This conclusion from the Dove Consulting, a division of Hitachi Consulting Dove Consulting, a division of Hitachi Consulting summarises the current state well.
Over the last two years, the search for a new model has prompted many deployers, particularly financial institutions, to re-evaluate the role of the ATM: is the ATM purely a cash dispenser, or is it a strategic customer delivery channel?
A confluence of factors have driven Banks to re-consider their ATM strategy.
Deployment growth was outpacing transaction growth, resulting in declining per-ATM transaction levels — particularly foreign acquired transactions (i.e., revenue-producing transactions performed by another deployer’s cardholders). Declining revenues, coupled with fixed or increasing costs driven by regulatory requirements (e.g., Triple DES) and increased rent and cost of funds, were putting increasing pressure on ATM deployers’ profitability. As a result, the ATM industry was in search of a new model.
I would add to the list of factors contributing to the change, that of machine obsolescence and the cost of replacement. One network fleet I am familiar with is costing over 100 million dollars, and that network is in the smaller side.
The main factors can be summarised as:
- machine replacement costs
- regulatory costs, including triple DES, customer access, and chip card
- growth of third party ATM fleets (in Canada, third parties are 60% of the overall total of ATM’s
- software upgrade from Windows on the ATM’s to upgraded software on the switches
- changing customer behaviours resulting from surcharging
The survey goes on the make some some interesting points in detail.
1. ATM’s and Transaction Volumes
The average number of monthly transactions per ATM, a key industry metric, varies significantly depending on the type of ATM deployer and the location in which an ATM is placed. Financial institutions’ on-premise ATM’s currently average 3,651 transactions per ATM per month, compared to 1,807 for their off-premise ATM’s and 329 for ISO ATM’s.
2. ATM Functionality – Customer Relationship Management (CRM) & Check Imaging
Most of the advanced features currently offered by deployers are banking functions, with shared deposits, domestic account-to-account transfers and mini statements topping the list. Going forward, however, most deployers are focusing on advanced marketing and CRM functionality that will enable them to tailor the user experience to individual cardholders and strengthen their customer relationships and cross-selling capabilities. Deployers’ top three areas of interest for future advanced functionality are targeted marketing campaigns, product offers (e.g., credit card solicitations), and cardholder preferences.
3. Migration to Windows and Advanced Software
Although no longer sold, OS/2 continues to dominate the ATM landscape, with the majority of ATM’s — 58 percent — currently running on OS/2. The pervasiveness of OS/2 will not last much longer, however: 63 percent of ATM’s in the U.S. are projected to be running on Windows by 2008.
4. ATM Surcharge Rates
Deployers continue to increase the surcharge fees they charge to non-customers, currently averaging $1.74 at an on-premise ATM and $1.79 at an off-premise ATM.
5. ATM Economics
Deployers continue to face challenging ATM economics, as measured on a direct basis. Deployers currently earn an average of $1,104 per month at their on-premise ATM’s, and $1,013 at their off-premise ATM’s.
Finally some useful benchmark costs for your business casing.
On the expense side, deployers incur average monthly expenses of $1,444 per on-premise ATM, and $1,450 per off-premise ATM, although there is significant variation between deployer segments.
Monthly Per-ATM Expense by Deployer Segment On-Premise ATM's Off-Premise ATM's --------------- ------------------------ ------------------------- Large Bank $1,131 $1,736 Other Bank $1,313 $1,256 Large CU $1,976 $2,549 Other CU $1,912 $2,578 Large ISO N/A $680 Other ISO N/A $522 Overall $1,444 $1,450
Relevance to Bankwatch:
These factors shift the costs and the revenues associated with ATM’s. The opportunities exist to consider ATM’s are customer channels, or as sources of income, or both, but the bets are high because of the costs.
September 12, 2006 09:17 AM Eastern Time
New ATM Study Reveals Evolving Business Model, Diverging Strategies; Analysis of Bank, Credit Union and ISO Deployers Provides the Most Comprehensive Assessment of the State of the U.S. ATM Industry
BOSTON–(BUSINESS WIRE)–Sept. 12, 2006–As traditional metrics for measuring ATM performance decline, bank, credit union, and independent sales organization (ISO) ATM deployers are redefining how they manage the ATM channel. According to a new survey sponsored by the four leading electronic payments networks — CO-OP Financial Services(R), NYCE(R), PULSE(R), and STAR(R) — and conducted by Dove Consulting, a division of Hitachi Consulting, the ATM industry is becoming increasingly stratified.
Stratification of the ATM Industry
In 2004, findings from the ATM Deployer Study showed an industry at a cross roads. Deployment growth was outpacing transaction growth, resulting in declining per-ATM transaction levels — particularly foreign acquired transactions (i.e., revenue-producing transactions performed by another deployer’s cardholders). Declining revenues, coupled with fixed or increasing costs driven by regulatory requirements (e.g., Triple DES) and increased rent and cost of funds, were putting increasing pressure on ATM deployers’ profitability. As a result, the ATM industry was in search of a new model.
Over the last two years, the search for a new model has prompted many deployers, particularly financial institutions, to re-evaluate the role of the ATM: is the ATM purely a cash dispenser, or is it a strategic customer delivery channel?
How deployers answer that question underpins their ATM strategy, and determines how they manage their ATMs — from how many they deploy and where they deploy them, to what functionality they support and what software they run. As a result, we are now entering a third phase in the evolution of the ATM industry, one that is characterized by the stratification of deployers’ ATM strategies: the search for a new model has resulted not in one new model, but many new models, with deployers bifurcating along two dimensions: ATM access (proprietary vs. shared) and user experience (differentiated vs. undifferentiated).
The 2006 ATM Deployer Study provides an in-depth look at the industry’s key performance metrics (including transaction volumes, surcharge rates, and operating expenses), recent industry trends and developments (check imaging, ATM branding), and deployers’ strategies and priorities. It also presents an outlook for the ATM industry over the next few years, as the industry’s business model(s) evolve and deployers’ strategies diverge.
Some of the key findings from the study include:
1. ATMs and Transaction Volumes
The average number of monthly transactions per ATM, a key industry metric, varies significantly depending on the type of ATM deployer and the location in which an ATM is placed. Financial institutions’ on-premise ATMs currently average 3,651 transactions per ATM per month, compared to 1,807 for their off-premise ATMs and 329 for ISO ATMs.
Per-ATM Transaction Profiles FI On-Premise FI Off-Premise ISO ------------------------ ---------------- --------------- ------------ Average Txns/ATM/month 3,651 1,807 329 % Foreign Acquired 20% 49% 100% ------------------------ ---------------- --------------- ------------
Based on transaction data provided by deployers and estimated segment shares, the study estimates that U.S. ATMs currently perform 8 billion transactions per year — representing $600 billion in dispensed cash.
Total U.S. ATM Transactions
Average
Transactions/ Total Annual
Segment Total ATMs ATM/month Transactions
----------------- ------------------ ----------------- ---------------
On-Premise 130,000 3,651 5.7 Bn
Off-Premise 71,000 1,807 1.5 Bn
ISO 195,000 329 0.8 Bn
----------------- ------------------ ----------------- ---------------
Total 396,000 8.0 Bn
----------------- ------------------ ----------------- ---------------
Of note, while ISOs account for almost half of all ATM placements, they account for only 10 percent of the industry’s total ATM transaction volume.
2. ATM Functionality – Customer Relationship Management (CRM) & Check Imaging
Most of the advanced features currently offered by deployers are banking functions, with shared deposits, domestic account-to-account transfers and mini statements topping the list. Going forward, however, most deployers are focusing on advanced marketing and CRM functionality that will enable them to tailor the user experience to individual cardholders and strengthen their customer relationships and cross-selling capabilities. Deployers’ top three areas of interest for future advanced functionality are targeted marketing campaigns, product offers (e.g., credit card solicitations), and cardholder preferences.
One of the industry’s hottest topics is check imaging and ATM deposit automation. After three years of testing and pilots, it appears as though imaging ATMs are ready to hit the mainstream.
Image-enabled ATMs currently represent a very small portion of deployers’ ATMs, but this dynamic is set to change. Large banks that already have image-enabled ATMs project that, by 2008, imaging ATMs will make up 31 percent of their ATM networks; for large credit unions, imaging ATMs are projected to constitute 45 percent of their ATM mix by 2008.
3. Migration to Windows and Advanced Software
Although no longer sold, OS/2 continues to dominate the ATM landscape, with the majority of ATMs — 58 percent — currently running on OS/2. The pervasiveness of OS/2 will not last much longer, however: 63 percent of ATMs in the U.S. are projected to be running on Windows by 2008.
ATM Operating System Mix, 2006 vs. 2008 Operating System 2006 2008 --------------------- --------------- ----------------- DOS 1% 1% OS/2 58% 22% Windows 26% 63% Other 15% 14% --------------------- --------------- -----------------
ATM technology is poised to change significantly as deployers migrate from OS/2 to Windows and from proprietary software to open standards. For much of their thirty-year life, ATMs have been vertically integrated devices, combining hardware and software from one provider. As hardware and software become ‘decoupled’, deployers are no longer locked into the proprietary software that accompanies a terminal; as a result, selecting ATM software is becoming a strategic decision in its own right — and one that has significant implications for deployers’ future ATM capabilities.
4. ATM Surcharge Rates
Deployers continue to increase the surcharge fees they charge to non-customers, currently averaging $1.74 at an on-premise ATM and $1.79 at an off-premise ATM.
Average Surcharge Rates, 2001 - 2006 2001 2003 2006 ------------------------ ----------- ----------- ------------- On-Premise ATMs $1.45 $1.57 $1.74 Off-Premise ATMs $1.48 $1.65 $1.79 ------------------------ ----------- ----------- -------------
Combined with an average foreign fee of $1.27, consumers currently can pay more than $3.00 every time they use an ATM that is not deployed by their own FI. As the cost of using a foreign ATM increases, the value consumers place on having access to a large network of free ATMs increases — which means, from a competitive perspective, that a deployer’s ability to provide convenient fee-free access to ATMs is becoming an increasingly important part of their value proposition. To this end, many deployers are pursuing one or more of the following strategies to increase ATM access: participating in selective surcharge alliances, introducing surcharge reimbursement programs, and negotiating ATM branding agreements.
5. ATM Economics
Deployers continue to face challenging ATM economics, as measured on a direct basis. Deployers currently earn an average of $1,104 per month at their on-premise ATMs, and $1,013 at their off-premise ATMs.
On the expense side, deployers incur average monthly expenses of $1,444 per on-premise ATM, and $1,450 per off-premise ATM, although there is significant variation between deployer segments.
Monthly Per-ATM Expense by Deployer Segment On-Premise ATMs Off-Premise ATMs --------------- ------------------------ ------------------------- Large Bank $1,131 $1,736 Other Bank $1,313 $1,256 Large CU $1,976 $2,549 Other CU $1,912 $2,578 Large ISO N/A $680 Other ISO N/A $522 Overall $1,444 $1,450 --------------- ------------------------ -------------------------
Most segments, on average, lose money on their ATMs. As their profit margins deteriorate, many financial institutions are recalibrating their ATM strategies, shifting away from revenue generation and refocusing on meeting the needs of their customers.
About the 2006 ATM Deployer Study
The 2006 ATM Deployer Study is the fourth in a series of bi-annual studies sponsored by the leading EFT networks as part of their ongoing commitment to industry research. Conducted in the spring of 2006, this study tracks the ongoing evolution of the U.S. ATM industry and provides an in-depth look at current ATM performance metrics, recent industry trends and developments, and deployers’ strategies.
The findings presented in the 2006 ATM Deployer Study are based on survey responses from a nationally representative sample of 161 bank, credit union, and ISO deployers. Study participants include 26 of the top 50 retail banks (and 8 of the top 10), 12 of the top 25 credit unions, and 3 of the top 10 ISO ATM owners. As of March 2006, study participants had deployed 134,110 ATMs, representing 34 percent of ATMs deployed in the U.S.
The 2006 ATM Deployer Study is available exclusively through the study sponsors. For more information, please contact:
CO-OP Financial Services NYCE James Hanisch Hope Collins 909-948-2620 303-702-5662 jim.hanisch@co-opfs.org Hope_Collins@nyce.net PULSE STAR Mary Brown Donna Pennington 832-214-0111 402-222-6178 mbrown@pulse-eft.com donna.pennington@firstdatacorp.com
About the Study Sponsors
CO-OP Financial Services (formerly CO-OP Network) is wholly-owned by its credit union shareholders and provides volume discounts on products and services that include ATM network access, ATM processing, debit/card services and shared branching. With nearly 2,000 credit union members, more than 25,000 surcharge-free ATMs (including 6,000 deposit-taking), 100 million-plus monthly transactions and 24 million cardholders, CO-OP Financial Services is the No. 1 credit union EFT network and processor in the U.S. financial services industry. CO-OP Financial Services’ membership has access to over 800,000 ATMs worldwide through links to NYCE, STAR, Cirrus, Pulse and Plus.
The NYCE(R) Network provides consumers with secure, real-time access to their money, connecting the accounts of more than 74 million cards with 275,000 ATMs, and 1.2 million point-of-sale locations nationwide. NYCE helps its clients grow with innovative new products and strategic alliances that enable them to capitalize on the efficiency, consumer convenience and security of electronic real-time payments. Headquartered in Secaucus, N.J., NYCE Payments Network, LLC (www.nyce.net) is a Metavante company.
PULSE(R) is one of the nation’s leading ATM/debit networks, currently serving more than 4,200 banks, credit unions and savings institutions across the country. PULSE is owned by Discover Financial Services LLC, a business unit of Morgan Stanley (NYSE:MS). The network links cardholders with nearly 250,000 ATMs and approximately 3.4 million POS terminals at retail locations nationwide. The company is also a valued resource for consumer research related to electronic payments and is committed to providing its participants with education on evolving products, services and trends in the payments industry. For more information, visit www.pulse-eft.com.
First Data Corp.’s STAR(R) Network is a coast-to-coast electronic payments network and an expert in secure, real-time electronic transactions. Financial institutions rely on the STAR Network to deliver ATM access, PIN-secured debit purchasing, deposit sharing and surcharge-free ATM access programs to their cardholders. The STAR Network is a leader in developing check debit, Internet and telephone bill payments, small-value payments, deposit risk management and ATM check imaging products. The STAR Network serves more than 5,700 financial institutions across the U.S. and provides cardholders with account access at approximately 1.9 million ATM and retail locations. There are approximately more than 140 million cards carrying the STAR logo. STAR has a broad footprint of distribution points across the United States including the acceptance of the STAR card at approximately 5.1 million POS terminals. For more information, visit our Web sites at www.firstdata.com and www.star.com.
About Dove Consulting
Dove Consulting, a division of Hitachi Consulting, is a Boston-based consulting practice specializing in strategy and organizational effectiveness. The practice’s Financial Services Group is a leader in developing retail payments, distribution and customer strategies for banks, payment networks, and government entities. Dove’s consulting work is supported by an ongoing commitment to industry research spanning consumer payment preferences, ATM deployment, and card issuers and remittance processors. For more information, visit www.doveconsulting.com or call (617) 482-2100.
About Hitachi Consulting
As Hitachi, Ltd.’s (NYSE:HIT) global consulting company, with operations in the US, Europe and Asia, Hitachi Consulting is a recognized leader in delivering proven business and IT solutions to Global 2000 companies across many industries. We leverage decades of business process, vertical industry, and leading-edge technology experience to understand each company’s unique business needs. From business strategy development through application deployment, our consultants are committed to helping clients quickly realize measurable business value and achieve sustainable ROI.
Hitachi Consulting’s client base includes nearly 35 percent of the Fortune 100 and 25 percent of the Global 100 as well as many leading mid-market companies. We offer a client-focused, collaborative approach and transfer knowledge throughout each engagement. For more information, call 1.877.664.0010 or visit www.hitachiconsulting.com.
Hitachi Consulting — Inspiring your next success! (R)
About Hitachi
Hitachi, Ltd. (NYSE:HIT) (TOKYO:6501), headquartered in Tokyo, Japan, is a leading global electronics company, with approximately 356,000 employees worldwide. Fiscal 2005 (ended March 31, 2006) consolidated sales totaled 9, 464 billion yen ($80.9 billion). The company offers a wide range of systems, products and services in market sectors including information systems, electronic devices, power and industrial systems, consumer products, materials and financial services. For more information on Hitachi, please visit the company’s Web site at http://www.hitachi.com.
For more information on Hitachi, please visit the company’s Website at http://www.hitachi.com.
Bankwatch 
I agree that ATMS today are outdated. But is the market demanding for new updated ATMs?