February 2008
Components
ATMs: Not Dead, Not Done
Thomas E. Honey
More versatility can mean extended life for the ATM, says an executive with a firm that enables
ATMs for prepaid card dispensing and sees potential for distributing a wide range of other
media.
Mark Twain once lectured that reports of his death were greatly exaggerated. A similar view
about ATMs may be true. Since its inception, the ATM has achieved an institutionalized role as
the premier self-service device for banking functions and other consumer services. Consumers’
trust in, comfort with, and reliance upon the ATM for its time-and-place convenience value
won’t let it die, but prompt its greater versatility and extended life.
Automated cash dispensers were invented in 1967, but soon became deposit acceptors in the
early 1970s with the introduction of Docutel’s Total Automated Teller. Being part of an ATM
installation team for my bank in 1971, I can easily recall bankers’ published doubts about the
ATM’s role and future. In fact, most concerns focused on cost justification.
The ATM was a major technological invention for a staid banking industry at a time of
substantial consumer distrust of computer-related technology. Intuitive logic by most banking
leaders couldn’t make practical sense of it. It was seen as a symbol of modern progress for banks
that could perhaps replace the need for more human tellers.
A counter-intuitive view held that the ATM was a time-and-place convenience-value device for
consumers who valued convenience and anonymity in conducting their personal banking
business. Changes in consumer needs, thinking, and behavior ultimately would determine the
innovation’s success provided it was given enough time to demonstrate both revenue and cost
benefits to banking. This was clearly a long-haul proposition that required a generation of
acceptors and users to enjoy and demand the greater time-and-place convenience value that
ATMs offered them.
A Stage Two World
By 1986, ATMs were ubiquitous nationally, banks were charging for their use, and regional
ATM card interchange had commenced. The so-called less-cash transaction that often
accompanied paycheck deposits had all but disappeared. More depositors were comfortable with
direct pay deposit as 24-hour ATM availability afforded them any-time access to their funds. By
the early 1990s, surcharging of ATM transactions was permitted and off-premise ATMs began to
flourish—they now number nearly two-thirds of America’s 400,000 ATMs in use today.
Today’s situation can be viewed from the standpoint that ATMs have always been at the mercy
of consumer demand for cash. Though ATMs offer and conduct a wide range of customer
services and functions, cash withdrawals constitute nearly 80% of all ATM transactions, Dove
Consulting reported in 2003.
Cash withdrawals have declined significantly to levels not seen for many years. The expanded
use of bank-issued debit cards, introduction of prepaid and gift cards, and expanded cash back at
the point of sale have contributed substantially to this decline.
Shipments of new ATMs in the U.S. have also shrunk. Unproductive off-premise ATMs have
begun to be withdrawn, with the prospect that many more are headed for the junkyard. The
future viability of ATMs and of the independent sales organizations that deploy them is in
jeopardy.
Alternatives to the ATM began to appear about two years ago. The most heralded has been the
multifunctional kiosk that dispenses cash and gift cards, cashes checks, makes foreign
remittances, and pays common bills. Such kiosks are expensive to acquire and maintain.
Consumer acceptance has been spotty—mainly because of, in this writer’s opinion, the lack of
consumer-friendly and intuitive navigation of the device, especially when compared to the
entrenched familiarity of the ATM.
Changing consumer behavior regarding the multifunction kiosk is another longer-term
proposition that may have to go through a few more intervening stages before consumers are
willing to switch from their comfort with the ATM. Cardtronics Inc.’s decision, therefore, to
cease further deployment of kiosks in 7-Eleven Inc. stores is no surprise. As one long-time
industry colleague has observed, “The kiosk is a Stage Four solution in a Stage Two world.”
ATMs thus remain at the vanguard of America’s current self-service surge. This is especially
true for younger adults who are more techno-savvy than their parents and grandparents.
Nevertheless, multiple generations are looking to the ATM for extended self-service
functionality that meets their need and demand for time-and-place convenience value beyond
cash access.
ATM manufacturers have responded with newer, more innovative machines that enhance the
deposit process, add bill-payment features, include more account-transfer options, and expand
screen views for additional promotions and service choices. With newer equipment, depositors
can now get a digital image of deposited checks and currency (“Pushing the Envelope Aside,”
November-December, 2006). Deposited checks can be cleared more rapidly via the Check 21
option. While such innovations further connect the consumer with the financial institution, they
hardly add to functional dependency and transaction volume—especially for off-premise ATMs.
Getting Gift Cards
Increasingly, today’s ATM world needs to connect the consumer with non-banking businesses
and public services for transaction growth and new revenue streams, and to attract new
customers. Among early attempts in the dispensing arena have been the dispensation of postage
stamps, targeted coupons for U.S. convenience-store customers, e-ticketing of airline and
railroad fares, dispensing of transit passes, and topping up of mobile phones in some parts of the
world. Uncertain consumer need and acceptance of these applications in the U.S. are likely to
keep demand and volume low.
The union of ATMs and prepaid cards could prove to be a marriage of convenience in this
challenging environment. Dispensing of non-cash media from ATMs may hold some real
promise for incremental ATM transaction growth—especially for prepaid gift cards, tickets to
events and venues, and other forms of value representations.
Tranax Technologies Inc. recently announced the dispensing of a prepaid card from a $3,000
sidecar add-on to its ATM. And, in September, Better ATM Services announced a program for
licensing its patent and patented card technology to ATM and prepaid card industry participants,
enabling prepaid card dispensing from an ATM’s cash tray, as with currency. Thus, a marriage
of convenience is created for both industries.
ATMs are the most secure, trusted, cost-effective, and convenient device for unattended banking
and commerce. According to an ATM Industry Association study, more than 75% of adults ages
18 and older regard the ATM as an essential part of their daily lives compared with 56% for email and Internet access. In addition, ATMs are a more cost-effective option for customeractivated transactions, with less than a fourth of the cost of transactions carried out by human
tellers and clerks, according to a 2004 report by TowerGroup Inc.
Prepaid gift cards, meanwhile, need alternative means of distribution. Sales of gift cards in 2006
amounted to $80 billion, according to TowerGroup, and there are more than 660 million openloop (Visa- and MasterCard-branded) and closed-loop cards, according to Mercator Advisory
Group Inc.
There are only three methods to buy gift cards today:

Over-the-counter purchase at the desired merchant;

Via the J-hook card malls at mass merchandisers and convenience stores;

Over the Internet.
All three are relatively inconvenient for the purchaser and a hassle for the seller in terms of
activation, stocking of cards, dealing with growing security and activation issues, and the labor
cost involved.
ATMs offer a more convenient, secure, and economical gift card distribution option for both
businesses and consumers. As has been repeatedly demonstrated for more than 35 years,
consumers prefer the time-and-place convenience-value proposition in the dispensing of value
media.
Imagine the scene during recent holiday seasons, with people trying to buy gift cards for family,
friends, and co-workers at retailers and other merchants with J-hook card malls: Crowds of
people sorting through racks of cards, long lines of people trying to pay for the cards and to get
them activated, and frustrated checkout clerks and customers.
Compare this scene to driving or walking up to an ATM that features a gift card of the merchant
at that merchant’s location or an ATM that features the gift cards of various retailers, inserting
your payment card, and selecting the number of cards you wish. The consumer has none of the
hassle, but experiences added value with a premium or coupon attached to the card for use by the
purchaser. No security or fraud worries as the gift cards are contained in a locked safe within the
ATM so no one can photograph the serial or account number and use the number shortly after
the card has been purchased and activated.
Dispensing Value
Better ATM Services’ card medium is in the form of a matted, plastic card sheet. It is slightly
more than 3 inches wide and 6 inches long and about half the thickness of a normal embossed
card. The card sheet comes in three panels that are easily snapped apart. Each panel can consist
of a card, premium coupon and/or advertising and promotion. Prepaid card processor Comdata
Corp. cites studies that show about 80% of gift card purchasers will choose a gift card that offers
a value premium to the purchaser over another that has no premium offer.
Dispensing possibilities abound. Though Better ATM’s business model is an enabling model via
its patents and does not directly compete with either industry’s participants, the company has
launched five beta ATM sites in restaurants in the greater Phoenix area to test real-world
acceptance. The ATMs dispense both cash and the restaurants’ gift cards. All cards have a
premium offer for a free appetizer, desert, or value premium for food and drink.
National retailers have inquired about having their prepaid cards distributed through financial
institution- and ISO-owned ATMs as well as ATMs in shopping centers dedicated to distributing
gift cards of the mall’s client tenants to save them the hassle of selling and activating cards over
the counter—especially during the holiday season. Packaged-goods firms have inquired about
coupon space and paying a fee to the ATM distributor.
Others see opportunities for ticketing for sporting events and concerts. Card panels can consist of
the admission ticket and prepaid value for refreshments once inside the venue, along with a
collector’s photo of a marquee athlete or performer.
Transit-pass applications are obvious, especially with the opportunity for providing safety
announcements and advertising—thus enhancing revenue opportunities.
Another interesting concept was recently advanced from overseas in which certain airlines will
sell a “fast-track” pass for passengers not wanting to wait in long lines to pass through security.
Selling such passes via the ATM is viewed both as an opportunity to reduce the size of queues at
check-in counters and to promote shopping once inside the security zone.
These are simply a few of the possible applications for increasing transaction volume and
delivering value to consumers with time-and-place convenience. Better ATM Services’ licensed
and certificated participants are free to create their own offers and pricing, and operate within
current or newly formed market and operating infrastructures.
The ATM remains the most frequently used delivery channel for banks and for fulfilling
consumer demand for cash. Now, delivery of other value forms is possible in large numbers, not
only for banking, but also for retailers, packaged-goods manufacturers, sport and entertainment
purveyors, and the public sector, providing opportunities for additional revenue and further
expansion of the versatility and popularity of ATMs.
Thomas Honey is chief development and marketing officer at Better ATM Services Inc., Mesa,
Ariz. Reach him at tom@betteratmservices.com.