The Changing Environment for ATMs

The Emerging Market and Europe ATM and Cash Summit in Dublin focused on the future role of ATMs in a changing world. In addition to the keynote speech by the Dutch National Bank, supported by a Geldmaat presentation, Bancomat from Sweden, LINK from the UK and the European Central Bank (ECB) also covered the changing role of cash.

We cover LINK and the ECB here, as well as the presentations from Diebold Nixdorf, Brinks and Paycorp’s.

Cash in the UK (LINK)

The situation in the UK seems have to have reached a new balance post-pandemic, with cash usage about on trend with where it would have been had the pandemic not occurred.

While fewer cash withdrawals are being made from ATMs, the average sum with drawn is up 6%, a sizeable increase. Balance enquiries made at ATMs remains significant, carried out as part of 30% of withdrawal transactions. The decline in the absolute number of ATMs is only marginally down, with the decline largely in the pay-to-use ATMs. Self-fill ATMs are, though, under pressure.

A survey commissioned by LINK from Enryo found that 73% of people had used cash in the last two weeks. The UK does not have an equivalent of Sweden’s Swish system for digital person-to-person payments, which may account for that.

Cash acceptance levels: on the other hand, 48% of people had not had cash accepted. This figure is higher than expected. The regional differences are relatively small, albeit London was the highest with 66% of respondents having had cash refused. The lowest level was Wales, where 36% had had cash refused. Scotland and, at the other end of the country, the Southwest had a 51% refusal level. Parking (16%), cafes (13%), restaurants (11%), and public transport (10%) had the highest level of cash refusal.

While 47% of people found the refusal of cash acceptance to be either very inconvenient, 23%, or fairly inconvenient, 24%, this figure is quite stable. An interesting finding was that 50% of 16-24 year old age group found the refusal of cash to be inconvenient, the highest level of any age group, while the next age group up had the lowest level of inconvenience, 41% of 25-34 year olds.

Access to cash: 3,500 of the UK’s ATMs have to be subsidised to continue operations, up to a level of £2.50 per withdrawal.

The UK does have cashback. There are about 60,000 transactions per week, and this is increasing. Retailers are paid the same interchange fee as that received for an ATM transaction. The sum withdrawn is limited to £50.

The Financial Services and Market Act 2023 has helped encourage the creation of 78 banking hubs at UK Post Offices. The concept is to create mini-bank branches where the main banks provide staff and services one day each per week. This includes cash services but also other banking services. They are being placed in towns where bank branches have closed leaving the population without banking provision. They are owned and operated by Cash Access UK and the Post Office.

The presentation concluded by noting that in analysis of 10 countries accounting for 57% of the world’s population, seven countries were actively seeking to reduce the use of cash - Bangladesh, Brazil, Indonesia, India, Mexico, Pakistan and Nigeria. China, Mexico and the USA were not. But are they preparing cash for the reality of a less cash world?

Eurosystem’s 2030 Cash Strategy

Use of banknotes: While the number of banknotes in the 12 months to September 2023 grew at 1.2% a year in the euro area, the value fell 0.6%. The fall in value was particularly sharp in June 2022, when the ECB’s interest rate policy moved from a negative to a positive interest rate. €30 billion returned to the ECB in two months. The value has now stabilised.

2030 Eurosystem cash strategy: There are five strategic objectives to ensure cash remains widely available and accepted as a competitive payment instrument and store of value choice. The issuance of cash, access to cash services (withdrawal and depositing), acceptance of cash, innovative and secure banknotes and the health and safety of banknotes to reduce their environmental footprint.

Key elements of the strategy for ensuring access to and acceptance of cash are:

-A legal framework for cash

-Definitions of metrics to define access to cash

-Monitoring of national developments such as covenants, legal tender laws etc.

-Enhancing data collection and computing

-Studies and research such as the Study on the Payment Attitudes of Consumers in the Euro area (SPACE)

The SPACE survey found that 60% of people want to be able to pay with cash.

Within the legal framework of the draft proposal from the European Commission are a number of initiatives to support cash - the introduction of cash-in-shop into legislation, independent ATM deployers being defined as payment service providers, ATM transactions having a clear fee structure for consumers and more open banking.

Access to cash: The ECB is clear that ATMs are the key method of accessing cash in the euro area. 74% of people access cash through ATMs, although this varies across Europe from 52% in Germany to 89% in Cyprus. As a result, the ECB is focusing on access to cash concentrating on four areas, 

-Metrics for the geographic coverage and capacity of ways to get cash

-Fees charged to get cash

-Service levels offered to people – open hours, in-person support

-Individual data on the ease of access to cash

Focus on Shared Banking (Diebold Nixdorf)

Diebold Nixdorf started by considering what is driving the rise of shared banking in some economies.

Global Data’s 2024 report found that the number of people without bank accounts is increasing, currently 9% in Europe, the use of mobile wallets is increasing, currently 26% of payments and card transactions is also increasing, currently making up 46% of payments. The number of unbanked is 35.7% in Romania, 11.4% in Greece, 8.4% in Poland and 0.4% in the UK (source Global Data).

Pressure on cash services is seeing initiatives such as Geldmaat’s ATM pooling, shared banking hubs, as reported by the UK’s LINK organisation, ‘bank in a box’ and service outsourcing. Traditional banking is moving away from providing cash services, as seen in the Netherlands and Sweden.

The result is the need to reduce operational complexity by focusing on profit and growth, rethinking distribution strategies and managing compliance and regulations better. Inevitably there is a tension between achieving resilience and efficiency and achieving resilience while meeting customer needs.

Providers need to focus on their ‘channel mix’ to ensure physical security, emotional security and back-up options are robust and in place.

The Case for ATM Outsourcing (Brinks)

Looking to the future, Brinks made a number of predictions:

-Within ten years 80% of ATMs will be privately owned

In the 1990s in the US there were fewer than 100,000 ATMs and they were bank owned. Today there are over 450,000 ATMs and over 60% of these are privately owned. The banks are not interested in spending money on the required capital upgrades to the ATMs and don’t want to be involved in the required operational complexities.

-ATM networks will be private

In the 1990s in the US there were over 100 ATM networks, and these were owned by the banks. Today there are less than 10 networks, and two of these have over 50% of the market.

Other forces driving private, rather than bank, networks are the risk of interchange controls being linked to accusations of collusion between banks, increasing costs as volumes fall, awareness that networks are an asset that can be monetised, and that horizontal ownership is not useful to the banks.

The banks are increasingly investing in digital solutions rather than physical, particularly as ATMs are not profitable. Profits have reduced as transaction volumes fallen even further with the move to more independent ATM deployer networks.

The rise of interest rates has also increased the cost of ATM networks.

-The pricing pendulum swing back to ‘neutral’ – interchange fees will rise, there will be surcharge free network fees, direct charge reimbursements and bi-lateral agreements between issuers and acquirers 

The pandemic demonstrated the vulnerability of cash distribution and access channels. Cash was trapped in machines. It also exposed the weakness of ATM ownership and management to the banks. They lacked the expertise to manage the situation and the cost of ownership and running their ATM networks was clear.

The pandemic, and changing payment habits, is also driving branch closures, smaller branches with more ATMs and increased outsourcing.

A 1,000 ATM network is now regarded as small. If a bank outsources its ATMs, it should expect a reduction in operation costs of 15-20% enabled by economies of scale, less complexity (all managed in one place), increased cash utilisation, typically over 80%, increased availability, over 98.5%, lower risk because of the broader platform experience and less capital expenditure.

A Look to the Future (Paycorp)

Paycorp is a South African company that started life as an ATM deployer and became a payments business. This presentation charted its move from cash management (ATMs as a service, bank outsourcing, white label ATMs and ATM networks owned and operated) to transaction processing (a processing platform, processing as a service including ATM/point of sale independent operations and card issuing) to value added services (prepaid services, cardless withdrawals based on mobile or crypto wallets, cross border remittances and dynamic currency conversion).

Paycorp has sold some of those business today, but the talk gave a good illustration of how it was able to diversify, including extensive international operations, on the back of core knowledge and experience in retail relationships, processing infrastructure and back office operations and risk management.

Hot Trends (KAL)

KAL, who manufactures ATM software, worked with ATM Marketplace to produce the 2023 ATM and Self-Service Software Trends report. In the 2022 report it identified three trends:

1.Integrating ATMs with mobile phones for contactless and cardless transactions. 34% of companies surveyed planned to do this in 2022. QR codes and the use of one time PIN received by SMS were the favourite methods of achieving this. In this context innovation is also coming from video mobile phone integration.

2.Leveraging Trusted Platform Module (TPM) devices and the XFS4IoT standard to create enhanced security and new innovations. ATMs are the entry point to the bank system, capable of transferring large sums of money globally. TPMs fully secure every transaction end to end. They also secure vaults for encryption keys in a similar way to how chips fulfil this requirement in payment cards. 30% of banks in 2022 used TPMs.

XFS4IoT is the global XFS standard for ATMs enabling ATMs to exploit the opportunities created by the ‘Internet of Things’. The standard enables new ATM architectures, exposing individual hardware into a cloud application as a service.

3.Migrating more transactions to self-service devices which requires meeting the demand for scalable host software.

The 2023 report identifies two trends.

First is that there is a new generation of keen cash users. The report’s research claims that cash use is growing on those aged 18-26 years old.

Second is that banks are relying more on ATMs with the migration of transactions to self-service away from counter services.

Supporting this second trend, KAL provided three pieces of evidence:

• In 2022 the research found that 45% of banks relied more on ATMs to deliver services than in previous years. In the 2023 report this figure is 53%.

• In 2022 34% of banks said they needed ATMs the same as they did in 2021. In the new survey this figure was slightly lower at 31%.

• The steady reduction of bank branches in the European Union and UK means that ATMs are an increasingly important touch point for banks in public spaces. The move to utility ATMs and shared banking services is part of this change, eg. Geldmaat in the Netherlands, Batopin in Belgium, precinct ATM in Australia, OneBanx, Bankhive® and BankHUB in the UK.