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?

Source: 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

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.

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