Where is the ATM headed?
Where is the ATM headed?
Where is the ATM headed?
by Mark Grossi, NCR's chief technology officer 30 Sep, 2003
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For more than 300 years, banking was a simple branch-based operation. However the introduction of the ATM in 1967 and the introduction of on-line teller terminal systems has completely changed customer expectations -- the ATM displacing the cashier/teller, the telephone and Internet replacing the branch and surface mail, and electronic cash replacing cash.
The branch has been attacked, beaten and is evolving. It can survive -- but not as a bank administration office. The branch has to become a retail store operation with full branding, retailing, sales and marketing capabilities to survive.
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With each wave of technology, we have seen massive opportunities for banks, non-banks and IT vendors to reinvent the industry. We have also seen massive challenges. For example, just moving from a branch-based banking operation into a call center-based operation was dramatic. Obviously, most banks run both types of operations, branch and telephone.
This works to their advantage, as they can provide consumers with channel choice. Yet they are often late to enter such market opportunities, and cannot be as lean, mean and fit as the newcomers who will specialize without being encumbered by other legacy channels.
First Direct, the first and most successful UK telephone bank -- at one point growing by 100,000 customers per month -- is a good example, with their slogan: "the bank without branches." By the time the traditional large banks moved into telephone banking, they were five years behind First Direct and did not offer the same functionality or professional service.
All of these factors combine to allow us to state categorically that there is more change taking place in the banking industry now and over the next five years than seen in the last 50. We must identify the next critical revolution in consumer banking delivery and ensure that we are leading the pack with appropriate solutions.
Consumers in motion
It is consumer acceptance of technology, rather than technology itself, that brings about widespread change. Consumers embrace technology that is convenient or that makes their daily lives more convenient. Technology enables change, but consumer behavior and acceptance drive it.
So how are we changing as consumers? After all, as well as being bankers, technologists or whatever, the one thing we have in common is that we are all consumers.
Our lifestyles are becoming more mobile. This shift is being supported and, to some extent, created by technology. The average U.S. citizen spends around 540 hours per year in his car, so perhaps it is not surprising that is where between 50 percent and 70 percent of all U.S. mobile phone calls are made.
Following the ability to make voice calls on the move has come the technology enabling data on the move. Initially this was accomplished with slow, often unreliable wireless modems. However, more recent mobile Web solutions allow access to all the resources available on a desktop PC using new, faster communication infrastructures such as GPRS (General Packet Radio Service).
Next generation consumer
Technology has become a symbol of status. This is not necessarily a cultural attribute; it is also a function of generation.
Consider teenagers and mobile phones. Manufacturers of handsets have clearly recognized the trend of "technology status" and now release and actively market new models seemingly on a monthly basis. This drives a replacement cycle of 6-12 months, for no other reason than status and fashion, on devices that could easily function for five years.
Entire industries have developed to exploit this change in behavior. As a father of three teenagers, I certainly wish I had developed the business around mobile phone ringtones: $3 each for the ultimate intangible, disposable, fashion accessory!
Instant gratification
These two factors, together with a number of others, combine to produce consumers with ever-increasing expectations, who are ever-more demanding. Consumers have gone beyond the search for convenience. They now demand instant gratification.
On a business level, take e-mail. As recently as six years ago, it was seen as a revolution in fast written communication. Yet in some circumstances, it is not fast enough. We want instant response from our colleagues, hence the rise in real-time Instant Messaging via the Internet and SMS Messaging on mobile phones.
Whatever we want, we want it now, or we will go somewhere else.
Keys to success
To succeed, a technology must be both useful and useable. Most consumers don't understand, or even want to understand technology.
Consider this question: How big is the user manual on a Sony Playstation 2 games console? The answer: there is no user manual. The device is so simple to install and intuitive to use, it is unnecessary.
The definition of a successful technology rollout might include the following:
* In the hands of most
* Consumers must be "an expert after using once"
* Based on user-centred design
* Awareness of the ability of the consumer
What does this mean to us in NCR and the self-service industry as a whole? In NCR we ship ATMs to 120 countries. We have young and old end users; we need to accommodate many languages, varying degrees of literacy and a range of disabilities. Wouldn't it be nice to have an ATM that adapts to your capabilities? This is an idea I will come back to later.
More mobility
As we have already seen, our lifestyles are becoming more mobile. Unsurprisingly, mobile technology is proliferating to support this change. There are numerous statistics that demonstrate this, but perhaps the most telling are the predictions for mobile phone ownership.
In Western Europe 70 percent of people have mobile phones. In Spain the number of mobile phones is greater than that of landlines. But most staggering, by the end of 2002 it is estimated that there will be 111 million mobile phones in China, growing to 360 million by the end of 2005. Translating this in western terms, this is more than one phone for every man, woman and child in the United States.
Now consider what might happen if the mobile phone evolves into the Personal Trusted Device (PTD), a convergence of pocket PC and mobile phone. This can already be seen with some of the newer handsets such as Nokia 9210 Communicator.
Consumer in control
If consumers already possess an interface device, why not let them run the transaction? Consumers could select their ATM transactions when standing in the queue, or even sitting in their cars. As they reach the ATM, they transmit the pre-staged transaction either via the cellular infrastructure or using a Bluetooth-type technology with the ATM acting as the fulfillment device.
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NCR's prototype for an ATM that interacts with wireless devices has no screen or keypad.
Approximately two years ago, NCR's Advanced Concepts Lab demonstrated the Freedom concept that executed ATM transactions in exactly this way. The concept was developed and has been deployed in a live pilot by a consortium of banks in Denmark.
They want more
Within the Lab, we recently undertook a research study of 12-15 year olds. Young people today have grown up with technology, whereas at least 30 percent of people in my generation are still unsure -- at least some of the time! What might these consumers of tomorrow expect of a self-service device?
The major theme that ran through the research results was that cash is not the only item of value that could be dispensed through the ATM. Ideas included dispensing digital collectibles (e.g. Pokemon characters) or MP3 music files to printing digital photographs.
The responses raise questions about what it means to dispense electronic value as well as physical value -- and what this means for ATMs and self-service.
At first glance, these may not seem like core business to the banks of today, especially in the current economic climate. However, there has been clear evidence of convergence between retail stores and banks.
The retail effect
Richard Branson's UK company, Virgin, has both a finance division and a music retail division. If it deployed ATMs in stores that dispensed not just cash, but MP3 music, might this not threaten traditional banks' ability to attract and retain the next generation customers?
The ATM is already a trusted device for dispensing cash. Could it not be extended to form a trusted point of payment and trusted point of delivery?
As with the Freedom concept, the underlying principle of dispensing electronic value is already appearing. In a number of countries around the world, including Scandinavia and the U.S., it is becoming commonplace to top-up "pay-as-you-go" mobile phones at the ATM.
Going where no ATM has gone before
As consumer adoption of some of these technologies makes them ubiquitous, bankers and technologists are in a position to extend the infrastructure that supports the self-service channel. Again if we take mobile phones, or more specifically the communications infrastructure that enables mobile phones, new opportunities to extend the reach of ATMs become available.
As the industry becomes freed from the constraints and cost associated with leased line, or even fixed line dial-up communications, ATMs become viable in new locations and new geographies.
Some of the fastest-growing areas for ATM deployment are in emerging markets such as China and India. Countries such as these may not benefit from a robust fixed-line infrastructure, especially in rural areas. The wireless network in India, for instance, is more reliable than land lines.
ATMs enabled with wireless communications technology could take advantage of this and be used to penetrate areas previously inaccessible to deployers. Banks that seize this opportunity would have access to an entirely new customer base.
Playing the HARP
In the Advanced Concept Lab we have recently announced a concept ATM called HARP (Handy Amounts in Remote Places). This small, lightweight unit incorporates not only wireless communications, but a range of self-contained power supplies from the latest battery technology to solar panels.
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NCR's HARP concept ATM, which can run on battery and solar power.
By rethinking the traditional approach to powering the unit, not only is placement unconstrained by fixed communications, it no longer requires a fixed electricity supply -- again, this may be an issue in some rural areas of developing countries.
Another business proposition considered in the development of HARP was the provision of ATM facilities in locations that have a short, but high, demand for cash dispense. Needing no fixed infrastructure, the secure portable units could be deployed for short periods of time at major sporting or cultural events. Increased brand presence and revenue generated through convenience fees could be two significant benefits to such deployments.
While HARP is a concept, rather than an ATM available for purchase, the technologies described will be integrated into mainstream products within the next 18-24 months.
OS/2 on the way out
I touched earlier on the possibility of the idea of an ATM that recognizes the user. The ability to personalize the ATM is the visible face of a much more significant development, namely channel integration. This is the glue that holds all the new developments in ATMs together.
The new Web Services technologies such as Microsoft .Net and IBM's WebSphere offer banks the chance to unify their technology infrastructure across all channels, enabling the institution to present a single cohesive view of all their interactions with an individual consumer.
If ATMs are to be part of this brave new world, however, we must work to replace the legacy base of OS/2 driven machines with terminals running Windows NT or XP. Such a migration would allow banks to offer not only existing services in a manner customized to the preferences of the consumer, but also extend the range of functionality offered.
A significant part of consumer acceptance is consistency. The ideal banking scenario, from the consumers' perspective, is that all touchpoints -- the Internet, the call center, the branch or the ATM -- interact with them in the same way.
Banks, like any other industry, have a relatively small number of critical business drivers, including cost reduction and driving additional revenue. It is already clear that migration of teller-based deposit transactions offers significant cost reduction opportunities. A recent TowerGroup report, "Advanced ATM Functionality: Beyond Movie Tickets & Postage Stamps," estimates a possible additional $1 billion revenue stream from offering new fee-based services such as wire transfers and check cashing through the ATM.
However, OS/2 must go if we are to take advantage of these new opportunities.
To conclude...
Through the years of the Internet explosion, many commentators suggested that traditional self-service technology was, at best, no longer strategic and at worst, obsolete, but you only need to look at the broader history of banking channels to see how unlikely that is.
From the advent of branch banking in the 1700s, through the earliest ATMs in the late 1960s, then phone banking in the '80s and more recently the Internet and mobile commerce, the introduction of each new channel has been accompanied by predictions of doom for the existing customer interfaces. However, that this has not been the case. Each channel innovation has complemented rather than replaced the existing infrastructure.
In the case of ATMs, I would go even further. I firmly believe the future of the ATM is bright and that it will play a significant strategic part in the overall channel strategy of retail banks. To borrow from Winston Churchill, I would say that this "is not the beginning of the end, but the end of the beginning."
Channel integration and the extension of ATM functionality to include physical fulfillment of "non-cash" transactions of value will ensure the ATM remains at the center of any successful retail bank's channel strategy.
The author, Mark Grossi is chief technology officer for NCR's Financial Solutions Division. He heads up a team whose job it is to identify and explore consumer trends and technologies that will impact the self-service business over the next 3-5 years. He is also a member of ATMmarketplace's Future Trends Executive Roundtable.
NCR has been the world leader in the manufacture of ATMs for the past 14 years.
Posted by Craig at October 1, 2003 07:02 PM