he ATM industry, like most, is facing the challenge of change. For decades, it's been immune. But now that more and more financial institutions and ISOs are opting for Windows-based ATMs, while they upgrade to meet ADA and 3DES compliance, they've opened the door to many increased functions.

More ATMs are now equipped with capabilities for multiple functions enabling them to do much more than spit out cash.

In a recent survey conducted by Bob Fincher, Executive Vice President of Sales and Marketing for NetWorld Alliance, publisher of ATMmarketplace.com, Fincher found that advanced options at ATMs worldwide is an industry expectation for the future (read the full survey at www.atmmarketplace.com/atm_kiosk.php).

The September 2004 survey asked 1,037 leaders around the world in the ATM supplying, banking and convenience retail arenas about the future of the ATM and self-service/kiosk industries. Sixty percent of participants included suppliers, such as manufacturers and ISOs; FIs made up 21% of those surveyed; and a mere 6% surveyed included owners of off-premise locations, like C-stores.

According to Fincher, the results provided glimpses of the future across the board.

"What we did was look at the kiosk (self-service) industry from a high level and then did the same thing for the ATM industry," Fincher said. "Then we tried to determine what factors suggested synergy. We also wanted to identify the places where there wasn't synergy and where there wouldn't be synergy; we wanted to find out (from industry leaders) what the future holds."

Eighty percent of the survey's participants said they believed the "enhanced self-service functionality" of the ATM platform would be "mildly" to "extremely" viable over the course of the next five to 10 years. And 61% said they expected the future growth potential of "non-cash-dispensing, financial self-service devices" at financial institutions over the next five to 10 years to be "moderate" to "great."

There's No Way of Knowing ...

So do those results coupled with the industry trend for advanced functionality mean that convergence of the ATM and kiosk (self-service) industries is inevitable? Fincher said the chasm between the two industries' opinions "makes it hard to tell."

"The truth is, no one is really sure in which direction the industry will go," he said.

In fact, when given a chance to openly provide their predictions, survey respondents shared conflicting viewpoints. Fincher said he received comments with everything from "convergence of cash dispensing with non-cash dispensing services might not be feasible" to "there should be (and will be) one machine, one space on the floor, to handle all necessary applications."

But Gordon Short, President and Chief Executive Officer of METALfx, a 175-employee manufacturer of kiosk enclosures that works with companies like Hewlett-Packard, IBM and Guinness, said convergence is definitely on the way.

What the Future Holds?

"I don't think there's any doubt," Short said. "The profits (of ATMs) are narrowing. ... They already have the floor space, and it only makes sense that they use that space for more things."

But Gordon believes convergence will be dictated by placement. For instance, he doesn't expect to see ATMs located at banks to offer the same range of options that an ATM at a retail location might. "I haven't really thought about a bank providing convergence ... but I do see it taking place in independent locations," he said. "The only thing you'll see at a bank would be an ATM offering someone a chance to do their online banking or those types of functions that already exist at the bank."

"As far as convergence is concerned, I think you will see it more in the independents (ISOs)," Short continued. He said ISOs will have to offer something different at their ATMs than what banks' ATMs offer just to stay competitive. He expects banks to take over the locations that ISOs' ATMs have traditionally occupied, because the banks can offer customers lower fees for typical ATM transactions.

Fincher said the divide on industry expectations for the future has led him to come up with his own conclusions, based on the results from his survey.

For instance, some insight may be gleaned from the 77% of respondents who said they were "extremely" to "mildly" optimistic about the growth of their ATM organizations over the next five to 10 years. Those results are based on what the industry currently knows about an ATM, leading Fincher to believe that respondents aren't anticipating a great deal of convergence or "synergy" over the course of the decade.

He also said his opinion on convergence was firmly set after completing the survey; convergence will only be "slight" over the next 10 years.

"There are often many conflicting factors among the products themselves, and the business models (for each of the industries) are far from identical, making a great deal of convergence, in my opinion, unlikely in the near future," Fincher said.

If It Ain't Broke ...

Jerry Silva, Senior Analyst of Delivery Channels for TowerGroup Inc., said ATM operators are finally beginning to take advantage of advanced functionality technology; but, he said, the services they offer at their ATMs will remain banking oriented.

Advanced functionality technology has been around for a long time, Silva said, but banks were reluctant to use it because of customers' unwillingness to perform anything beyond cash withdrawals and balance inquiries and transfers at ATMs.

In his August 2004 report, "Advanced ATM Technology: Too Fast, Too Furious?" Silva states, "Banks haven't found the right combination of products or services to be able to justify the broad implementation of these marvelous abilities through customer fees or through cost savings. Until recently, ATM technology had simply outpaced the customer's (and thus the bank's) desire to make use of it."

Silva added that 60% of ATM transactions worldwide are cash withdrawals, while about 20% are deposits, balance transfers and account inquiries, basic transactions. Because of that breakdown, banks had little incentive to offer something like check automation, at least until recently.

"Check automation is very expensive for a bank to do," Silva said. "It's an area where the customer has been a little iffy ... like putting cash in an envelope and depositing it into the ATM. The customer is uncomfortable doing that. But with check automation, because it's electronic, customers can be assured that their money is going into their account. So I think it will be successful, and a cost-saving venture for the bank."

That type of functionality, Silva argued, will only increase, now that banks are advancing their technology, shifting from OS/2 to Windows-based platforms. But Silva said convergence among ATM and non-financial functions isn't likely.

Everything Old Is New Again ... or Is It?

In fact, Silva said, it's already been proven ineffective.

"Entering kiosks and ATMs (into the same offerings) has kind of come and gone in waves over the last 10 years," Silva said. "Some have tried to use the two together before. It was done in the '90s ... but outside the banking world, I'm not sure how an Internet kiosk is going to survive."

With an estimated 1.3 million ATMs deployed worldwide and between 11 - 14 billion ATM transactions each year in the United States, the industry appears stable.

The ATM industry, Silva said, has survived for more than three decades with very little change. The ATM has proven over the years, he added, that customers don't like change.

That's why, he argued, FIs and ISOs will have to be careful how they approach functionality.

Based on Silva's report, customers throughout the world spent an estimated $1.8 billion on advanced functions, like ticket sales, at ATMs last year. That comes down to just more than $1,000 in revenue per machine, Silva said, adding that "if a machine costs $7,000 or $8,000 to upgrade, it will take seven or eight years to be profitable."

By that time, he continued, the ATM would likely be replaced.

Finding a Niche

"For us, it's all about determining what's convenient for the customer," said Jonathan Velline, head of ATM banking for San Francisco-based Wells Fargo & Co., the fifth largest bank in the United States.

More than 97% of Wells Fargo ATMs operate on Web-based platforms, Velline added. The company expects its entire network to be running from the same platform by the close of Q1 2005.

Wells Fargo is known in the industry for its willingness to try new things, and the area of advanced functionality is no exception. Wells Fargo has tried both ticket sales and bill payment, two pilot programs that Velline said didn't work.

"They just didn't make sense at the ATM," he said. "You have to think about what the customer is thinking about: What does the customer need to do while they're at the ATM making a transaction? And you have to consider what all of your customers across the board will be interested in," unlike ticket sales, which proved only to be of interest to customers using ATMs near event venues.

Selling stamps at the ATM, for instance, has been successful for Wells Fargo since "everyone needs stamps," Velline said. In fact, Wells Fargo is the sixth largest retailer of postage stamps.

"You read about some products that are outside the banking sphere that just aren't going to work at ATMs," he added. "We think customers are thinking about financial products ... and that's what we're focusing our attention on."

Personalization Is a Given

Wells Fargo is personalizing its ATMs so that when users approach, the ATM knows the customer as well as a human teller would. The ATM is able to advise the customer about loans or other offerings that could be of interest.

Industry experts like Silva and Tony Hayes, Managing Director of Dove Consulting's Financial Services practice, said personalization is the expected move toward ATM advanced functionality.

Hayes added that the future of ATMs will experience two big areas of change: less ATM deployment, since more banks will rent fee-free ATM access from other ATM deployers, and the co-existence of different ATMs, a low-end cash-dispensing ATM and a high-end one.

"ATM deployers will continue to be very focused on cost mitigation," Hayes said. "But one of the areas that's going to see significant increases is the growth of ATM servicing by independent providers for maintenance and cash replenishment."

Hayes added that companies like Bantek West Inc. and Efmark, which provide ATM services, will have very profitable futures.

Over the course of the next five to 20 years, Hayes and Silva said, the industry will grow as more and more ATMs are replaced and upgraded to Windows-based platforms that provide advanced functionality. But, the type of services these machines provide isn't expected, at least in the near future, to change very much.

Link to original: www.atmmarketplace.com/research.htm?article_id=21733&pavilion=29&step=story