For automated teller machine networks, the future is now -- or maybe never.
Certainly, ATM networks will have a role in the banking industry for a long time to come, because they have created a successful 24-hour channel to deliver on-line access to consumers' checking accounts and instant cash. But greater opportunity awaits in the e-commerce marketplace: ATM networks are ideally positioned as the real-time payments system that complements the real-time communications system known as the Internet.
It's important to remember that for all the hype, the Internet is essentially a standardized real-time communications protocol. But it lacks what the ATM networks have developed over the past 30 years: a trusted, reliable, real-time payments infrastructure that involves more than software and telecommunications links.
The Internet includes substantial switching and processing capabilities and a complex set of operating rules and procedures that standardize the real-time movement of money. These rules go beyond higher-level Internet XML or OFX communications message sets to include security, settlements, regulatory compliance, and the raft of contingencies for when things go wrong -- from transaction reconciliation to how mission-critical ATM networks "stand in" when there are banking-level outages.
Though recent talk of alternative Internet payment systems has tickled the fancy of some, the reality is that any such system will need the same set of standards. New Internet-based legacy-to-legacy system technology might work for bilateral messaging with a single bank, but moving money among many institutions is another matter altogether. The banking industry, working under the watchful eye of government regulators, will still want the same level of standards for security, settlements, accountability, and operating rules and procedures developed by the ATM networks over the past 30 years. Banking institutions understand this. So why change?
Because not to do so provides the time and opportunity that new, unregulated players in the payments industry are looking for.
The somewhat insular attitude among ATM networks worked in an era when each had its own territory, unencumbered by competition. But that balkanized landscape is changing dramatically. The Internet enables banking institutions -- and indeed demands them -- to think beyond geography. Banks, thrifts, credit unions, and a host of nontraditional banking providers across the continent can satisfy a customer across the street from the neighborhood institution. Nationwide competition -- soon to be global -- is driving industry consolidation and convergence. This, in turn, is creating a chain reaction among shared regional and private ATM networks to consolidate as well.
As the ATM fiefdoms fall, the spirit of cooperation that enabled the networks to establish their real-time infrastructure must be regenerated. Competitors to ATM networks -- from start-ups to the credit card behemoths -- face many challenges in re-creating the real-time ATM infrastructure. But they are aggressively exploring how to do just that.
To claim the front line in real-time Internet transactions, ATM networks must focus on three challenges.
First, they need to develop an Internet security standard that ensures that whoever is requesting a transaction is who they say they are.
This is a straightforward task that will ultimately be solved by smart cards, using hardware and software encryption and a private security key. In the interim, ATM networks need a security standard to bridge us to the day, perhaps 10 years out, when on-line and traditional POS merchants are equipped to accept smart cards.
Digital certificates and low-cost tokens are only two of the options that provide an acceptable risk-reward ratio, given the size of the current market for Internet POS. Choosing which option is less a technology choice than a political one.
Second, the networks' transaction processing pipe must be expanded.
Today, networks usually limit transactions to debits in small amounts from at best three accounts. By expanding the ISO 8583 message set, some networks such as Concord's MAC ATM network offer access to many more consumer accounts.
But e-commerce needs a heavier form of independent sales organization, based primarily on today's transaction set but expanded to do more. Consumers on the Web will increasingly demand real-time access to all their accounts for multiple purposes, and they will want to move larger amounts of money among them -- both within the bank and at other institutions.
Finally, ATM networks must consider using their real-time pipe for credits as well as debits. Crediting accounts in real time for such things as on-line loans and stock sales has enormous potential, especially as financial institutions seek a differentiator to compete with those who wish to disintermediate them on the Internet. Crediting of commercial accounts should also be considered along with retail credits. Such credit capability is the final -- and some might say defining step in the electronic bill presentment and payment industry.
While the presentment half of the equation is inching toward viability, the best electronic bill paying systems today, such as MasterCard's Remittance Payment System, still require at least a two-day trip for funds to travel from the bill payment originator to the biller's account.
If the networks can attack this issue together, they can offer an exciting new service that marries real-time bill remittance and bill presentment -- all built on existing rails.