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U.S. consumers typically use ATMs to initiate deposits, withdrawals, balance inquiries and balance transfers, essentially the same basic services ATMs supported 40 years ago when New York's Chemical Bank installed the first ATM in 1969.
Indeed, the United States is the birthplace of the modern day ATM. But other parts of the world, particularly emerging markets, are at the forefront of extending the machine's potential. Some countries, for example, are using ATMs to enable consumers to pay their taxes.
"The difference between the U.S. market and emerging markets is a matter of timing," says Nicole Sturgill, research director for TowerGroup, a Needham, Mass.-based consulting firm. "When ATMs were introduced in the U.S. 40 years ago, they had a limited functionality, and those functions are what we got used to using. In emerging markets, ATMs have been introduced more recently and came with all of the functionality available at the time of the introduction. It's a leapfrog effect–emerging markets have jumped right over the old stuff and straight to the new."
Ken Justice, vice president of global marketing and portfolio management at ATM manufacturer Diebold Inc., agrees. "It is a lot harder to change banks' back-end systems to offer new services," Justice tells ATM&Debit News. "In emerging markets, they are just now installing their ATM networks and back-end systems that operate the networks."
India and Italy, two of the world's oldest civilizations but relatively new to ATM deployments, offer examples of some of the more recent advanced functions for ATMs.
In September, India-based Corporation Bank became one of the latest financial institutions to make it easier for government authorities to collect taxes from cardholders by enabling ATMs to support tax payments. Consumers in other parts of the world, especially in Asia, lately have found it simpler to pay a variety of taxes from bank and card accounts either through ATMs or through Web sites.
Government agencies, eager to reduce corruption and increase efficiency, are lowering barriers to expand the options available to pay taxes. Some even have started allowing the use of mobile phones for payment.
With Corporation Bank's system, when a customer pays income taxes at the ATM, software authenticates the user's PIN and retrieves tax details from the bank's server. The bank debits the tax amount from the customer's account, a bank spokesperson tells ATM&Debit News. "The customer will get a receipt with the transaction details, which he can furnish to the income tax department," the spokesperson says.
The bank deploys approximately 1,000 ATMs. The spokesperson would not say whether customers pay fees to pay their taxes using the service. The bank is working with India-based banking technology provider ElectraCard Services Private Ltd. on the scheme. ElectraCard's system authenticates the PIN and retrieves tax details from the bank's server.
Other countries also want to simplify the tax-collection process. Vietnamese taxing authorities, for example, want to make tax collections less costly for the government and reduce time-consuming lines at tax offices, according to comments in the Viet Nam News, a local English-language news agency. Authorities quoted in the report acknowledged the effort faces significant challenges, however, including the "poor quality" of ATM ink, which causes receipts to fade within a few days, making it difficult for taxpayers to keep records.
In Spain, customers of Caja Madrid bank can pay local government taxes and access Social Security funds by inserting their Spanish electronic national identification cards into SelfServ ATMs provided by United States-based NCR Corp., Sharon Dickie, vice president of marketing, NCR Financial Services, tells Cards&Payments, an ATM&Debit News sister publication.
Direct tax payment using plastic also is gaining traction. In South Korea, the country's Anti-Corruption and Civil Rights Commission this summer urged more taxing agencies to accept credit cards for fee and tax payments. The commission, an advisory group, says consumer demand for enabling taxes to be paid with credit cards is increasing. The commission says it has received about 6,000 complaints and requests related to credit card tax payments since its founding in 2008.
The call from the commission came as South Korea's Ministry of Public Administration and Security said it would drop a requirement that citizens wanting to use cards to pay taxes must first obtain a written tax notice from government authorities, according to a spokesperson for the ministry. The revised rule applies to tax payments made via ATMs and the Internet.
The rule potentially has wide-ranging effect. According to the ministry, South Korea has 16 types of local taxes, including those for property and automobiles, along with more than 200 local agencies that collect taxes.
The South Korean government also reportedly has pressured local tax-collecting authorities to stop charging fees when consumers use credit cards to pay taxes. The government also has said that consumers who pay their medical bills with credit cards can take tax deductions similar to those offered to consumers who pay medical bills with cash.
Back in India, Jammu & Kashmir Bank this year said it launched a service to enable consumers to pay income taxes online using payment cards. "Many banks [already] offer an online tax-payment facility in India," says Prathima Rajan, an India-based analyst for United States-based research firm Celent.
The announcement followed news from Italy-based financial institution Montepaschi Group that it would enable consumers to pay fines and taxes using the bank's ATMs. Consumers with Pagobancomat debit cards can use the machines to pay funds owed to the Rome City Council. Consumers select the tax-payment option from the ATM's services menu, enter a "payment code" included in a tax-payment letter from the council, and pay a service charge of approximately 1.50 euros (US$2.20).
Canadian efforts
In Canada, a nationwide effort to encourage more citizens to pay taxes online received a boost this year. In October, the Canada Revenue Agency became the first major federal agency to accept Interac Online, a service from the country's Interac debit card network.
Consumers paying taxes choose the Interac Online payment option upon checkout at the revenue agency's Web site. Users of the service choose their financial institution to complete the transaction using their bank's online-payment service.
Citizens can use the online service to pay a variety taxes and fees, including individual and corporate income taxes, child and family benefits repayments, sales taxes, excise taxes and duties, and even export charges for softwood lumber, Caitlin Workman, a spokesperson for the Canada Revenue Agency, tells Cards&Payments. Canadians who do not live in Quebec also can pay provincial taxes using the Interac service, called "My Payment," she says.
While Canadians cannot use credit cards to pay the revenue agency taxes, they can use debit cards to make payments in tax-services offices and preauthorized debit payments from bank accounts, Workman says. An example of a preauthorized debit payment would be a preapproved payment made from a bank account to the revenue agency.
Electronic payments accounted for 24% of all payments made to the Canada Revenue Agency in fiscal 2009, which ended in March, up from 22% a year earlier and from 19% in fiscal 2007. Conversely, check payments are declining, to 42% of all payments in fiscal 2009 from 44% a year earlier and from 46% in fiscal 2007.
Taxes paid at Canadian banks accounted for 34% of tax payments during the past fiscal year, the same as a year earlier and down from 35% in fiscal 2007.
"Secure, efficient, 'green' electronic remittances have been steadily on the rise, and the trend suggests that they will eventually surpass conventional methods as new electronic technologies are developed, proven and tailored to the [agency's] strict standards," Workman says.
Those standards include rules designed to ensure taxpayer privacy and security, Workman adds. That means any new electronic-payment system for taxpayers must pass "exhaustive testing and in-depth security review," she says.
Besides that testing, launching a new service for taxpayers requires navigating some bureaucratic hurdles. Launching My Payment "was particularly challenging because of the number of stakeholders involved," Workman says.
For example, the Canada Revenue Agency worked with Public Works and Government Services Canada to advise the Government Business Negotiating Group on the plans for service, she says, noting launching the service also required the opening of "dialogues with the entire Canadian financial community."
Obstacles remain
Bureaucratic hurdles to electronic tax payments are likely to remain high for some time, according to observers.In India, for example, the country's "tax-filing procedures are still quite cumbersome and hence the ATM channel is not the best suited one to proffer tax advice to payers," Ravi Nawal, another India-based Celent analyst, tells Cards&Payments.
Besides "regulatory impediments" in such places as India, electronic tax-collection efforts around the world could be slowed by the advanced aged of the ATM base in certain markets, says NCR's Dickie. "However, we are beginning to see ATM-replacement programs gathering pace at banks assess the operational cost savings and revenue-gathering potential of new technologies," she adds. Marketing also presents a problem.
In India, the country's Department of Revenue allows citizens to pay excise, service and income taxes via the "payment gateways" of some 30 financial institutions, assuming the taxpayer holds an account with one of them, Nawal says. "The service has still not found many takers amongst individual taxpayers, as awareness and penetration is relatively low," he says, noting he knows of no banks imposing additional fees for offering such services.
Should more financial institutions offer tax payments through ATMs and cards, the service likely will "find traction with taxpayers in the urban centers of the country because of higher ATM and Internet penetration and also owing to greater awareness," Nawal predicts. So far in India, the country's department of revenue, which deals mainly with property taxes, the Income Tax department and municipal corporations–civic bodies that govern cities–are taking the lead to encourage more electronic tax payments, Nawal says.
In September, in fact, the Municipal Corp. of Chennai introduced a service that enables consumers to pay property taxes with mobile phones, a spokesperson for the city tells Cards&Payments.
Bangalore-based mobile-payments firm JiGrahak Mobility Solutions Ltd., which operates under the "ngpay" brand, provided the technology for the service, the spokesperson says. Chennai residents who want to participate first must register with officials and then download the ngpay application to their mobile phones, the spokesperson says.
After a consumer downloads the application, he enters his bankcard information and receives a four-digit PIN for use during the transaction.
"After registering with their service, they can then use the platform to pay their taxes using debit or credit cards," the spokesperson says.
As more consumers around the world use cards and mobile phones for payments, a clear opportunity exists for governments to collect more revenue via relatively efficient electronic systems.
But those agencies, and the financial institutions that hope to profit or gain customers through such schemes, face significant bureaucratic, logistical and marketing challenges. ATM
