Although ATMs remain one of the most critical channels in a retail bank's distribution network, a mushrooming number of machines, coupled with alternate payment options like debit cards, is eroding both the number of per-machine transactions and return on investment.
Banks must look beyond stamps or movie tickets to drive value from advanced functionalities. The key to increasing ATM value lies in providing higher levels of service and convenience, both through end-to-end deposit processing and personalized customer relationship management.
In the U.S., eventual passage of the Check Truncation Act will significantly reduce the cost to process deposits. Globally, customized customer contact via the ATM will deepen the relationship with the customer by providing a superior level of personalized (though automated) service.
"Because it has become both so prevalent and convenient, for many people the ATM is the bank," said Jerry Silva, senior analyst in TowerGroup's retail banking practice. "However, more ATMs has not led to greater revenue. The sheer number of machines and the growing popularity of non-cash alternatives like debit and cash back at the point of sale have eaten away at the value each ATM in a network produces."
More than one million ATMs are in use throughout the world (twice the number of retail bank branches) performing 40 billion transaction annually. Yet core functionality has changed little in the 30 years since the ATM's introduction.
Banks have tried everything to boost ATM revenues, from selling movie tickets and postage stamps, to topping-up prepaid cellular phones. Banks have sought the perfect ATM-based product or service to increase per-machine revenues-often without investing in the major system overhauls needed to tackle advanced functions beyond stamps, bank statements or coupons.
While ATMs garner $1.2 billion of revenue worldwide, customer use is below expectations. At the same time, new regulations related to security and access for the visually impaired will soon compel banks to invest in modern, Web-enabled platforms that can accommodate new kinds of services.
On a more optimistic note, self-service technology is enabling a new generation of product offerings by banks and other mainstream financial institutions for the unbanked. Self-service technology will enable financial institutions to capture $3.3 billion, or 22 percent, of the unbanked market by 2010, according to a report from Celent Communications, ATMs: Self-Service for the Unbanked.
"Financial institutions will be increasingly successful in winning these customers away from traditional check cashers and payday loan providers," according to Neil Katkov, author of the report.
The unbanked and underbanked sectors-representing nearly 33 million U.S. households-have traditionally relied on check cashing stores, money transfer services and alternative credit sources. Banks, credit card issuers and ATM networks are instituting a number of new services aimed at this segment, including payroll and government payments, money transfer services, money orders and prepaid cards.