Their numbers, once small, grow to the size of a respectable city. Day in and day out, they work away, churning out cash. At one time a hallmark of technological wizardry, their role gradually dwindles to one of mundane machinery-an expected, unimpressive convenience. After years of blending into the scenery, the lowly ATM seems due for a major makeover.
Enter the Internet. Quickly, things begin to change. ATM screens blossom with high-resolution color, featuring news, entertainment and advertisements. Of course, cash and stamps still are available, but now so are movie tickets, coupons and maps. With a realm of possibilities as vast as cyberspace, these devices are dressed to impress-and financial institutions take notice. Some board the bandwagon, initiating pilot programs that offer a range of banking features on customized ATMs. Others are more cautious. And all wait for a measure of supercharged success.
A money-minded arena
Selling the public on the idea of Web-enabled ATMs may not be easy, according to Annie Earley, research director at Gartner Research, based in Stamford, CT. Despite the new features, consumers still see ATMs as cash dispensers, she says. Even for a simple and older application, such as selling stamps, "not many people think of going to an ATM for stamps because not all of them can do it. But every single one of the ATMs can give you cash. In the consumer's mind, it's a place to go get cash."
Echoing that sentiment is Les Riedl, senior vice president of Speer & Associates Inc., a financial services consulting firm headquartered in Atlanta. "The killer application-after everything's been done and tried on ATMs-the killer application today, after 30 years, is still cash dispensing." Some services appeal to small segments of customers, he says, including stamp sales, ticket dispensing and couponing. But despite these offerings and the possibilities for ATM screen advertising, "the lion's share of the business case ... is still transaction-based fees, or surcharging in another way."
Competition for the cash
Surcharging started America's ATM boom in the 1990s, Rieldl notes, with numbers skyrocketing from 80,000 ATMs in 1990 to the present 270,000 machines. Almost three-quarters of the new machines, he says, are "lower-cost dialups going into off-premise locations." Because of affordable dialup costs, operating these off-site ATMs continues to generate profits, Riedl says, even with only 300 to 500 transactions per month.
According to Jerry Silva, a senior analyst with the Needham, MA-based TowerGroup, IBM OS/2 operating systems are phased out in the next few years, Windows NT and especially Windows 2000 will enter the forefront, giving banks a chance to ask, "'OK, what can we do with the ATMs now to make them more effective?"
The newer cash dispensers at retail locations also have caused banks to rethink their strategies, says to Silva. "The banks are seeing these fancy machines out there and they're wondering, 'Well, can we do this ourselves? And even if we can't, can we at least do something more at our ATMs than we're currently doing?' So now you're talking about developing applications for the ATM that you simply can't do under OS/2 any more."
No tried-and-true methods
Newer ATM services, such as bill payment and ticket offerings, have not been successful in all pilot programs, notes Silva of TowerGroup. "It's a very costly undertaking and if you're not seeing a consumer response, then you've got to question the viability of that kind of thing long term."
Another risky trend that Silva notices involves banks' failure to promote services at newer ATMs. "It's a Catch-22 because they don't want to promote it and spend money on marketing if they think it's not going to go well.
"On the other hand, by not promoting it, by not marketing it, they're not getting that groundswell of support from the customer base."
All the new bells and whistles may signal another problem: confusion on the part of customers.
Earley even points out that, in light of new technology, the phrase "Automatic Teller Machine" has become a misnomer. In the future, she says, Web- enabled machines shouldn't be called "ATMs." "I think that would be too misleading," she says.
Over the next few years, a mix of old and new ATMs seems inevitable, but Riedl raises a point about Web-enabled deployment and ensuing differences within an ATM fleet. "At what point do you begin introducing these services? When 10 percent of your ATMs can support it? When 20 percent of your ATMs, when 50 percent of your ATMs support it?" He suggests introduction of new services when they can be available "at the very least, at the vast majority of your ATMs ...and optimally at all of your ATMs." Customers, he says, should not have to determine service availability by inspecting individual machines.
Advertising, too, involves untested waters. The potential is high, Riedl says, but there are two sides to the basic issue. "What consumer ever looks away from an ATM screen? By the same token, you can say that banner ads on the Internet also play to a captive audience. And advertisers are beginning to take half a step back from that, wondering whether they're really seeing any true value."
Silva notes that banks are adept at advertising their own products and services, but complications could arise when another company enters the mix. "Banks just don't know the same language that the advertisers do in terms of where are the stores, what demographics do they cover, how many impressions are they going to get every day." Adding to the mix, he says, is advertising's overall worth in an uncharted market: "What does the revenue model look like?" he asks.
Enhancing the experience
"Banks should really look at their ATMs not as product sellers, but as relationship devices," says Silva. One way that Web-enabled machines can enhance customer relationships is by interfacing with home computers. "If you Web-enable the machine, the ATM, it really becomes kind of like your PC at home; it becomes your PC, but a PC that can dispense cash. So the interfaces can be identical. You can actually set up how you want your ATM interface to look from your bank's Internet site through your PC." As an example, he says, if a customer's usual ATM withdrawal is $30, the ATM screen can be programmed with a "custom cash" button that automatically conducts the $30 transaction. "It really is talking about personalizing that ATM experience-personalizing the transaction experience for your customers."
Developing ATM technologies could bring benefits to FIs, too, Earley says. "I think access to the Internet is another method of communicating that decreases the number of technologies they need to support and put things on a centralized platform. And that may be important to the banks."
One example she gives involves the opportunity for banks to mix products for aggregation purposes. Web enablement could make some switching mechanisms obsolete, as well, Earley says. "And the cost of that switching not only is a transaction fee, but a membership fee, too." Technology could eliminate middle players and create a simple stream that is "bank to bank," she says. "I don't see that happening now. But I can see where the technology would allow that to happen, and Internet connectivity is the bridge to make that happen."
First and foremost, FIs must understand their ATM customers, and Reidl says the time is now. "This is no longer a technology issue. It really is a market demand issue," he says. "ATM technology has evolved to the point where you can do bill payments, advertising-any number of these value-added functions-in addition to transactions. The key is, how does the consumer see ATMs and what are they willing to do at ATMs?"