Consumers could be forgiven for thinking that the ATM is the most archaic and least-invested in banking channel, particularly as financial institutions worldwide increasingly appear to be focusing on more modern points of customer interaction, such as Internet and mobile banking.
However, those within the ATM industry are only too aware of the costly renewal that the ATM channel has undergone due to the migration to the Windows-based operating system. The forced migration from IBM's OS/2 has resulted in Windows becoming the global ATM operating system of choice, almost by default. When the Windows migration was first implemented, a raft of services were highly anticipated. But banks, for the most part, have chosen to focus on upgrading the operating system and communications infrastructure rather than the software driving the functionality at the ATM.
Far from the stagnant channel that customers perceive the ATM to be, banks' IT departments have been working overtime in recent years to bring significant changes to back-office technology. In many countries, the cessation of support of IBM's OS/2 platform for ATMs was just one catalyst for the required investment. The mandated introduction of EMV smart cards in many countries also has resulted in widespread systems updates and expenditure on new software and hardware capable of the necessary encryption processing.
While implementing these required updates, there has been an obvious business case for banks to review their strategies, and most institutions have made moves toward adopting a multivendor approach to their ATM networks. In this regard, the migration towards a modern, open standards-based infrastructure has given ATM deployers more control over their networks and provides a good canvas to rethink their software strategies to unlock the value from their recent infrastructure investment.
The popularity of accessing cash at the ATM seems to have only increased due to the current economic climate. With consumers tightening their purse strings and the increased focus on budgeting, a U.K. survey conducted by Level Four in December 2008 found that the majority of consumers feel most in control of their budgets when relying on cash from ATMs.
With the popularity of the ATM showing few signs of waning and the investment to update legacy systems and modernize the ATM operating system in place, the question remains, isn't it time for banks to consider the benefits of new software architectures to reduce the functionality gap at the ATM?
The business case
In the current economic environment and with consumer confidence in the banking sector still shaky, banks are looking to increase customer service, ensure customer retention and maximize ROI. The ATM is a key platform through which banks can support these objectives.
Research suggests that by 2008, more than 60 percent of banks in the United States and Western Europe had migrated to the Windows operating system and this number is steadily increasing. Through the move to Windows and open standards, ATM deployers have already made the foundation investment required to support advanced ATM functionality. While technology investment is being reviewed across the financial sector, banks should capitalize on the previous investment in ATM infrastructures to bring the benefits of sophisticated high-bandwidth networks and high-specification hardware and software to the end-user through more advanced functionality.
Coupled with the technology drivers supporting the development of more advanced ATM services, banks across the world are currently facing a growing pressure to deliver faster, cheaper and more secure banking channels to their ever-demanding customers. Facing procurement pressure to adopt an open standards-based Windows operating system to reduce costs and increase vendor choice, as well as customer pressure to improve services, banks are rightly beginning to view software as the key differentiator in an increasingly competitive marketplace. With the challenge of customer retention a big focus for 2009 and beyond, ATM deployers are now considering the customer services benefits that a modern ATM network can bring —effectively a retrospective business case for the "forced" investment in hardware and communications infrastructure.
What are banks already developing?
As the number of channels a bank offers its customers continues to increase and diversify, ATM deployers are seeking ways to ensure the ATM doesn't lose its foothold in the market. One key way to do this is by supplementing the vital cash dispensing capabilities with additional value-added services. In order to recoup their recent investment in hardware and infrastructure, ATM deployers must harness the revenue potential of their upgraded ATM networks as an important route towards a multichannel banking strategy, fulfilling present and future consumer requirements.
A new technology that is being integrated into the functionality of the ATM in some countries is contactless payment top-up. As contactless technology gathers momentum, particularly in the transportation sector, there is an opportunity for ATM deployers to enhance the ATM to support this new functionality.
Cash machines are a natural choice for contactless card top-up and balance services, particularly in the countries where contactless adoption is becoming more widespread. Mass transit top-up functionality at the ATM is live in France and Spain, for example, and provides a revenue generating opportunity for the banks, as well as increased customer convenience through a wider range of terminals to top-up the cards. The ATM is an obvious channel to exploit owing to the established network of terminals already in place, which offer customers convenient, familiar and secure transactions.
ATM deployers worldwide that take advantage of contactless functionality will benefit by driving increased traffic to those cash machines that are fitted with contactless readers, making this a potential competitive differentiator for banks who wish to increase interchange revenues.
Cell phone top-up in the U.K. is another example of advanced ATM functionality already in practice that illustrates the value of improving ATM services to banks and customers. Making use of the national VocaLink network, a great majority of U.K. ATMs provide the facility to top-up cell phones that are on a pay-as-you-go model, directly debiting customers' accounts as they pay at the ATM terminal.
These examples reveal the potential of the ATM to become an enhanced self-service device, supporting the wider lifestyle needs of customers such as travel payment and cell phone billing.
Using the ATM beyond its central role as a cash machine leverages much of the core functionality already built in to the terminal. Indeed, the growing sophistication of deposit automation technology is close to making the "bank branch in a box" a reality. Enabling the movement of money between accounts, bill payments and person-to-person money transfers are all future opportunities for the ATM to better support the wider bank branch activities. Providing such services at the ATM would not only be cost effective to the bank, by reducing customer reliance on the branch, but also be beneficial to customers, enabling them to access services from multiple locations on a 24/7 basis.
The benefits that can be achieved through maximizing the increasingly sophisticated software platforms on the ATM are regionally diverse. While there are many examples of innovation at the ATM in North America and Western Europe, there is also a strong incentive for countries with less advanced economic infrastructures to utilize the ATM as an opportunity to better serve unbanked populations or enable international money transfers for migrant workers. In remote regions where access to branch banking is limited, the ATM becomes an even more powerful tool through which financial services can be delivered. Beyond the convenience and customer retention advantages sought by economically developed markets, in less advanced regions the ATM can be a financial lifeline.
Crystal ball gazing
Banks are currently deploying some of the aforementioned innovations in different locations around the world, made possible by the upgrades to ATM infrastructures that have already taken place largely due to the Windows migration and subsequent back-office renovations. As ATM software technology continues to develop and hardware manufacturers continue to innovate in deposit automation and contactless functionality, there is potential to integrate even more sophisticated additional services into the ATM.
The ATM of the future will focus on personalization. Using a modern software platform, banks will be able to offer a dynamic experience to cardholders based on who they are as individuals—for example, targeting promotional material at specific age ranges or offering loan agreements based on personal credit ratings. ATM deployers will benefit from the ability to exercise greater control over the services that are available to customers. For example, services will be tailored to customers depending on their location, the time of day that they are visiting the ATM and even their past ATM habits such as a certain cash withdrawal amount.
Banks will inevitably start to consider the ATM as a vital delivery channel to allow cardholders to download additional applications on their smart cards. Banks' ATM networks provide a trusted and secure point of customer interaction through which multiple payment types, identity and loyalty applications can be downloaded onto smart cards as more banks roll out multi-application cards. Banks have been trying for several years, through the introduction of such services as mobile phone top-up, to showcase the ATM as more than a simple "cash and dash" machine. Providing a platform on which new applications can be quickly and conveniently added to existing smart cards will reinforce this message and help position the ATM as the cornerstone of a multi-channel banking strategy.
Cash is (still) king
Now that much infrastructure investment has been made in the ATM channel, banks need to consider how they can maximize ROI by implementing new and innovative services in order to bring revenue and customer benefits. Moving away from the legacy software applications in favor of software based on modern architectures and open standards provides banks with significant cost advantages and ATM deployers with a path to recoup the investment in infrastructure made over the last few years.
Despite the obvious benefits that modern ATM architecture brings to functionality, it is vital that banks do not neglect the main focus of the channel—dispensing cash. Banks must ensure that any additional services provided at the ATM are not rolled out to the detriment of efficient and reliable cash delivery. ATM deployers must consider the strategic placement of additional ATM services, for example, avoiding peak periods in busy trains stations, or particularly well-visited terminals. Consumers also should expect to see more kiosk-type devices, which offer a wide range of banking services, but potentially without the ability to dispense cash.
However, while the need to maintain the core cash capabilities of the ATM is clear, deployers must focus on exploiting existing investment in this channel. Few banks are currently taking advantage of the increasingly sophisticated infrastructure behind the ATM. With an increased need to provide exceptional customer service while maximizing ROI, banks should look to advanced ATM functionality as a key differentiator. Advanced ATM software can help unlock the value and potential of the network and provide an additional revenue stream through the banks most frequent customer touchpoint.
Martin Macmillan is the business development director ofLevel Four Softwarein the United Kingdom. To submit a comment about this article, please e-mail the editor,Tracy Kitten.