Editor's Note: In honor of the ATM's 40th birthday, this is the second article in a two-part series on new opportunities in the ATM product and services sphere. "Awaken your ATM ambitions," (The Green Sheet, July 9, 2007, issue 07:07:01) covered the traditional ATM business model. This article discusses the latest ATM offerings, including hybrids, self-service kiosks and "cash-in, cash-out" variations.
The ATM industry is morphing rapidly. From the first ATM surcharge in 1996 to recent U.S. market maturation, the traditional "place 'em and fill 'em" approach produced a steady stream of revenue for ATM owners and operators. Now, however, average ATM transaction numbers and revenues have plummeted.
"In the ever-changing ATM market, one common trend has been persistent over the years: a reduced profit margin," said Bill Dunn, Vice President of Retail ATM Products Group at Tranax Technologies Inc., in a company blog.
One result of that revenue reduction is a growing number of nontraditional ATMs, including hybrids, self-service kiosks and "cash-in, cash-out" models, which provide unbanked and underbanked customers with prepaid products and bill payment options.
"While the ATM functionality will always be required, products such as stored-value cards and PIN-less debit are causing serious erosion in the overall ATM transactions," said Joseph Nakhla, Executive Vice President of Distribution, TIO Networks Corp.
He added that ATM ISOs are making a proactive move toward financial services that leverage cash acceptance in a self-service environment.
The ATM Industry Association estimates that at the end of 2005, there were 1.5 million ATMs worldwide and that currently there are 1.67 million, with a new ATM being installed approximately every 362 seconds (or every 6 minutes). The competition for cash dispensing is tough, but nontraditional ATM services are still scarce.
"There are opportunities in the marketplace for ISOs beyond the traditional ATM," said Greg Adkins, Director of Operations for the National Association of ATM ISOs and Operators. "Payment kiosks and information kiosks have presented new opportunities for the ISO to satisfy the consumer demand for increased self-service."
The convergence of kiosk functionality and ATM ubiquity has hovered tantalizingly on the horizon for some time. Now, some industry insiders hope technological advances and consumers' growing ease with electronic cash transfer will create the perfect storm of opportunity for both ATM and kiosk deployers.
The array of functions a hybrid ATM or kiosk can perform is staggering, bringing to mind classic television commercials for the Veg-O-Matic, a 1960s-era gadget that sold phenomenally well because it appeared to slice, dice and julienne vegetables with magical ease.
Felix Corp. LLC, a U.K. ATM-kiosk company, for example, markets the Max Box, a product that provides mobile phone top-up; digital photo printing; jukebox games; flower ordering service; downloadable ringtones, wallpapers and games; and photos of premier football (soccer) players, teams and stadiums.
"The Max Box also turns any host venue into a Wi-Fi hot spot," said Jill Taylor, Head of Marketing Services and Communications for Felix. The company plans to introduce the Max Box to the United States and Canada this year.
Taylor said the most popular features vary by location. The jukebox is favored in pubs. While in convenience stores, the mobile phone top-up is the biggest draw.
Citibank Romania offers both banked and nonbanked customers (the latter account for over 80% of the Romanian population) the ability to pay utility bills, tuition and even traffic fines from ATMs.
TIO also has a payment-processing platform that allows consumers to pay up to 10 companies at kiosks located in retail outlets. The platform was designed to target underbanked and unbanked consumers by allowing them to pay several billers at one terminal.
Consumers pay a convenience fee for kiosk bill-payment, which is split between TIO, the biller and the ISO. Hamed Shahbazi, TIO's Chairman and Chief Executive Officer, said bill payment kiosks and hybrid ATMs can offer a "hedge against the saturation of ATMs and generate revenue through cash acceptance, as well as cash dispensing."
Nakhla noted that complementary revenue opportunities exist in check cashing, money transfer, sales of prepaid telecom products, and sales and reloading of stored value cards offered at both hybrid ATMs and kiosks.
According to Patty Hayward, Senior Analyst at the Mercator Advisory Group and author of an upcoming study on the ATM industry, many large installations of high-functioning hybrid ATMs are being installed overseas (in places like India and Africa) that have not yet achieved ATM market saturation.
"There are obviously some security benefits to beginning with the high-functioning machines," she said. "And features like biometric security are more easily accepted by people who've never seen an ATM [before]."
Some of the new services that are slow to take off here are more widely accepted abroad. Bill-pay and check-cashing functions, for example, are widely used in South America, and cell phone users often purchase prepaid mobile phone minutes at ATMs in Europe and Asia, a trend that hasn't yet taken root in the United States.
Dove Consulting, a unit of Hitachi Consulting, found that mobile phone top-up on ATMs is very popular in Europe, Latin America and South Africa. But in the United States, the nature of cell phone contracts may not make this a viable service.
"I don't know if very many financial institutions in the U.S. will be going towards high-functioning ATMs, except at very large branch locations," Hayward said. "The technology is there, but it remains to be seen if consumers here will accept it, let alone demand it."
Despite the initial lackluster demand from U.S. consumers, many ISOs see a great deal of potential in higher functioning ATMs.
Donna Embry, Senior Vice President of Payment Alliance International, points to "the prepaid and money transfer, especially in the ever-growing Hispanic, unbanked and youth markets," as particularly promising ATM developments.
"Expanding ATM functionality to provide commerce stations is a wide-open market," Embry said. "Function-ality can include bill payment, cash-checking, prepaid cards, money transfer cards and more."
As consumers come to rely on hybrids for bill pay, prepaid products, mobile phone top-ups and other financial services, the number of transactions should rise due to the increased types of transactions accommodated.
In addition, multifunction ATMs should reduce the cost associated with cash replenishment, since cash is accepted, as well as dispensed out (genesis of the "cash in, cash out" expression).
According to the upcoming ATMIA report Best Practices for Extended ATM Functionality, the key to driving new functionality is upgrading technology from the old OS/2 platform to one based on Windows.
"Though progress is being made, there remain constraints," the report noted. "For banks with older networks that also have to meet EMV requirements, it remains a difficult migration process." In Western Europe, 60% of ATMs run on Windows; in the United States, only 38% of ATMs run on Windows, according to ATMIA.
This barrier helps explain why emerging markets, such as Asia or Africa, with newer ATM networks are becoming early adopters of these new technologies.
Additionally, Nakhla said, "Although the manufacturing community has taken great strides in building cost-effective hybrid ATMs, the overall cost is still high."
Dr. Hansup Kwon, CEO of Tranax, said most of the issues pertaining to full-featured ATM adoption have been resolved. "But the cost of the equipment is still a problem the industry needs to address," he said. "I think that will change as they become more popular."
Hybrid ATMs run the gamut of functionality (and thus price) and can cost as much as $50,000. According to Jeffrey Lee, Director of Product Management at Tranax, the average hybrid ATM price runs between $7,000 and $15,000.
"The payback time can vary dramatically, depending not only on the volume, but on the revenue split and share," Lee said. "But you shouldn't expect the payback to come in three or four months; it is an investment."
Taylor noted that in spite of the higher initial cost, the payback time for a multifunction machine is shorter because of the increased revenue streams. Nakhla added that merchants often prefer full-featured machines because they not only produce multiple revenue streams and attract a wider range of customers (banked and unbanked), but they also offer retailers a smaller footprint for providing cash dispensing, bill paying or other services: one machine and minimal floor space.
Tranax is banking on hybrid ATMs as the path to growth. It has partnered with TIO to enable bill pay at Tranax kiosks.
Tranax has installed over 90,000 ATMs and self-service kiosks in the United States. As a leader in the traditional ATM market, making the move to more advanced financial services on that platform seemed a logical next step to Kwon.
"It's a mature market," he said. "New functionality and features are required to continue growth and to provide additional transaction revenue for ISOs."
According to Kwon, adoption of hybrid ATMs started slowly, but it is accelerating. "There are some leaders and some laggers in the industry, but as it's adopted by major retailers, and customers know that every store in a particular chain will have one, it is starting to happen," he said.
Kwon believes lack of widespread U.S. adoption of hybrid ATMs is due more to retailer and financial institution reluctance than to consumer resistance.
A 2007 Diebold Inc. research study may back him up. It found that consumers would view financial institutions "more favorably" if they offered more advanced functions at ATMs.
Kwon noted that extensive use of self-service kiosks in other industries -- from airline check-in, to grocery store check-out to fuel station pumps -- makes the leap to hybrid ATMs easy for consumers. "Airline check-in kiosks are everywhere," he said. "And I never see any resistance to using them."
Growing pay-as-you-go cell phone usage will help spur growth in self-service kiosk use, as well, Lee added.
"The younger generation is accustomed to this kind of thing," Kwon said. "I think the adoption of hybrid ATMs will be much faster than people are predicting once the critical mass of deployed machines is reached."
Diebold, Wincor Nixdorf International GmbH and NCR Corp. are all developing multifunction ATMs. Even Cardtronics LP, the largest domestic nonbank ATM owner/operator, has broadened its self-service reach.
"As part of our recently announced acquisition of the United States ATM operations of 7-Eleven, we will take ownership and operation of approximately 2,000 Vcom units," a Cardtronics representative said. "The Vcoms are financial self-service kiosks capable of check cashing, remote image deposit, bill payment and other advanced functions."
Moving to hybrid or multifunction ATMs takes some investment, a bit of imagination and a certain leap of faith. But many proponents say those who don't make the transition may be left behind when the market moves inexorably toward super-ATMs.
"We feel strongly about the future of the in-person-payments opportunity," Nakhla said. "We continue to see incredible growth in this sector as the cash-preferred customers continue to demand convenient and safe locations to pay their bills."
Kwon agreed. "We're not abandoning the traditional ATM market by any means," he said. "But I think success lies in multifunctionality and innovation."
A little marketing ingenuity could go a long way in the evolving ATM sphere. Will you be the first on your block to promote the new 'ATM-O-Matic'?
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