Deposit automation will be the most important ATM application since cash dispensing, say Morten Jorgensen and Dominic Hirsch of Retail Banking Research. It offers potential benefits for banks and their customers, and will spread rapidly in the new self-service culture.

Is deposit the new killer application for ATMs? While the ATM is established as the primary source of cash in most countries, the bank branch is still the most common way of making cash and cheque deposits. This is about to change, however, according to the major ATM manufacturers and other industry players.

A general consensus is developing that banks are ready to invest in their retail delivery capability and use advanced self-service technology to migrate routine deposit transactions from the teller. It is argued that this will free up branch staff for more value-added activities, such as advising customers and cross-selling products and services. And the technology appears to have evolved to a state where reliability is less of an issue than it was in the past.

Self-service suppliers suggest that deposit is a killer application and that 50%-70% of branch deposits in Europe could migrate from the teller to the ATM within a few years.

Availability varies globally

The availability of ATM deposit functionality varies. A study by research and consulting firm Retail Banking Research (RBR) shows that ATM deposit functionality varies significantly between European countries (see figure 1). On average, it is present on 27% of the region’s machines, ranging from about 80% of the installed base in Greece and Iberia through to no presence at all in several Scandinavian countries. In the UK, about one in four ATMs have deposit functionality (typically simple envelope drops), while it is available on less than 5% of ATMs in Germany.

It is estimated that 39% of US ATMs (including both bank-owned and independent machines) are deposit taking, compared with 27% for Europe overall. However, for US banks’ ATMs the availability is 72%.

Deposit functionality is significantly more prevalent and advanced in Asia than in Europe and north America, where facilities are essentially limited to envelope deposits. In Japan, which is Asia’s largest and most sophisticated ATM market, more than 80% of the 170,000 ATMs have advanced deposit facilities, mostly in the form of recycling units (which redispense deposited cash). In South Korea, 60% of the 60,000 ATMs have recycling functionality. Deposit and recycling units are also making up a significant share of shipments to China’s rapidly developing self-service market.

The penetration of recycling machines in North America and Europe is much lower but is expected to grow rapidly in a number of countries, fuelled by recent Article 6 hardware approvals (which safeguard against counterfeit notes being dispensed via recycling) by the Deutsche Bundesbank (the German central bank). These approvals are valid for all 12 EU countries that have adopted the euro.

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Usage remains low

Overall deposit usage remains low in many markets, even when deposit functionality is available. It is estimated that 10% of deposits in the US are made via self-service devices, a fraction of the 70% in neighbouring Canada. Canada’s high usage figures were achieved through a collective effort by the country’s banks to promote envelope deposits.

Some argue that the recently passed Check 21 Act (which will allow cheque clearing via imaging), which becomes effective this October, will be an important driver of deposit automation in the US, and that about 7% of US ATMs will have advanced cheque acceptance functionality, which includes cheque imaging, within two years. Others caution that the take-up may be slower because the sharing of digital images of cheques between banks requires the development of industry-wide standards for information exchange.

The availability and usage of advanced deposit functionality in Europe and the US is unlikely to reach the levels seen in Japan and South Korea for some time. There are both technical and commercial hurdles that must be overcome before a major take-up can happen. Manufacturers must develop and demonstrate solutions that are both reliable and affordable. And banks must not only understand the business case for deposit automation, by analysing their cost structures and modelling the likely impact of introducing new technology, but must also incentivise and educate staff and customers to facilitate migration and customer acceptance.

Reliance on tellers

Cash deposits are still largely teller-based and costly. Cash dispensers have enabled banks to improve their market coverage and service levels, while driving down cash transaction costs by as much as 50%, but when it comes to cash deposits, most customers still rely on the teller.

In the US, 80% of commercial cash deposits are made through the branch, two-thirds of which are still counted manually. Cash handling costs therefore remain substantial, averaging $40 per bank customer per year, with deposits accounting for two-thirds of the cost.

The situation in Europe is similar. Less than 1% of UK cash deposits are made through an ATM, compared with 51% of cash withdrawals. EU retail banks spent E32bn on cash handling in 2001; cash dispensing accounted for one-third of this figure, while costs relating to cash deposits were two-thirds, a total of E21bn (see figures 2 and 3).

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Benefits of deposit automation

Deposit automation has substantial potential benefits for both ATM deployers and their customers. Potential deployer benefits include enhanced staff and branch efficiency, lower cash and cheque handling costs, lower cheque fraud, a reduced requirement for secure transport, and better customer service and brand differentiation. For example, industry observers estimate that envelope-free cheque deposits in the US could save $750m a year in reduced cheque fraud alone.

Potential customer benefits include reduced queuing, enhanced convenience by having access to self-service facilities outside normal banking hours, the instant crediting of deposited cash and cheques, and improved security and confidence through printed transaction receipts. The latter benefit applies particularly to cheque imaging, whereby customers are shown the deposited cheques and can verify that the details and amounts are as expected.

Landmark ATM application

Deposit automation is set to become the most important ATM application since cash dispensing. The principal market driver is a strong business case based on the potential of substantial cost savings. A major roll-out will not take place overnight, however, and there will be significant variation in take-up and time-to-maturity in different markets. Site selection and location strategies will be critical.

While it has taken more than 30 years for some ATM markets to approach maturity, adoption of deposit terminals will be more rapid. This is partly due to the strong self-service culture forged by ATMs and other direct channels.

Morten Jorgensen is director and Dominic Hirsch is managing director of Retail Banking Research, which specialises in ATMs, banking automation, cards and payments

RBR is investigating the global market for automated deposit technology and welcomes feedback from organisations using automated deposit solutions or those interested in participating in the study. Please contact morten@rbrlondon.com, dominic@rbrlondon.com or visit www.rbrlondon.com for more information

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