Some banks are outsourcing their ATM function to increase margins but others are still looking for ways to offer new transactions at their machines. Dan Barnes reports on the latest developments.
For some banks, the automated teller machine (ATM) is a function of the treasury, a necessary cost to be reduced as far as possible. For others, it is a valued point of contact with customers at which relationships can be strengthened and new products sold. These views appear to be polarised and yet both have merit.
“This is clearly a volume business,” says Roger Bracken, vice-president of self-service solutions in the UK and Ireland at ATM vendor NCR. “At one level, this is all about high speed, repeatable, reliable cash dispensing in a manner that the consumer expects and trusts. In terms of importance to the bank, the self-service network is the most frequently used touch point for the bank’s customers and it has on average a 20-second window of customer experience. We see our customers being fiercely defensive of that channel, for that reason.”
Better margins
Increasing the margin on each transaction through cost reduction is hugely important. ATMs have long been a method of cutting costs at branches, by reducing the number of staff required to service customers for simple facilities such as money withdrawal – the greater the level of service that ATMs can provide, the fewer staff are needed. However, experiments with increased ATM functionality also increased transaction time and created queues of irritated customers, waiting for their turn. For some banks, outsourcing the ATM network became the best option. This year Sparda-Bank Berlin in Germany,
Co-operative Bank in the UK and ABN AMRO in the Netherlands took this step.
At Citigroup Global Cash & Trade, the bank’s corporate banking arm, ATMs have been utilised to allow bill payment in cash-based economies. Rather than targeting the consumer, these are being used to target corporate treasuries. The concept is simple, says Cristela Moldoveanu, vice-president of global transaction services at Citibank Romania. “We allow bill payments to be made by members of the public. On a utility bill, for example, a barcode is printed. This is scanned at the machine and the payment can be made in cash. In doing this, we are able to build relationships with corporate treasuries of these utilities.”
Daniel Stancu, vice-president, cash management head, global transaction services, at Citibank Romania notes that this is only possible where there are undamaged bank notes. “We can only do this with good quality notes. Romania is one of the few countries, including Australia and New Zealand, that use polymer notes.” The method of payment has proven so popular that the public can now pay police fines via the machines, massively reducing paperwork and bureaucracy.
Others, however, are still looking into increasing ATM functionality for the consumer, partly to recoup the expense of recent renewal programmes and partly due to a fundamental shift in the cost of achieving functionality, says Martin Macmillan, CEO of ATM software provider Level Four. “[Outsourcing] is of interest to some banks but a number of banks that we speak to are looking to do more at the ATM.”
A number of recent events have encouraged this. Various regulatory mandates have occurred, such as the migration to Europay Mastercard Visa in many countries. But a crucial change has happened through natural replacement of older technology, says Mr Macmillan. “There has effectively been a forced migration to Windows as IBM has stopped support for OS2 [the operating system on which ATMs were run]. The banks migrated – mainly to Windows XP – and therefore needed an ATM with reasonable processing capability. They needed something relatively modern and – believe it or not – relatively expensive. So they now have state-of-the-art ATMs with big colour screens. And they want payback on their investment.”
Neglected software
Mr Macmillan believes that the business models of the main ATM hardware/ software vendors led to them making the majority of their money from selling the hardware and that led to the software being neglected. “From a banking point of view, when they moved to Windows all they got was the same application they had been using for the last 10 or 15 years. With the development of open standards, a division has opened up between hardware and software, with a few software vendors starting up on their own,” he says.
The protocol that allowed ATMs to speak to the host system within the bank has normally been proprietary to the ATM vendor and this has limited new entrants to the software field, he says. “Anyone coming into the ATM software field has had to build an emulation of the software that the ATM provider used because that was the only way it could communicate with the bank’s central system.”
Standard language
The development in recent years of IFX, the XML-based, platform-independent business message specification, may change this. Having been developed by the finance industry and their suppliers, IFX can be used as a standard across channels, enabling a true multi-channel concept. “Vendors such as ACI and eFunds are encouraging the emergence of IFX. The banks like it because their channels don’t have to be siloed,” says Mr Macmillan. “This has been supported by the host system providers as they have previously had to create and support hundreds of different proprietary versions of their software because every bank wanted to be different. They would dearly love to be the banks’ utopian transaction processing engine.”
What used to be ‘dumb terminals’ with low bandwidth are now running windows allowing software distribution platforms to store graphics and animation with high bandwidth locally. The banks are taking advantage of this, according to Mr Macmillan.
“A couple of very innovative banks are building their own software along those lines. They will still speak to the old transaction processing system for the secure transaction but there’s no reason now why they can’t speak to various different web servers to provide personalised information, time-sensitive information or provide specific branding for different types of audience.
“My argument would be that banks did want to innovate at the channel; it is just that they have been held back by the combined hardware/software suppliers in the market.”
Costs could fall
Other advances mean that the supporting cost for ATMs should also be falling in the future. Jamie Bernardin, chief technology officer and co-founder of systems vendor DataSynapse, is seeing advances in grid technology that could allow ATMs to be run via a server grid. Through his company’s latest offering, Fabricserver, application servers can now be supported on a grid network, giving the potential for additional functionality to be added to the ATM network economically.
“With a grid, it allows you to expand incrementally and allows you to provision compute power according to peak times,” says Mr Bernardin. “That is really part of evolving grid as a platform in terms of being able to provide in a very deterministic and adaptable way the aligning of resources with demand. By moving to application servers, we are working with well-known quantities in terms of how you cluster and load balance these [networks]. What grid brings to the table is the ability to provision dynamically.”
With banks increasingly able to exert their control over lower cost networks, the ATM may still be a force to be reckoned with.
