It would be hard to imagine life without automated teller machines, now that the public has had more than two decades to grow accustomed to the convenience they offer. So prolific are they that it sometimes seems as if every banking office, every street corner and every shopping mall sports an ATM, most of which display the decals of up to a half dozen networks.

Depending on the survey, up to a quarter, a third or half of retail banking customers turn to ATMs, not tellers, for most routine banking transactions. There are about 109,000 ATMs in the United States--one for every 2,400 people--almost double the base of 55,000 ATMs just 11 years ago, according to industry newsletter Bank Network News. Many banking observers maintain that banks have installed about as many ATMs as the market can bear, that everyone who wants to use ATMs is already doing so and just about every reasonable site for an ATM already has one.

Transaction volume per ATM has leveled off between 6,000 and 7,000 per month, and today, more banking transactions are being moved, or are expected to be moved, to other self-service devices such as telephones, screen phones, personal computers and personal digital assistants.

[Expanded Picture]But despite all these indications that ATMs have peaked, a growing group of bankers is reassessing their role and examining the potential of other self-service terminals in their retail delivery strategies. Many are finding untapped opportunities for expansion. Some banks are adding services to ATMs like full check-cashing capacity and the ability to print mini-statements. Others have turned to non-banking ATM services, ranging from selling postage stamps to supplying bus passes. Still others are encouraging customers to use services that have long been available but never widely utilized, such as making deposits in ATMs.

Banks even are eying untapped locations such as casinos and discount stores, dismissing the notion that the country has enough ATMs. "We aren't over-ATMed; ATMs are under-utilized," declares one banker. Adds Richard Davis, executive vice president of Ohio-based Star Banc, which has 350 ATMs: "Everything has its time, and the time for ATMs has come."

Quantum Leap in Functionality

The most widely used ATM transaction--accounting for two-thirds of the country's 700 million monthly ATM transactions--is cash withdrawals. While adding functionality may eventually lower that percentage, cash dispensing will remain important. "We still need cash," observes David Baker, director of marketing at Fujitsu ICL Ltd.

Fujitsu is one of three surviving U.S. manufacturers of full-function ATMs; the other two are AT&T Global Information Solutions, which previously was NCR, and Interbold, a joint venture between Diebold and IBM. "Our economy thrives on cash, so consumers need convenient locations where they can get it," Baker says. "But we are seeing a quantum jump in ATM functionality."

That jump in ATM functionality means that banks can increasingly expand ATM services and numbers and types of locations to increase customer convenience--with convenience defined by customers, not by the bank. "We listen to our customers, and we've incorporated services they've asked for into our ATMs," explains Joe Ann Turner, vice president at North Carolina's Centura Bank. Customers increasingly request account information, so Centura introduced an ATM mini-statement service in early March on nearly all of its 200 or so ATMs.

An ATM screen allows the customer to choose which type of transaction to query--deposits made, checks cleared, ATM transactions, electronic transactions. "We're really amazed at the response we got in the first month, more than 1,700 statements, and we haven't even advertised the new service yet," Turner says. Adds Catherine Corby, director of electronic delivery strategy at Barnett Banks Inc. in Florida: "Customers are clamoring for more and more convenience." Barnett has nearly 800 ATMs, yet Corby sees "more opportunity for ATMs."

[Expanded Picture]Louisiana's First Commerce Bank expanded the number and types of ATM sites because customers made it clear that limiting ATMs to branches was not their idea of convenience. Says R. Jeffrey Brooks, executive vice president: "Our clients are not enthralled with the idea of going to branches or using ATMs only at branches."

First Commerce responded with a significant off-premise ATM program, with roughly 200 ATMs in locations from riverboat casinos and New Orleans' French Quarter to discount stores and drug stores. "We're trying to meet the needs of our clientele with this variety," Brooks says, adding that First Commerce also has ATMs at the zoo, at the aquarium and in hotels.

While First Commerce's major off-premise deployment is not common, it does reflect the long-term trend toward facilities convenience. "All the trends in banking have been to move facilities closer to where the customer is, starting with drive-up windows," says Ron Marguglio, director of marketing, financial industry, at InterBold. "Now banks are moving ATMs into locations near where customers are going anyway, where they live, shop and work."

Finding out what customers want requires research, and an appropriate response. "Our philosophy is to give customers what they want when they want it, and we do surveys to find out what that is," Star's Davis says. "We've learned, among other things, that we're performing well with our customers but that factors that are important to the bank might not be as important to the customer."

Demand For Full Service

Research on service shows that both banks and customers want full check-cashing service through ATMs. At most ATMs, "cashing" a check requires a deposit, then a withdrawal of whatever amount the bank permits for uncleared deposits. Banks usually limit this amount because they are at the mercy of the customer who may not report the check amount accurately--or may not even deposit a check. The deposit and proof procedure for ATM-deposited checks is usually burdensome.

These factors have left check-cashing in the purview of tellers. "You can't replace a teller window transaction with a procedure that is even more cumbersome," declares Barnett's Corby. As Fujitsu's Baker bluntly puts it: "Customers and banks said, `Phooey on this.'"

Yet according to Phil Kasper, director of financial products and technology at AT&T Global Information Solutions, two-thirds of a teller's time on consumer transactions is spent on checks. To address the problem, newer ATMs can have check-cashing capability, and many major banks such as Pittsburgh's PNC Bank Corp. and Ohio's Huntington Bancshares are offering the service, with reported success.

The ATM screen displays the deposited check--front and back --so that the machine "knows" it has received a check and the customer can verify the amount deposited. The ATM can also read the amount, even if handwritten. Consumers are comfortable that the check has been recorded; the bank has more assurance that is has actually received the check.

Adding check-cashing capacity may boost an old ATM service that is widely available but not widely utilized--making deposits, "ATMs have not met the deposit needs of consumers," reflects AT&T's Kasper. "Consumers want to know that the bank agrees that the amount on the check is the same as what the consumer says it is."

Some banks have tackled this lack of deposit-making interest with incentive programs, not always successfully. Tom Tremain, vice president of electronic banking at First Chicago Corp., says the bank tried offering customers who made deposits at the teller window coupons for $2. These customers who then made an ATM deposit and included the coupon received the $2 as a deposit.

The response? "Mediocre," Tremain says. "I think we would have done better if we had taken people over to the ATM and demonstrated how to do deposits."

[Expanded Picture]While check cashing has widespread appeal, and making deposits has the potential for vast transaction growth, other ATM services appeal to a much smaller base of potential users. Star Banc, for example, has installed ATMs that dispense several foreign currencies at the newly renovated Cincinnati airport.

"We added foreign currency because we are in a Procter & Gamble town, where a lot of executives fly to Europe on a regular basis," Star's Davis explains. "When the airport remodeled, we joined in the celebration with the newest technology."

Reaching Out

Besides serving current customers more efficiently, banks must also consider the needs of non-customer cardholders, because interchange income adds to the ATM-owner bank's coffers. "A lot of non-First NBC (National Bank of Commerce) customers, including tourists, use our off-premise ATMs," First Commerce's Brooks reports. "We've seen a pretty dramatic increase in transaction volume; the off-premise program has been very successful."

Also, competitors' cardholders who repeatedly use another bank's ATMs because they are convenient may decide to move their business to the bank with those more convenient ATM locations. "Our off-premise ATMs attract both customers and non-customers, and after a while, the non-customers--particularly those who use on-site employee ATMs--might open an account (with Star)," Davis says. More than half of Star's ATM base, in fact, is off-premise.

Other ATM functions are evolving. Terminals and kiosks that dispense information such as statements or literature, or that provide telephone links to bank staff, are slowly developing. "We introduced such a terminal years ago (when) people were saying they were the next terminal, but no one bought it," Marguglio recalls. "Now, there is real interest because they can provide the link between all the bank's networks--branches, ATMs, voice response--using voice or video. You can sell a product through these."

Later this year, Barnett will be piloting what Corby dubs "non-cash terminals" that will provide account maintenance and account servicing, "stuff that might be done over the telephone or in the branch," she says. "It's a better way of not loading up the ATM."

Star has "customized merchandising 24-hour kiosks," in which customers can obtain information through literature or 24-hour telephones. "We're thinking of adding terminals to ATM sites where the ATM is weather-protected," Davis says.

Sites with more than one terminal are increasingly common, particularly sites with one full-function ATM and one cash dispenser. interestingly, this reflects a trend counter to increased functionality: the one-function cash dispenser. Notes InterBold's Marguglio, "If you remove the cost of the deposit function, you lower the cost of ownership. And while you may be able to do other banking functions through other terminals, like PC-based home banking services, you can't get cash at home."

The possibility of customer confusion--which terminal does what?--is not an issue with banks taking this approach. Barnett's Corby explains: "You can do a lot through branding." She calls it "the Coors and Coors Light" approach. "We can use the surround of the ATM to market the services of that ATM. Most customers use the same small group of machines for their routine transactions," so they'll know which services are available at which ATMs.

Customer convenience isn't the only driver for ATMs and other self-service terminals. If that were the case, banks could respond with 24-hour, fully staffed branches in convenient locations. For that matter, they could assign staff to drive to customers' houses with mobile teller terminals.

The obvious snag to such lavish convenience is cost: Staff, branches and mobile terminals are expensive.

While methods of comparing ATM transaction costs to teller window transaction costs have been disputed for decades, more and more banks are finding that, for their own distribution systems, it is much less expensive to install, operate, service and upgrade ATMs than it is to operate branches.

Kent Schrock, financial systems marketing manager at Fujitsu, cites an American Banker survey of 250 major banks who reported that their foremost expense is still branches. Mulls Marguglio: "For banks to stay competitive, they have to reduce costs, and that means reducing the ratio of tellers to people, not ATMs to people. Don't burden staff with trivial and mundane activities that could be handled better by terminals." Adds Fujitsu's Baker: "You have to find out what transactions that can be done at the branch can be shoved onto the ATMs."

Shoving transactions onto ATMs could well mean increasing ATMs and self-service terminals and decreasing teller staffs. Barnett's Corby says that when the bank's ATMs can handle check-cashing, "We'll be able to move virtually all consumer teller window transactions--98%--to the ATMs." That means the bank will be able to displace tellers.

"We banks need to do business more efficiently, and customers are willing to do business in a variety of ways," she says. "Banks that are going to survive in the next 10 years are the ones who do automated banking well."

Fee Income Opportunities

Banks are turning to self-service devices not only to cut costs but to boost income. The theory of charging customers lower fees for less expensive (to the bank) transactions has been bandied about for years, but most banks continue to charge more for, say, a point-of-sale debit transaction than for a check written at the cashier.

Only a few banks have broken this mold, including First Chicago, which has 504 ATMs concentrated in the Chicago metropolitan area. The bank recently announced a new group of consumer checking account packages that explicitly charge "only when activity exceeds a specified level and only for the transactions that cost us the most: teller transactions, personal telephone assistance and non-first Chicago ATMs," according to a prepared statement.

Under the new strategy, all First Chicago retail checking customers receive free, unlimited checkwriting, a free ATM card, free use of First Chicago's ATMs and free use of the bank's 24-hour automated-response telephone service.

In one of the new packages, Self-Service Checking, customers will be charged $3 for a teller transaction (and $2 for an assisted telephone transaction) if an automated system could have provided the service for free. "We're doing what bankers have been talking about at conferences for years," observes Tremain. "We did a ton of research about what customers wanted, and they said they wanted low minimum balances and that they like the idea of having choices and control. That's what our new packages give them."

All ATMs and self-service terminals will have to be linked to a system that also receives electronic transactions from other sources--home-and office-based PCs, telephones, screen phones, interactive television, even, eventually, personal digital assistants. Kasper and others warn that such finks can be operationally challenging.

But with that expansion comes an opportunity for banks to differentiate themselves by the array of services provided--and to promote that array effectively. "Banks need to use a family of images, a unity of appearance, on all these devices so that the customer associates that image with that bank," notes Baker at Fujitsu. "The market will be evolutionary, not revolutionary."

Nancy E. Grant is a partner in Grant & Bochicchio, a Burke, VA, research and consulting firm specializing in electronic banking.

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