Changes in consumer behavior, market saturation and increased operational costs have contributed to the decline in automated teller machine (ATM) profitability. Forward-looking financial institutions (FIs) are rethinking their ATM strategy and moving toward exciting new technologies. Recent innovations present FIs with an opportunity to turn ATMs into customer relationship tools, marketing to specific consumers. These new ATM programs help strengthen relationships, increase loyalty and generate revenues.
Much to the dismay of the financial services industry, the ATM gold rush of the last 12 years is drawing to a close. Since the introduction of surcharges in 1996, ATMs have served as a significant source of revenue for financial institutions. However, changes in consumer behavior, market saturation and rising operational costs have led to declining ATM profitability in recent years. FIs must now reconsider their ATM strategies as they face a profound transformation in the ATM banking landscape.
Although consumers continue to list the location of ATMs as one of their most important criteria in choosing an FI, data from industry experts like Dove Consulting, the American Bankers Association and others show the average number of transactions per machine is declining, as is the average revenue per machine.
The 2006 ATM Deployer Study conducted by Dove Consulting revealed average transactions per machine decreased between seven and eight percent from 2004 to 2006. This comes even as the total number of ATMs in the United States declined from a peak of almost 400,000 in 2005 to approximately 360,000 at the end of 2007, according to the March 2008 EFT Databook, produced by ATM & Debit News.
This trend can be explained, in part, by the continued increase in the use of credit, debit and prepaid cards, which grew from 29 percent of all transactions in 2001 to 42 percent of transactions in 2006. This increase in payment card transactions has reduced the need for consumers to withdraw cash as frequently. In February 2008, the Boston Globe reported consumers have grown weary of paying ATM surcharges and have subsequently reduced their visits to ATMs—a trend that is likely to accelerate during the current economic slowdown. In addition, ATM profitability has suffered because of increases in operational costs, especially costs associated with compliance and security, and maintenance of outdated legacy software and hardware.
Given these changes, FIs must make important decisions regarding their ATM fleets and many will react by pulling unprofitable machines, and delaying or foregoing upgrades on remaining machines. First Data believes that FIs may be inhibiting their growth if they devise strategies based on the premise that ATMs are simply cash-dispensing machines. In order to compete in a difficult economic environment, FIs must take advantage of ATMs as important mechanisms for building and enhancing customer relationships.
As the most highly used customer access channel in retail banking, the ATM is a critical customer touch point. Recent ATM innovations offer FIs the opportunity to transform the ATM from a cash dispenser to a customer relationship management tool, helping to enhance loyalty among all customers, particularly those who use the ATM almost exclusively. From transaction personalization to customized, one-to-one marketing capabilities, the future of ATMs is in their value as customer relationship and marketing vehicles, allowing FIs to mitigate the trend of declining ATM profitability while maximizing the potential of their ATM programs.
This paper covers new developments in the ATM industry, most notably the transition from proprietary and OS/2-based software to more flexible Windows®-based operating systems that are changing ATM functionality and interfaces. It also highlights opportunities for shifting the ATM experience from a homogenous customer encounter into a more targeted user experience.