his story was originally published on ATMmarketplace.com, Dec. 6, 2005; reprinted with permission. © 2006 NetWorld Alliance LLC. All rights reserved.

Predicting the future isn't easy. Like the weather, forecasts in the ATM industry often conflict. So it was with a grain of salt that bankers and independent deployers soaked in some of the ATM predictions made at BAI's recent Retail Delivery Conference & Expo in Orlando, Fla.

From outsourcing to advanced functionality, everybody had an opinion, and some of those opinions conflicted from one presentation to the next. Take the topic of outsourcing ATM operations to a third party as an example.

Outsourcing and Branding Attract Attention

From a financial-institution perspective, outsourcing had been taboo for a number of years, at least in some circles. But notable U.S. banks (like Pittsburgh-based PNC Bank with $84 billion in assets) and a handful of innovative credit unions have made strides in outsourcing and branding relationships that have garnered attention.

In 2004, Houston-based Cardtronics LP signed a deal that placed PNC-branded ATMs in Walgreen Co. stores in select Midwest markets.

And Ponte Vedra, Fla.-based Nationwide Money Services Inc., a subsidiary of Global Axcess, has been signing similar deals with smaller banks and credit unions since the late 1990s.

A few months ago, Kansas City, Mo.-based UMB Bank ($7 billion in assets) inked branding/outsourcing deals with two third parties, Peoria, Ill.-based Welch ATM Systems and Scottsdale, Ariz.-based eFunds Corp., for the management and/or operation of more than 300 off-premise ATMs.

And New York-based Citibank ($157 billion in assets), which outsources operation and management of all of its 485 off-premise ATMs, has relationships with eFunds, Irving, Texas-based Genpass Technologies/Elan Financial Services and Spring, Texas-based Spring Interests Inc. (d.b.a., ATM Ventures).

Executives from both UMB and Citibank touted the success of their outsourcing and branding deals during a presentation at BAI. "We can operate off-premise outsourced ATMs for half of what it costs us to run our [on-premise] ATMs," said James Braddock, Vice President of UMB.

And Bryan Pisciotti, Vice President of Automated Channels for Citibank, said simply, "We don't make money on our ATMs. We use them to provide a service to customers."

And providing more access to Citibank ATMs is the kind of service customers are interested in, he said.

But some FI leaders have their doubts. John Velline, Senior Vice President of ATM Banking and Distribution Strategies for San Francisco-based Wells Fargo ($453 billion in assets), says FIs that outsource do consumers a disservice.

Velline views the ATM as a critical touch point, much more than merely a machine of convenient placement. "We need to remember that the ATM is more than just a cash dispenser," Velline said.

"We believe in offering customers many options at the ATM. ... This is hard to do if you're branding at Duane Reade through an ISO (referencing Cardtronics' branding deal with JPMorgan Chase & Co.), because you have a different back-office."

Unlike UMB and Citibank, Velline said FIs, regardless of size, should be making ATM investments that revolve around personalized service.

A Division in Thought: Two Camps

Emerging with a white flag in the middle of the outsourcing debate is Tony Hayes, Vice President of Financial Services for Boston-based Dove Consulting Inc., a division of Hitachi Consulting.

Adding that ATM outsourcing is only still in its infancy, Hayes' black-and-white prediction about the future calls for FIs to make a simple decision: Choose between shared ATM access and improved ATM experience.

"As the average monthly transaction volume continues to drop, banks [and credit unions] will have to make a decision," Hayes said. They will opt for a "more mass-market" or "detailed" approach.

Hayes suggested that FIs will soon be divided into two camps, the "shared" camp, where ATM access is either shared by multiple FIs or is rented from an ISO, and the "improved" camp, where the ATM experience will be upgraded to be more personalized and offer greater functionality.

"The first camp is likely to include branding and surcharging deals, while the second camp is less likely to outsource, you would assume," Hayes said. "Banks will have to choose, since you can't, and probably shouldn't, do both."

In the "shared" camp, FIs will reduce cost and maximize access through outsourcing operations and/or management of their ATM networks, supplementing their networks with branded ISO ATMs and joining surcharge-free networks like Allpoint. Some FIs, he added, may entirely eliminate their ATM networks and reimburse their customers and members for surcharges.

In the "improved" camp, FIs will be more likely to manage their own networks, invest in new technology and roll out next-generation software and functions, such as envelope-free deposits.

"I think we're going to rapidly see what is now considered state-of-the-art becoming much more basic," Hayes said. "And the future of ATMs in Camp 1 versus Camp 2 is going to be very different."

Link to original: www.atmmarketplace.com/futurearticles.htm?article_id=24656&pavilion=112&step=story