wireless ATMs. JBM president Steven Mintz said the box can be attached to any ATM, eliminating the need to replace existing machines.

JBM's newest router series is the C200. It allows asynchronous- or Ethernet-ready devices to use a cellular network. Various C200 models provide interfaces for dial-only devices, such as ATMs or legacy devices that use binary synchronous or Systems Network Architecture protocols. The Linux-based routers support CDMA networks from Sprint and Verizon.

Though he wouldn't share specific sales figures, Mintz said black-box sales are soaring. (In the fourth quarter of 2005, JBM shipped approximately 1,500 boxes. In January, Mintz told ATMmarketplace that his company had sold 3,000 boxes since the product hit the market.)

"We're getting orders on a more steady basis every day, rather than in big clumps like last year," he said. "We've been certified by all the (wireless) carriers, such as Sprint. That's really opened up the market."

Stretching bandwidth, speeding transactions

Wireless connectivity is touted because it speeds transactions. Increased bandwidth makes that happen. But another, perhaps behind-the-scenes, advantage is that a wireless network is a "self-healing" network, says Ron Riva, vice president of technical operations for Ventus Networks.

"If there is a problem, you don't have to wait on a tech crew to take care of it," Riva said. "During the aftermath of Katrina, for example, the first mode of communication that was back up was cellular. In this day and age, that's a very important factor."

Ventus is a Connecticut-based communications firm that provides cellular connectivity for ATMs. Last year the company signed a multiyear deal with Visa USA to provide wireless financial-transaction-routing technology and network management.

For the moment, wireless ATMs seem be more appealing to retailers and independents, but Phillips thinks the banking industry will soon catch on.

"In the off-premise business, we're seeing between 300 and 500 transactions a month at these ATMs," Phillips said. "If we can come up with a less expensive communication line," profits will increase, and that's attractive to retailers.

But for financial institutions, dangling cost-savings aren't persuasive enough to instigate change. FIs are naturally slow to change, and a connection hiccup could cost them more than a few transactions. The average FI ATM pulls between 2,000 and 2,500 transactions a month, according to the American Bankers Association. They are more interested in reliability than cost-savings. Besides, FIs view their ATMs as cost centers anyway. They aren't accustomed to making money on their machines, industry expects say.

Mintz said FIs also seem to be more concerned about security than retailers.

"I think retailers' decisions about security are regulatory-driven," he said. "Their main concern is that the black box is able to support existing management programs, such as those provided by Triton and Tranax."

If they can save money and continue with business as usual, retailers are usually sold, he said.

Security is still the biggest concern

The one hang-up for all deployers, when it comes to wireless, is still security. Some FIs, like Cleveland, Ohio-based National City Corp., say they are "exploring" cellular options as a way to cut costs. Others, however, are steering clear.

Jonathan Velline, who oversees ATM banking services for Wells Fargo, said Wells' on-premise ATMs are directly connected to a private wide-area network (WAN) while off-premise terminals are connected via dedicated frame-relay circuits.

"This provides us a high level of functionality, such as fast transactions and software distribution, as well as a high level of security," Velline said.

Analysts also are cautioning FIs that they must mitigate Wi-Fi security threats if they plan to go wireless. TowerGroup, an advisory research and consulting firm, says Wi-Fi, if not properly managed, could emerge as a channel of "significant threat."

"Institutions must be prepared to change their information security policies and practices to respond to the reality that (the) Wi-Fi devices employees are using on their premises may serve as unintended points of entry for security intrusions to their networks," TowerGroup's Bob Egan said.

Phillips agrees that security is a real concern for the industry. "A lot of them like the concept but say they're afraid somebody is going to pirate the data."

To answer that question TNS and others are encrypting data using SSL encryption or IPsec (Internet protocol security) - a standard that secures IP communications by encrypting and/or authenticating all IP packets. IPsec works at the network layer.

"It's more of an educational process we go through as we talk about our product," Phillips said.

Ventus' Riva said transaction processors are working to ensure transactions are secure. Solutions must protect data by complying with Cardholder Information Security Program and Triple-DES guidelines.

Skeptics remain

Although proponents of wireless tout it as the wave of the future in the ATM industry, some deployers are not totally convinced.

"I'm looking into wireless solutions for ATMs, but am a little bit hesitant as it is not a fully tested medium," said Steve Blank, co-owner of Los Angeles-based deployer Cash on Cash Enterprises LLC. "Also, in placements where the ATM is in the basement level, I wonder about the signal strength."

In addition to wireless, Blank is exploring other connectivity options.

"Right now I use Verizon or SBC in Los Angeles, and I'm saddled with about a $270 total-installation fee for Verizon and about $30 a month in phone-service fees per location," he said. "I looked into the option of DSL service, bundled with a merchant's current phone bill, but the total costs won't save me any money."

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