few years ago, IBM announced it would no longer support OS/2, the operating system on which the majority of the world's ATMs run. Since then, Microsoft has invested considerable resources toward becoming the operating system of choice.

It has developed Web services capabilities with open standards that promise a new array of opportunities for generating revenue and reducing costs of delivering financial services on self-service platforms.

Three technology firms and the trade association for the ATM industry contributed information for this white paper.

The changes outlined in this document will affect banks and retailers alike; as merchants and bankers deploy technically advanced devices, repeat customer traffic and new income streams will be generated.

Executive Summary

The document addresses the authors' objective by moving through the following topics:

Business Case Metrics: Cost to Income Ratio

There are two ways to create value from self-service technology:

1. Reduce the cost of delivering financial transactions to the consumer relative to the cost of alternative methods for serving that same customer.
2. Increase the revenue generated without increasing costs.

Consumers' levels of sophistication will dictate the degree to which services offered are transactional in nature (un-banked services) or information intensive (advisory services).

The Y2K of Self-Service

ATM owners will soon face several decisions: They'll have to upgrade their machines to comply with new encryption standards and transition them to other operating systems. They'll also need to consider the investment requirements and make necessary equipment changes within certain timeframes.

IBM's decision to stop supporting OS/2 means self-service platforms will have to be moved to other operating systems like Linux or Windows. The debit card network mandates on 3DES PIN pad encryption compliance (to protect the industry from debit card and PIN skimming fraud) present another technological challenge.

Also driving the necessity for upgrades are the EMV specifications and card replacement deadlines published by the bankcard industry and the open-system standards allowing device owners independence from hardware vendors.

These various business drivers are creating a technology refresh across the installed base of more than 350,000 ATMs. They're also providing justification for further deployments of devices that can both reduce traditional service delivery costs and generate incremental income.

Multi-channel Servicing/Tracking of Customers

Banks and retailers service their customers through a growing number of channels, such as branch/teller and POS/retail locations, service centers for phone customers, Internet Web sites and self-service devices such as ATMs or kiosks.

Each of these points of contact has access to central inventory and transaction record databases that are accessed and updated as a result of serving the customer. The customer then expects that across these different channels, bank or retail personnel will be current on the last series of transactions and ready to execute new transactions or purchases based on this history.

ATMs have lacked the ability to interact with different channel databases, and the technical skills necessary to maintain their functionality were proprietary (IBM OS/2) in nature. This led to increased risks in the form of key-person dependencies. The new open software platforms not only remove this risk, they also create opportunities for organizations to enjoy software re-use across different channels, which speeds the time to market for new products and services.

Customer Relationship Management

A single database, fed from different channel-access devices, provides banks and retailers with the foundation for a "single view of the customer." When they can anticipate and offer new services targeted for different life stages, those services have a higher acceptance probability. The term coined for this process is Customer Relationship Management (CRM).

Thanks to technological upgrades, new opportunities for CRM in the self-service channel will soon be available. The possibilities include:

• Channel personalization resulting from observing customer usage patterns and modification of the service delivery process. For instance, based on their transaction history, cardholders could be prompted to choose which type of transaction they would prefer to start with after the PIN verification has been completed.
• Targeted messages during transaction wait times that express appreciation for past services, deposits or purchases, or offer new products that naturally complement prior purchases.
• Enable customers to express their preferences and tailor transaction sets to their individual tastes.
• Using the ATM channel as a pro-active lead-generator to trigger other channels within the organization. For example, customers who make large deposits would be offered investment product information.

New Revenue Generators

Some of the new revenue sources being deployed across enriched ATM terminal platforms include:

• Top-up of cellular phone time or stored value gift cards.
• High-impact advertising with full color video screen and sound capabilities or Web access for order fulfillment.
• Short-term micro loans based on pre-scoring when a cash withdrawal is declined for insufficient funds.
• Token-dispensing services for ticketing, coupon printing, stamps, etc.

Smart Card Business Drivers

Chip cards deliver two primary benefits to the ATM channel:

1. Customer/PIN authentication can be performed at the card level as opposed to requiring the sending and receiving of a central validation message. This means quicker access to menu options and makes off-line processing on a limited transaction set possible. These capabilities result in faster transactions, which allow the servicing of more customers on a smaller network.
2. Smart cards are also able to store value, thus allowing cash withdrawals to be delivered at kiosks or through mobile wireless devices without the need for physical currency dispensers.

The suite of functions available on ATMs is about to move out of the routine transaction set (balance inquiry, deposit, withdrawal and transfer) toward advisory services.

The new service offerings will be content oriented and time dependent, and will gradually involve longer running sessions such as tax or investment advice and sales processes.

Traditional ATM front-end switches supported by debit card processors were never designed to handle these types of interactions. Web-enabled ATMs will leverage new software options and enable banks and retailers to establish core competencies on new open platforms.

These functionally rich platforms, with targeted, intelligent offers and compressed transaction times, will gradually raise customers' expectation levels.

When that happens, and customers get used to the new services, they will find it very difficult to take their business to a location that offers only traditional ATM transactions. That translates into reduced churn, increased loyalty and a sustainable competitive advantage.

Web Sites for More Information

www.greensheet.com/gsq/Secured-/gsqv6n3.pdf

ATMs Through History, September 2003, GSQ. An excellent overview of ATM industry leaders, statistics, history and expert predictions.

www.ncr.com/media_information/newslist.htm

NCR announces new turn-key offering of ATM services to large retailers.

www.kiosks.org/finance/atms

The ATM Self-Service directory of vendors as published on the Kiosk trade association's Web site.

www.kiosks.org/finance/unbanked

Un-banked financial services directory of vendors as published on the Kiosk trade association's Web site.

www.kiosks.org/711factsheet.html

7-Eleven Vcom terminal fact sheet.

Research Report: The Future of Self-Service in the Delivery of Financial Services

Authors: Absolute Systems, Microsoft, Diebold and ATM Industry Association

Date: September 17, 2003

Length: 7 pages

Relevance Rating: Medium-High

Web Address: www.absolutesys.com/docs/white_paper_future_of_self_service.pdf

Eric Thomson is Executive Vice President of Profit Source Advisors. He can be reached at eric.thomson@profitsource.us .