ATM gravestone

Image: Getty Images

The core purpose of ATMs is to allow the withdrawal of physical cash on a 24/7 basis. However, much of the globe is moving to cashless forms of payment. Is this the end of the road for ATMs, or will they further evolve? Liz Lumley investigates.

More than a decade ago, on the cusp of the 2008 global financial crash, former chairman of the US Federal Reserve Paul Volcker quipped that the automated teller machine (ATM) was the “only useful innovation in banking for the past 20 years”. The ATM, which allows customers to retrieve cash from street-side dispensers at any time during the day or night, had actually been launched 40 years earlier by Barclays Bank in the UK.

However, in the years since Mr Volcker’s remark aimed to chastise unscrupulous actors whose behaviour had led to the 2008 crisis, much has changed – most notably in the uptick in online and digital payments, as well as the reduction of both bank branches and free-to-use ATMs services in many communities.

Short on cash

The reduction of physical cash needed by consumers to conduct everyday activities like shopping has long been a by-product of enhanced digital offerings. This trend was exacerbated by the impact of the Covid-19 pandemic on many people’s lives. In the UK alone, research by industry body UK Finance shows that contactless payments accounted for 60% of all credit card and 74% of all debit card transactions for the period May 2021 to May 2022. 

The number of contactless credit card transactions were 52.5% higher and contactless debit card transactions 31.4% higher in May 2022 compared with the same month in 2021, according to UK Finance. 

UK consumer group Which? warned that the country’s cash infrastructure was “close to collapse”, not so much due to changes in consumer behaviour but to the closure of retail bank branches and ATMs. The consumer group said almost a quarter of free-to-use ATMs have disappeared since 2018 and almost half of the UK’s bank branches have closed since 2015.

According to research by Insider Intelligence, physical cash usage accounted for just 18% of point-of-sale (POS) transaction value globally. The data research firm predicted that percentage would drop to 10% by 2025.

Demand remains

Despite the evolution of the ATM in the past five decades, its main purpose remains allowing bank account holders to withdraw physical cash 24 hours a day and seven days a week. As much of the globe is moving to cashless forms of payment, it is easy to conclude that ATMs will eventually die a natural death and be as useful to communities as telephone boxes. However, as always, that outlook is simple and the reality is more complex. 

While many consumers have embraced digital banking, many more still rely heavily on access to cash. Those groups tend to be older, some of which may be in vulnerable situations, while others live in isolated and remote communities. The lack of access to ATMs for these groups can be devastating.

Francesco Burelli, partner at Arkwright Consulting’s Hamburg office, disputes claims that much of the world is moving away from cash.

We are far away from being a cashless society

Francesco Burelli

“We are far away from being a cashless society,” he says. “The Nordics are deemed to be the countries closest to a cashless society, [where] cash is estimated to be used for less than 5% to 10% of retail transactions in Norway, Sweden, Denmark and Finland. On the opposite side of the cash usage spectrum, there are countries like Thailand and Vietnam in south-east Asia, as well as Nigeria in Africa, in which cash is used to pay for well over 60% of retail purchases.”

The global pandemic did reduce cash use as commerce shifted to digital channels, says Mr Burelli. However, the recent global inflation crisis has caused many consumers to cut back on spending and resort to cash for increased budgeting and spending control, he adds. 

Mr Burelli also takes issue with the assumption that cash usage is concentrated in older demographics and underserved citizens. “In reality this is a highly reductive perspective as cash is used by nearly all demographics, albeit to a lesser extent [by some]. Cash is used for small expenses and, despite the growing terminalisation of merchants and the growth of electronic payments, there are small shops and traders who do not accept electronic payments,” he says.

Many in the industry warn of the dangers of creating ‘ATM deserts’, where the ability to withdraw cash is limited. “Even in countries in which cash usage has diminished, the impact of an ATM desert varies from the inconvenience of consumers who prefer cash for part of their daily spending to a bigger challenge for underserved citizens that are being cut off from the ability to convert their funds into an electronic format or to withdraw them in physical form,” says Mr Burelli.

“Similarly, small businesses can rely on deposit-taking ATMs to deposit their daily sales into their accounts,” he adds. “ATM deserts, in particular when accompanied by the disappearance of branches and post office facilities, imply creating difficulties for businesses that accept payments in cash.”

The Post Office delivers

In the UK, the Post Office is consolidating its position as a solution to the lack of retail bank branches and ATMs in many communities. According to Martin Kearsley, banking director at the Post Office, outlets are located in “every urban, deprived, rural and regional location, so we are naturally nearer those people who depend either partially or fully on cash”.

In addition to cash withdrawals, the Post Office is also a place where people and businesses can make cash deposits. “That is a lifeline for local businesses who continue to take cash from customers without [access to] other payment methods. That is possibly the biggest role we play in ensuring we don’t unintentionally end up in a cashless economy,” adds Mr Kearsley. 

He also disagrees that cash is rarely used in society. “I don’t agree that the numbers are small and shrinking; there is no doubt there is generally less cash being used, but there are between two and eight million people who need cash,” he says. “That is a large percentage of the population and a large sum of cash – and likely to be used by the most vulnerable end of the demographic.” The UK Post Office handles more than £3bn each month – £1bn in withdrawals, and £2bn in cash deposits.

Geography dependent decline

Despite this, Graham Mott, director of strategy at LINK Scheme, which manages the network of nearly every ATM in the UK, says the total number of ATMs will continue to decline because “there's no point having a huge infrastructure which is not necessary”.

Mr Mott compares ATMs to phone boxes, which only exist today either as nostalgic objects for tourists visiting London, or rotting in a field in a rural area, covered in weeds. “You don't need three ATMs outside a supermarket; you can probably get away with two or one because you just don't need that number for the volume of transactions,” he says. “And equally city centres where often there’s ATMs everywhere… you don’t need those either.”

To monitor the decline, LINK operates what it calls the “last ATM in the village or town programme”. When ATM operators close a machine, they need to advise LINK, so it can keep track of the network and be alerted if a community becomes an ATM desert.

However, in other parts of the world, as bank branches close, the role and the potential of ATMs as a banking channel are greatly magnified, according to Mr Burelli.

“ATMs are core to branch modernisation in many markets with basic operations, such as deposits, withdrawals and access to account information, being provided through self-service at ATMs and kiosks,” he says. “In this regard, the ATM is already the primary and most used touchpoint for any face-to-face interaction with a bank, even within a branch.”

However, consideration has to be paid to the characteristics of the location in which the ATM unit is being installed, says Mr Burelli. “An in-branch ATM is located within a monitored, secure location, and moving it out of branch, either within commercial premises or in a public location, implies having to consider security provisions,” he adds. 

ATM evolution in Africa

In Nigeria, Ecobank is looking into providing enhanced ATM services to offer more than just cash withdrawals, says Nana Araba Abban, group executive, consumer banking at Ecobank.

The bank’s ATM strategy is to review ATM locations for performance and deliver added-value services beyond dispensing cash. Those services include cardless transactions, payment of bills, mobile top-ups, cash deposits and marketing materials. Ecobank also plans to replace all obsolete terminals with new smart terminals that enable contactless transactions.

In June 2021, Ecobank entered a partnership with fintech company Semoa, developer of ‘Xpress by Semoa’, a service that enables users to send a text via WhatsApp to Semoa’s artificial intelligence bot Dédé in order to request tokens for withdrawals at Ecobank ATMs or Xpress Point agencies, or to pay bills or make money transfers to friends, relatives or third parties. 

Despite seeing a dramatic increase in the total value of digital transactions in 2021, says Ms Abban, cash is still widely used to settle day-to-day transactions for activities such as public transport, buying groceries and daily meals.

“Also, the issue of culture is seen as a key factor in the continuing preference for cash as a mode of payment,” she adds. “Cash remains the most common method of payment in almost all of our markets due to the informal nature of many African economies. Ecobank continues to drive its digital agenda aggressively. With almost 60% of the African population aged under 40, the rapid growth in digital banking looks certain to accelerate.”

With almost 60% of the African population aged under 40, the rapid growth in digital banking looks certain to accelerate

Nana Araba Abban

Ms Abban does say as the banking industry shifts from “bricks” to “clicks”, the ATM still has a role to play – and it’s not just about cash withdrawals, balance enquiries, mini statements and PIN changes. Ecobank is also working on introducing terminals that will allow customers to open accounts after going through the know your customer process and that offer card issuance, among others.

However, “due to the costs associated with the management of ATMs, connectivity challenges and the fact that most markets do not charge customers for ‘on-us’ transactions (when the acquirer and the card issuer are the same entity) and most cash withdrawals, we are looking at utilising our Xpress agents which will help us to build an ecosystem and cut back on the operational costs associated with the running of ATMs,” she adds.

Replacing bank branches

Taking cash deposits is the most common ATM enhancement to expand its usefulness in a community. 

In addition to optimising the existing deposit, withdrawal and transfer functions, Cathay United Bank in Taiwan is working on transferring branch business to ATMs. In addition, the bank is continuing to install ATMs in locations close to customers’ daily lives, such as in the Taipei Metro and convenience stores, to increase financial inclusion.

One of those branch businesses is the corporate deposit service at Cathay United Bank, which provides a one-stop financial service for corporations. 

“ATMs serve as an important channel for corporations to deposit money 24/7 without keeping huge amounts of cash by the end of daily operation. In this case, the bank can further utilise the broad footprints of ATMs across Taiwan,” says a bank spokesperson. “In addition, with the account inquiry service of the online banking system, business executives can access the real-time account information and operation status at any time.”

However, Mr Kearsley at the UK Post Office also highlights the limitations of ATMs in replacing the branch experience. “There is a difference between access to cash and access to banking, such as advice, setting up and cancelling payments, mortgages, insurance, etc. There is only so much that can be automated through an ATM,” he says.

Creating banking hubs

One of the emerging models being developed to bridge the gap between the reduction in bank branches, the limitations of ATMs and continuing to serve those who cannot access digital services is the banking hub.  

“We’ve had interest from several other postal services asking about how we set up the initial banking hubs [in the UK], and how our relationship with banks has developed in general, as the UK banks continue to shut branches,” says Mr Kearsley. “I think it’s clear that all banks, irrespective of country, face the same challenge – with customers going ‘online’, a single-use, self-owned branch network is unsustainable, but a shared branch infrastructure can work, using an incumbent network to host such services. That’s a post office in most countries.”

In addition to branch pooling, ATM pooling is a value proposition that can range significantly from shared back-office operations, in a way not too dissimilar from outsourced business models, to the setting up of shared ATM branded networks, says Mr Burelli. These range from country-wide solutions like Tecban in Brazil or Geldmaat in the Netherlands, to back-office operations pooling like that of Natixis in France.

“Out of experience, having supported a few consortium initiatives, these are complex strategic initiatives but whose potential ranges from 25% to over 40% of the combined ATM business costs of participating parties, with the advantage of retaining full control of their ATM business,” adds Mr Burelli. 

Ultimately, ATMs are a capital-intensive channel for banks, whose traditional purpose to dispense cash is diminishing year on year. 

David Griffiths, head of cards at Contis, a UK banking-as-a-service provider, does not think ATMs will go the way of phone boxes anytime soon, but in order to survive they need to evolve and change what they offer. However, most ATMs have not changed “since the 1980s” and do not go beyond their main function of providing access to cash, he adds.

PLEASE ENTER YOUR DETAILS TO WATCH THIS VIDEO

All fields are mandatory

The Banker is a service from the Financial Times. The Financial Times Ltd takes your privacy seriously.

Choose how you want us to contact you.

Invites and Offers from The Banker

Receive exclusive personalised event invitations, carefully curated offers and promotions from The Banker



For more information about how we use your data, please refer to our privacy and cookie policies.

Terms and conditions

Join our community

The Banker on Twitter