While ATMs remain critical to a financial institutions' distribution network, the mushrooming number of machines, combined with alternate payment options like debit cards, has continued to erode both the number of per-machine transactions and return on investment, according to a new study.
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That study, produced by the Tower Group here, said the result of those conditions has been to put even more pressure on ATM owners to generate revenue.
"Attempts to maintain revenues at the ATM over the past decade have prompted banks to try everything from selling movie tickets and postage stamps, to topping-up prepaid cellular phones," the research observes. "And while advanced functionalities like these today create $1.2-billion of revenue worldwide, customer use of these functions has remained lower than expected-as have revenues reaped.
The study suggests that banks and credit unions have no choice but to add functionalities, and identifies two areas with potential for the greatest return on investment.
Among the study's highlights:
There are currently more than one-million ATMs throughout the world (twice the number of retail bank branches) performing 40- billion transactions annually
* While the cost of machine upgrades has been the primary factor behind banks' hesitation to spend more on advanced ATM functionality, new regulations related to security and access for the visually impaired will soon compel banks to invest in modern, web-enabled platforms that can accommodate new kinds of services.
TowerGroup said it has concluded that two advanced ATM functionalities will ultimately provide the highest ROI. In the US, deposit "truncation" that could be enabled by the eventual passage of the Check Truncation Act will significantly reduce the cost to process deposits. Globally, customized customer contact via the ATM will deepen the relationship with the customer by providing a superior level of personalized (though automated) service.
"Because it has become both so prevalent and convenient, for many people the ATM is the bank," said Jerry Silva, senior analyst in the TowerGroup Retail Banking practice. "However, more ATMs has not led to greater revenue. The sheer number of machines and the growing popularity of non-cash alternatives like debit and cash back at the point of sale have eaten away at the value each ATM in a network produces."
Silva noted that that $1.2 billion in revenue brought in by advanced ATM functionality isn't as impressive after a little investigation. "When spread out across the one-million-plus ATM machines globally, the real per-machine revenue can be a challenge to justify in terms of return on investment. The key to increasing the ATM value will be in providing higher levels of service and convenience, both through end-to-end deposit processing and personalized customer relationship management," Silva said.
For info: www.towergroup.com.
