July 27, 2004

ATM Self-Service

Nice ATM industry forum on Touchpoints covering some current issues.

Introduction

This is the second of a two-part article where touchpoints’ panel of international self-service and ATM industry experts responds to questions sent in by touchpoints members.

The panel members comprise Dominic Hirsch (DH), managing director of Retail Banking Research in London; Wayne Beckley (WB), head of ATMs at Westpac in Australia; Mike Lee (ML), international director of ATMIA in South Africa and Mark Grossi (MG), chief technology offer of NCR, based in the UK.

Do you think Check 21 will drive the move towards check accepting ATMs in the USA?

DH: Yes, but not as much as some people are predicting. The greatest value of Check 21 is not at ATMs, but for back-office processing at branches. While the logic for upgrading ATMs for automated cheque deposit appears strong, this equipment is expensive and in an environment where cheque usage is starting to decline, we will have to see whether large numbers of deployers feel investment in automated cheque deposit is worthwhile.

WB: Yes.

ML: Yes. Physical check depositing at ATMs has done well in some countries like South Africa but there may be some uncertainty for some customers about putting a check into an envelope and feeding it into a machine. Making the process more electronic will increase ease of use and the perception of a secure transaction. Dove Consulting have some well-informed ideas on the impacts of Check 21 on the US market.

MG: Although, it is likely that over the next 5-10 years new payment systems will emerge, the prevalence of checks in the US is so strong that the need will never completely go away in the foreseeable future.


Are convenience ATMs a viable business proposition without surcharging?

DH: Definitely yes. Australia demonstrated that convenience ATMs can be profitable in a relatively low interchange fee environment and others such as Germany (with much higher interchange fees) are now following suit. It is clear that surcharging will not be possible in certain countries for several years – we expect to see growth in convenience ATMs in many of these markets based on an interchange fees model. In some countries it will be banks rather than independent deployers that take advantage of this opportunity.

WB: They can be. However, going toe to toe with third party deployers on this issue when you have a reasonable cardholder base which you probably won’t surcharge makes competing with an ISO almost impossible in the convenience market.

ML: There is no surcharging in South Africa but ATM Solutions have installed an average of an ATM every day since they started pioneering convenience ATMs in the country a few years ago. If average monthly transactions in prime convenience locations are high, the business model works on interchange fees alone without surcharging. The other model that can make non-surcharging ATMs viable, even with lower average monthly volumes, is the merchant cash replenishment model whereby the merchant treats the ATM cash replenishment like a “till” in that he empties the ATM when the business is closed and fills it the next day, like the till. By saving on cash replenishment costs, and thus lowering operational costs, the ATM can be viable when generating lower or fewer fees. My last point is that convenience ATMs in some European countries such as Poland, which do not have surcharging, use ATM advertising quite successfully, such as MacDonald’s’ vouchers printed on the back of receipts. The additional ATM advertising revenue supplements the interchange-only revenue and enables the convenience ATM to be viable without surcharging.

MG: It depends on the location of the ATM. In locations where transaction volumes are relatively high, the interchange alone model is sufficient to sustain a viable business model. In more marginal locations, where transaction volumes are lower, it may be that deployers look to new functionality such as mobile phone top-up, to drive incremental fees.

It’s interesting to note that in the UK, a number of deals have recently been announced where major banks are selling their off-premise estates to ISOs – effectively outsourcing this segment of their ATM network.

Will biometrics be a justifiable technology development in the next 5 years?

DH: Biometrics is highly unlikely to be widely used at ATMs in the next five years. Agreeing global standards in this area is extremely difficult, and even if consensus could be reached the timescales for implementation will be long. EMV will not be rolled-out on a worldwide basis for at least ten years – it would be reasonable to assume that the timescales for biometrics at ATMs are significantly longer than this.

WB: It may well be depending on how the fraud picture eventuates. Biometrics may get a push if it enhances the opportunity for disabled persons to access accounts in an easier manner.

ML: As a result of more governments, such as in the UK, planning to use biometrics for public documents for citizens like passports, identity documents and drivers’ licences, large biometric databases will be created. The greater use of the technology will inevitably bring down the cost of producing and operating it. This will make the biometric alternative to PIN more attractive.

In addition, customers are also citizens. If citizens are accustomed to biometrics, then they will not have any problem using biometrics for identifying themselves in other ways, such as a customer.

Skimming worldwide has created a big security issue for magnetic stripe and PIN compromises have added to that threat. I see biometrics getting stronger in our industry well within the 5 year window you mention.

MG: In the short term implementation of biometric recognition at ATMs is likely to be in niche geographies only where biometrics are already an accepted part of life. The current move to EMV compliance requires a substantial investment by banks, so clearly further investment would require a very compelling justification, for instance a future rise in card fraud, before we see any mass deployment plans. There are also a number of social and political sensitivities that need to be addressed before mass rollouts are likely and it maybe that government introduction of biometric passports and / or ID cards would overcome this resistance without damaging the reputations of the banks.

What does the panel think will be the next ‘killer application’ through self-service?

DH: Automated deposit. RBR is currently conducting a global research study into automated deposit at ATMs and it is clear that this technology offers benefits to deployers and end users. Although the level and timing of take-up will vary by country, we believe that deposit automation will become the most important ATM application since cash dispensing.

WB: This is very hard to predict as it appears there is no ‘killer application’ at the moment. There are lots of little things happening which still tend to be market-specific, e.g. mobile phone top-up in Spain or bill payments in other markets.

ML: In the medium-term, air time top ups at ATMs. Ticketing and bill payments seem to have a big potential to be exported from countries where they are doing very well. I still think ATM advertising has a future.

MG: This depends on whether we think of self-service only in terms of an ATM. Cash dispense is the killer app for self-service cash delivery but equally, ticketing is the killer app for self-service check-in. I believe that functionality that supports branch automation, for example deposit and teller assist, will form a set of killer apps but it may not be an ATM as we know it today.

touchpoints - Touchpoints industry forum - Part 2

Posted by Craig at July 27, 2004 11:49 PM