By Martin Macmillan, Level Four Americas
The way Americans use ATMs and self-service technology is about to change. A look at how European financial institutions have developed ATM functionality that encourages consumers to use ATMs for activities beyond cash withdrawal will provide some insight as to how American financial institutions will follow suit.Many factors played into European financial institutions excelling in this scenario, including technology innovations, the rate of adoption of new technologies and regulatory changes that have required updated technology. While Europe has been utilizing advanced functionality self-service applications since the 1990s, it is just now becoming a trend in the U.S.
One of the major structural differences between the two markets is fragmentation of the banking environment. The European market is more consolidated after several decades of substantial bank mergers. Although the U.S. has seen a higher level of consolidation in the last year, there are still significantly more financial institutions here than in Europe-about 8,500 federally charted, FDIC-insured institutions. In terms of ATM deployments, the top 10 banks in the U.S. own approximately 50 percent of the country's ATMs and there are an additional dozen or so institutions that deploy between 500 to 800 ATMs. The vast majority of the market, however, is comprised of banks that deploy a few hundred ATMs each. This market dynamic is unique to the U.S., as compared to Europe, where typically the top three or four financial institutions in each country dominate the market with 50 percent or more of all ATM deployments.
While the structure of financial institutions differs, so does technology adoption, with the European market tending to more quickly implement new technology. In recent years, the underlying technology platform for ATMs has undergone a major level of change in both Europe and the U.S. OS/2-based systems had been the industry standard throughout the years of mass rollout of ATMs, but with the inevitable withdrawal of support for OS/2, banks are now moving to Windows-based ATM platforms. In Europe, this shift was synonymous with the introduction of XFS-based open standards technology in the late 1990s that enabled the concept of "multivendor" networks, where a single application could run across ATMs from different suppliers. Some of the technology changes were driven by the consolidation the industry experienced, which led to requiring a single application running across the entire fleet of ATMs in a M&A environment. The industry recognized that utilizing XFS-based open standards technology helped ease the burden of a network consolidation.
The impact of the EMV (Europay, MasterCard and VISA) chip card standard also played a key role in technology changes in Europe in the early 2000s. Banks found that many of the old systems running on their ATMs were not physically able to handle the additional cryptography overhead that was required to process chip transactions. With EMV serving as a major regulatory driver, financial institutions were forced to evaluate required hardware and software replacement to efficiently meet the new specifications. Because there were physical limitations on the hardware, many financial institutions chose to upgrade their ATMs.
As more American financial institutions move to Windows and open standards-based technology for ATM applications, the ATM will become more valuable and profitable and the industry will see additional services offered through the machine. Financial institutions are increasingly working to have better user interfaces and richer system functionality. One example of this is bill payment capabilities at the ATM. While the primary focus of the ATM will continue to remain cash withdrawal, providing customers with the ability to pay bills at the ATM is an example of a general trend. U.S. banks are looking to convert ATM networks from a fleet of convenience machines to a fleet of relationship building machines.
As key customer touch points, ATM network availability is of critical importance in terms of customer retention. According to Harris Interactive, 45 percent of U.S. banking consumers would be likely to switch banks if their bank's network of ATMs was often unreliable. In today's competitive banking environment, it is crucial for banks to ensure that their ATM networks are reliable to minimize ATM downtime and preserve customer loyalty.
In an effort to convert ATMs to relationship building machines in the U.S., the industry is working to further develop solutions that will better enable the ATM to not only recognize and authenticate who is standing at the ATM, but be able to actually capitalize on the relationship with the customer. Providing increased personalized transactions, such as remembering cash withdrawal habits, deposit habits and offering updates to accounts the customer holds, are all examples of how financial institutions will increase customer service at the ATM.
The ATM investments U.S. banks have made recently to accommodate industry and regulatory changes did little to bring about new functionality for customers. Now, U.S. banks are taking a page from their European peers and working to enhance their ATM network offerings to provide better customer service, attract new customers and turn the network into a profitable channel.
Martin Macmillan is business development director with Level Four, a London-based provider of open standards-based ATM software.