he bigger they are, the more innovative they are-at least it seems that way when it comes to introducing new ATM technologies.

Based on the amount of dollars spent, press releases generated and speaking slots filled at trade shows like the Retail Delivery Conference, large financial institutions like Bank of America, Wells Fargo and Bank One seem to be leading the way in advanced ATM functionality.

Yet some smaller financial institutions aren't far behind. They enjoy some advantages over their larger counterparts, primarily a streamlined decision making process.

"The bigger you are, the more bureaucracy there is," said Chad Lynch, ATM Services Manager for Utah's $2.7 billion America First Credit Union. "Smaller financial institutions tend to be better at empowering people and getting rid of a lot of the red tape."

"Three or four people, at most" are involved in ATM decisions at America First, Lynch said. In many cases he acts on his own authority. A recent project to streamline the "Big Four" ATM transactions-withdrawals, envelope deposits, account inquiries and transfers-involved Lynch and one other person creating flow charts for all transactions, then eliminating screens where possible.

In the past 18 months, America First has introduced check cashing to the dollar on eight of its 80 Diebold ATMs, with plans to add more in the future. The credit union also tried allowing ATM users to open accounts or apply for loans on a handful of Web-enabled machines, but dropped those services when they proved unpopular, Lynch said.

America First offers several different check-cashing transactions: check cashing with cash back, check cashing with deposit, check cashing/bill payment (for a loan or other America First account) and check cashing/bill payment with cash back. Nearly 200 checks a day are cashed at one ATM location with three machines near Brigham Young University, Lynch said, putting check cashing second only to cash withdrawals in total transactions at that site.

What's Important

While large financial institutions tend to garner headlines for adding functionality to their ATMs, many smaller FIs are innovative as well.

A streamlined decision making process and smaller, more compact networks are just some of the advantages smaller FIs enjoy.

Conversely, smaller FIs typically don't have as much capital or other resources to devote to their ATMs. Many don't drive their own machines, which makes them more reliant on outside providers.

"A smaller financial institution is rarely going to have to go through four or five departments to get things done," said Tom Conroy, Vice President of National Accounts for NCR. He likened large financial institutions to luxury liners and smaller FIs to tugboats-which sometimes pull the liners to shore.

Conroy expects smaller FIs may be among the first to implement check imaging at their ATMs-largely because they were also early adopters of check imaging systems in their back offices. Indeed, according to an Independent Community Bankers of America survey, 53% of community banks were using check-imaging applications in 2003, up from 47% in 2002-with another 39% planning to evaluate the technology in the next 12 to 18 months.

"Many community banks and credit unions adopted (check imaging) in the mid-1990s," Conroy said. "It costs a major financial institution millions and millions of dollars to deploy the technology to capture, archive and print image statements of checks. For smaller financial institutions, it's an easier implementation at a far lower cost."

All FIs are re-evaluating their ATM networks in light of pending regulatory requirements, including Triple DES encryption and audio capabilities for the Americans with Disabilities Act. Because smaller FIs typically don't have as much of an investment in legacy technology as larger FIs, it may be somewhat easier for them to adopt newer applications from the ground up, said Peg Bost, Diebold's director of Financial Industry Marketing.

Close Followers

"It's not bad being a close follower," said Jerry Silva, a Senior Analyst for the TowerGroup consulting firm, who noted that all financial institutions are benefiting from declining technology costs.

"Today's smaller, faster, cheaper machines can do a whole lot more than the old ATMs. Larger FIs in many cases have driven ATM technology developments before they're ready to incorporate them. So the smaller guys may get them to market faster."

Brian Hartline, President and Chief Executive of $330 million Nova Savings Bank, said he sees offering advanced ATM technology as "a way for smaller banks to level the playing field against the bigger guys."

Nova recently installed three Fujitsu ATMs equipped with Prism 1:1 software that allows for targeted marketing campaigns and personalized transactions-at a new location at Villanova University and two existing sites in Philadelphia. Nova is also offering a specialized distribution system for basketball tickets via the Villanova ATM.

Like America First's Lynch, Hartline said decision making at Nova is a relatively uncomplicated process. "It's no big deal for me to get our entire management team together at one time in a room to discuss ATM strategies," he said.

At smaller FIs, a single person can sometimes make or break a decision, said Steve Hensley, Executive Vice President of Sales for software developer KAL. "You may have that one dynamic guy who can drive a new technology. You rarely, if ever, find that kind of a cult of personality at a larger institution."

KAL is finding a receptive audience among smaller FIs, which Hensley said often feel neglected by traditional ATM vendors. "They're pretty fed up with the status quo. The big vendors don't worry about customers with 25 to 100 ATMs, because it's too expensive for them to focus on those accounts."

Hensley said KAL is currently working with a network, which he declined to name, that has recruited one of its financial institution members to pilot KAL's Kalignite software for standard transactions on its ATMs.

If the pilot is a success, the FI will add prepaid telephone top-ups through KAL partner ewi Prepaid Services, and the network will offer the new transaction to all of its members.

"This wouldn't have happened two years ago. We've seen a nice shift in independence," said Hensley. "I think some of the networks are getting tired of having to approach each vendor independently when they want to add a new ATM functionality."

Local Area ATM Networks

Small FIs tend to have geographically compact networks, which makes it easier for them to add new transactions-across a network or only on selected machines.

"Because of their smaller service areas, smaller institutions are generally a little quicker to do something new, or strategic, or different," said NCR's Conroy, who noted that an NCR client in the New York metro area recently added a Portuguese language option to a handful of its ATMs.

"By necessity, ATMs are a commodity at a bigger bank," said Nova's Hartline. "Smaller banks can provide a different experience for their customers. It's one way to set themselves apart."

"We're in one state versus 30," Lynch said. "When you're in that many states, you're going to have what I would call subdivisions of ATMs."

It's especially difficult for large FIs to coordinate ATM activities in the aftermath of mergers, Conroy said. Several big deals are pending, including Bank of America's purchase of FleetBank Boston and JPMorgan Chase's acquisition of Bank One, with more expected to follow.

"A great deal of time and effort is spent combining the organizations and driving costs out to help pay for the acquisition. It's hard to focus on new technologies while they're still trying to standardize the existing technologies," he said.

Driving and Dollars

While smaller FIs are at an advantage in some respects, they do face challenges in introducing ATM innovations. Perhaps the single biggest one-for FIs that do not drive their own ATMs-is their reliance on transaction processors.

"They're dependent on Fiserv or Metavante or Concord or whoever drives their machines to keep abreast of technology," said Tower Group's Silva. "Those folks' models are based on low cost, not on innovation. The software they use does not typically allow for customization."

America First's Lynch said his institution drives its own machines, which "makes it easier to turn on a dime."

Concord EFS drives Nova's ATMs; Hartline said gaining approval from Concord's Star network for its new ATM applications took some time. "We tested the software here faster than Star. When you're reliant on someone else, you're linked to their timeframe and their staffing situation," he said.

KAL's Hensley believes this may be changing, with the advent of open, standards-based application software. "The networks are really looking at who's going to control what. They're evaluating how much freedom they can give their customers without affecting their core processing business," he said.

"Relying on self-service networks and application providers can restrict bringing new services to market," said Diebold's Bost. "Larger FIs, as a rule, have the size and scale to be able to do this all in house.

No matter the total investment required, smaller FIs have the additional challenge of coordinating several components of a solution. Often the challenge is not money, but rather resources to commit to managing alliances."

Because of First America's size-largest credit union in Utah and 13th largest in the nation-and the relative importance of its ATMs, Lynch is responsible only for the ATM program and related services. Not all of his peers are so fortunate, he said. "I've talked to other credit unions at trade shows, so I know the ATM guy sometimes has to wear more than one hat and he may not get the support he needs."

ATM infrastructure is dependent on fixed costs, including software, telecommunications, cash management and first- and second-line maintenance, Silva said. "If you're not outsourcing, you have to have money and staff dedicated to those issues." Yet Hartline said ATMs can serve as a "cheaper alternative delivery channel" to a branch. "You'll get the same return from four or five ATMs in key locations as you will from a branch, at least in the short term, say three to five years. After that, the branch will probably beat the ATMs," said Hartline, noting that Nova allocates 7% to 10% of its capital spending for its ATM program.

"I think smaller banks are generally more willing to include non-quantifiable benefits in their cost analysis," he said, noting for example that Nova expects to garner real-time marketing data from its Prism 1:1-equipped ATMs, a benefit to an institution that lacks the resources for more traditional market research.

Original story: www.atmmarketplace.com/news_story.htm?i=18084