Banks in some countries are introducing alternatives to the iconic magnetic stripe ATM card, encouraging mobile phones and other technology for cash access.
Such methods may help to reduce fraud, enable consumers to make person-to-person payments and bring banking to underserved areas where many consumers have a mobile phone but not a bank account.
An increase in mobile-based payments is one major factor prompting the changes in how consumers may access automated teller machines, but rising availability of contactless cards also is a factor, especially in regions such as Europe where many consumers have and use contactless cards for small purchases and public transit.
It remains to be seen whether the trend will spread to the U.S., Todd Ablowitz, the president of Double Diamond Group LLC in Centennial, Colo., said in an interview.
"It is possible the trend will come to the U.S., but it will take some time," Ablowitz said, adding the U.S. must have a bigger rollout of mobile payments to increase the chances of using mobile payment options at the ATM.
Moreover, many U.S. consumers still identify with the convenience of using mag stripe cards to withdraw money, Ablowitz said.
But such countries as South Africa, India and Spain are leading the way with contactless and cardless ATMs to minimize risk and to reach out to unbanked consumers by enabling them to use their mobile phones to access cash and send funds to family or friends.
Cardholders in India will soon be able to withdraw cash from ATMs through a contactless service from the Indian operation of Roamware Inc., a San Francisco financial services provider. The company hopes to launch the service later this year once the Reserve Bank of India permits it.
Once approved, Roamware would equip the ATMs with a software upgrade to enable noncardholders to facilitate withdrawals, Avnish Chauhan, Roamware's executive vice president, said.
Consumers with any type of mobile phone would be able to withdraw cash from participating ATMs as long as they have a bank account, he said. A Roamware representative said deployers can use the company's software with any ATM.
Once Roamware authorizes the withdrawal request, the bank processes the transaction using the Roamware platform, which contacts the bank's account management system and validates the withdrawal amount and holds the funds for the consumer to withdraw, Chauhan said.
Roamware then generates a unique code, which it sends to the consumer as a text message. The code is valid for a short amount of time, usually up to one hour, Chauhan said. Consumers would withdraw the funds by entering the code and their mobile phone number at the ATM. If Roamware determines both are accurate, it authorizes the transaction to allow the withdrawal to occur.
Consumers sending funds to unbanked individuals enter the recipient's mobile phone number when setting up the withdrawal. The recipient then continues the process at the ATM by entering his or her mobile phone number and the code received via text message, Chauhan said.
"Cardless ATMs are a great way to embrace the larger community of unbanked and underbanked consumers," Chauhan said.
"Less than a fifth of the global population has access to traditional structured banking services, while mobile services are available to over 4 billion subscribers," Chauhan said. "Our technology is extending the reach of financial services to unbanked consumers through the convergence of mobility and finance."
A bank could decide to charge the cardholder an extra fee for a cardless withdrawal, Chauhan said.
First National Bank in Johannesburg, South Africa, also has eliminated the need for consumers to use cards to initiate ATM withdrawals.
In March the bank began enabling consumers to make withdrawals from ATMs in Johannesburg using their mobile phones. First National did not indicate in its announcement how many machines its deploys that support the service. A representative from First National did not comment.
Consumers log in to First National's Cellphone Banking service and select the banking option. They then chose the specific account they want to access, and the bank sends them a text message once the transaction is completed online.
Similar to Roamware's service, the text message includes a temporary single-use PIN for the ATM transaction that must be used within 30 minutes for security purposes.
Some banks also are offering a contactless option.
Caja de Ahorros y Pensiones de Barcelona, or La Caixa, which operates the largest cash machine network in Spain, in early April installed the first contactless ATMs, using technology from Fujitsu Global.
La Caixa deployed the machines in Barcelona, Sitges and Palma. The technology integrated into the machines enables consumers to either withdraw funds using a contactless payment card or a phone with a near-field communication chip.
The entire cash withdrawal process takes about 26 seconds compared with 38 seconds for withdrawals made by inserting a card, a La Caixa spokeswoman said.
To scam these machines, "fraudsters would have to intercept the transmission in the two to three centimeters between the card and the contactless reader," she said, adding that the cards themselves are protected by EMV Integrated Circuit Card Specifications and a PIN.
As the mobile payments market continues to evolve, financial institutions should consider phones for ATM access because so many consumers have mobile phones but may not have a bank account or a bank card, Ablowitz said.
This is especially true outside the U.S., where conversions to chip cards already are necessitating the need to upgrade cash dispensers, he said.
Overall, however, cardless and contactless ATM deployments will depend on the demands within a country for alternative means to access the machines, Ablowitz said. "The more popular mobile payments become, the greater need there is for ATMs enabling consumers to withdraw funds using mobile phones," he said.
The improved security element is especially important because "ATM debit card skimming is currently on the rise," said Julie Conroy McNelley, a senior risk and fraud analyst at Aite Group LLC of Boston.
In a February Aite report on fraud management, financial institutions ranked card skimming as the third-leading cause of fraud loss after malicious software and counterfeit debit and credit cards. Card skimming also is increasing because it spans multiple channels such as ATMs or in-store payments, according to Aite. Cardless and contactless ATMs basically eliminate and minimize the option to skim, so the risk for card fraud decreases, McNelley said.
But while the ATMs may be relatively secure and enable unbanked consumers to withdraw money, many banks may need to find an "appropriate incentive to encourage consumers to change their behaviors," McNelley said. Consumers are trained to use their cards at ATMs, and adding extra steps such as going online and then going to the machine may deter them, she said.
"It may not take off like wildfire until banks can figure out the best way to present what is in it for consumers," McNelley said.
