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CASH BOX
THE INVENTION AND GLOBALIZATION OF THE ATM
CASH BOX
THE INVENTION AND GLOBALIZATION OF THE ATM
TOM HARPER • BERNARDO BÁTIZ-LAZO
Copyright © 2013 by Tom Harper and Bernardo Bátiz-Lazo All rights reserved. No part of this publication may be reproduced, distributed or transmitted in any form by any means, including photocopying, recording or other electronic or mechanical methods, without the written prior permission of the publisher, except in the case of brief quotations embodied in critical reviews and certain other noncommercial uses permitted by copyright law. For permission requests, write to the publisher, addressed “Attention: Cash Box Permission,” at the address below.
13100 Eastpoint Park Boulevard Louisville, KY 40223 Tel: (502) 241-7545 www.networldmediagroup.com
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Quantity sales. Special discounts are available on quantity purchases by corporations, associations and others. For details, contact Networld Media Group. Sponsorship and underwriting. Sponsorship and underwriting opportunities are available for corporations, associations and others. For details, contact Networld Media Group. ISBN: 978-1-935497-62-2
Publishing services provided by Butler Books * www.butlerbooks.com Printed and bound in Canada Edited by Joseph Grove * Designed by Carly Schnur Contributors include Richard Slawsky, Gary Wollenhaupt and David Henry
“This book is a much-needed and commendable contribution to understanding the rise of the self-service consumer society most of the world lives in today.” —Mike Lee, CEO, ATM Industry Association
CONTENTS
x Acknowledgments
xii Foreword by Mike Lee, CEO, ATMIA
xiv Introduction
1
2
3 Prehistory
9 Adoption in the United States
5 Metal money, coins and tally sticks
10 Adoption in Europe
6 From paper money to the gold standard
11 Cash automation is born
1 A 2,700 -year History of Cash and Payments
9 The ATM’s Colorful, Contested Story of Invention
15 The United States’ claim to fame 16 Chain inventing
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4
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19 The introduction of cash dispensing machines
35 Triton launches an industry
46 When a company completely changes its core
19 How the ATM Took Over the World
21 What’s in a name?
24 How the PIN came to be 26 Developing online capabilities: The mighty IBM 29 How NCR developed modular capabilities
35 Money for the Masses: The Rise of the Low-end ATM
37 A business case for low-end ATMs 39 The dawn of the off-premises ATM industry
45 The History of the ATM Industry Association
47 Media, meet association 48 Time to insure the industry
40 Birth of the IAD
49 A leader for all seasons
41 The killer Ts take over
50 Global ATM Security Alliance ( GASA )
44 A high-end future for low-end machines
34 A summary of four decades
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7
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53 The battle over fees
63 A brief history of crime
72 Look to the south
57 Regulation E: Law of unintended consequences
63 Crime doesn’t pay
74 Look to the north
65 Targets of opportunity
74 Look up
67 The great data robbery
75 Look down
68 The industry strikes back
75 Look to the sea
70 The next step: EMV
76 Look to the heavens
52 Regulators Can’t Tame the Raging Machine
58 Dodd-Frank Act— A bullet dodged … for now
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62 Busting Crime and Fighting Fraudsters
72 Cold Hard Cash: ATMs in the Arctic (and Other Unlikely Locations)
9
10
77 Can ATM s do more
87 Cash in the shadows
77 More than Money: ATM Advertising and Other Non-cash Functionality
than dispense cash? 78 New players hit the field 79 Non-banking services
104 Notes
118 Photo Credits
123 About the Authors
86 Cashless Mythology: The Future of ATMs, Payments and Cash
88 History was once far off 89 Cashless pockets 91 Cash facts
81 Innovation's Rocky Road 83 Advertising
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Acknowledgments This book is dedicated to Mike Lee— a friend and co-laborer in life
I’ve always marveled that the average person has no idea there’s an entire industry behind the ATM . They just expect the machines to work and be on every corner. But in reality there is an army of people responsible for the huge footprint of cash boxes around the world. In the same way, there is a “special forces” team behind this book that I wish to thank. First, I am indebted to various ATM marketplace.com editors who over the past 15 years have documented the history’s highs and lows, its people and companies. I also owe gratitude to Joseph Grove and Carol Butler for their editing and project work that kept this book on track. I want to draw special attention to the excellent work of Bernardo Bátiz-Lazo, my delightful co-author and friend across the pond, who did most of the heavy lifting when it came to sorting out the facts of who did what, when. He certainly set some of my own assumptions straight about the early days of the industry. To my many friends and colleagues in the ATM market, I say thank you—especially those of you who helped me get started in this business. —Tom Harper
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Most adults in the developed world interact with a cash machine on a regular basis. Very few, however, recognize the importance of a well-functioning payment system to the market economy. Here we aim to bring depth to this idea through a project that was possible in no small measure because of the leadership and enthusiasm of Tom Harper, my co-author. I will always appreciate that he reached out to me for collaboration. I not only benefited from his friendship, patience and understanding, but also learned loads from his example, love of family and modesty. As with any other complex project, this book resulted from the help of many people. In particular, we appreciate all those who gave their time for interviews, responded to emails, contributed to LinkedIn research, as well as went looking into their attics for old photos and relevant material. Here we include Hubert J. Heckl, Lars Arfvidson, James Goodfellow, Ian Ormerod, Mari Sienkiewicz (Barclays Group Archives) and Karen Sampson (Lloyds Banking Group Archives). Apologies to all those who remain unnamed. Additional gratitude goes to Alicia Blanda, Ramiro Crespo, and Phillip Lippard. Bangor University gave me the time and freedom to engage in this project and for that my appreciation goes to Phil Molyneux, John Thornton and the ever-supportive Kostas Nikolopoulos. My early research into cash machines was possible thanks to the financial support from the British Academy (LRG 41806), the Charles Babbage Institute (Arthur Norberg Travel Fund, 2008) and the Hagley Museum and Archive (2008). Of course, where our content falls short, the fault remains with us alone.
This book is dedicated to my parents, Yolanda y Bernardo.
—Bernardo Bátiz-Lazo
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Foreword Michael Lee, CEO ATM Industry Association
The main part of the word “history” is, of course, “story.” In the following pages you will encounter a remarkable, well-documented story of the origins and development of automated, self-service banking. You will see how automation revolutionized consumer behavior by enabling banks to offer services available 24 x 7, and how technology gave us access to our own cash close to where we work, live and shop. In many ways this book is the story of how self-service technology has helped us as a society overcome some of the limits of time and space, bringing greater convenience and mobility to the human race in terms of how we pay and move our money around. My favorite story of invention was told to me by one of the famed cash-dispenser inventors himself, John Shepherd-Barron. In 2001 I tracked him down to a remote village in Scotland where he had retired from the hustle and bustle of manufacturing and business. He remembered a Saturday evening in the mid-1960s when he reclined in a bath, lamenting the fact that he did not have enough money in his household for the rest of the weekend. His bank would only re-open, as it always did, at 9:00 a.m. on Monday. What was he going to do?
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Mr. Shepherd-Barron pictured a bubblegum vending machine. Why couldn’t cash be dispensed the same way on the high street, at any time? His simple concept of automated cash vending led to the first UK cash machine deployment in 1967. ATM technology has fascinated me ever since I started learning its history. But it is an unfinished story,
just as relevant to our lives today as it was more than four decades ago. The ATM is currently undergoing some significant evolutionary developments. As a futurist, I know you cannot understand where a technology is going until you know where it comes from. This book is a much-needed and commendable contribution to understanding the rise of the selfservice consumer society most of the world lives in today. Enjoy an important story that is still unfolding.
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Introduction What surprises people the most about the beloved automated teller machine—including the complex infrastructure that supports it—is that it was not the idea of a single person. Bankers and engineers collaborated with end-users in an iterative, evolutionary dance. The deployment of the cash machine sparked a technological revolution that altered consumer behavior, redefined retail banking and launched a global installation race that still rages 45 years later.
THINKING ABOUT THE BOX This book explores the ATM’s colorful past and reveals lessons for any niche industry trying to navigate the headwinds of technological and economic change. According to the ATM Industry Association (ATMIA), a cash machine is installed roughly every three and a half minutes somewhere in the world. ATM s have been installed in the strangest places: churches, cruise ships, mountaintops and even the McMurdo base in Antarctica. Today the global ATM footprint of nearly 2 .4 million machines yields more than six billion transactions every year. All this dispensed cash has to be counted, delivered, protected from thieves, shielded from the elements, monitored, reconciled—before it ever lands in the consumer’s hands. xiv
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An intricate web of manufacturers, transaction processors, consultants, maintenance companies, installers, software providers and dozens of other ATM-related business segments has risen to meet the demands of this growing industry. Experts conservatively estimate this infrastructure is a $ 100 -150 billion market worldwide, not including the value of the cash inside the machines.
WHAT ABOUT THE CASHLESS SOCIETY? As we’ll see in the last chapter, credit card companies are spending millions to campaign against cash. But all their energy and investment seem to be having the opposite effect, as the demand for cash continues to expand. Consider the trends reported by the world’s central banks. In the past five years, the amount of cash in circulation hasn’t just grown—its pace of growth has increased.� In 2009, for example, growth over the previous year was three percent, whereas growth in 2011 was six percent. A truly cashless society would deny countless people the choice of using cash when it’s more convenient, or when using a card or a phone is impossible at the point of purchase. Not to mention the numerous people who use cash envelopes to help with personal budgeting.
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Cash usage will continue to expand over the coming decades. So will the global network of ATM s, since they distribute and recycle the bulk of the world’s banknotes. ATM s are a critical channel in the whole cash and spending cycle. Without ATM s, the cash ecosystem would crumble.
A JOURNEY THROUGH HISTORY This book will carry you on a journey across the globe to discover the ATM’s history and its role in shaping modern economies. We hope you find the story and accompanying photos as interesting and colorful as we did. The ATM market is truly unique in that it exists in almost every country in the world, and yet many people have never considered there’s an entire industry behind the ATM. As we shall soon see, the world’s obsession with the ATM has always been driven by the economics of everyday life. The cash dispenser has successfully woven itself into the world’s societies. Wherever cash is, the dispenser soon follows. Welcome to the unique story of the cash box.
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A 2,700-year History of Cash and Payments
1
Almost every history of money written for a popular audience tells an orderly, sequential tale of how chattel led to barter, which led to cast metal replicas of shells, which evolved into coinage, which necessitated a metallic standard of value that led to government-backed bills of exchange and laws of legal tender. Yet according to A. Mitchell Innes in his 1913 landmark paper, “What is Money?”, this accepted notion of how money evolved rests entirely on the speculations of 18th-century Scottish philosopher and political economist Adam Smith. Smith’s version of the history of cash is supported by little other than select passages from Homer and Aristotle and the untrained observations of travel writers who had visited primitive societies, Innes argues. Could it be that none of Smith’s widely cited “facts” is supported by historical proof? Innes writes: Adam Smith’s position depends on the truth of the proposition that if the baker or the brewer wants meat from the butcher, but has (the latter being sufficiently provided with bread and beer) nothing to offer in exchange, no exchange can be made between them. If this were true,
Adam Smith, 18th-century Scottish philosopher and political economist
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the doctrine of a medium of exchange would, perhaps, be correct. But is it true? Assuming the baker and the brewer to be honest men, and honesty is no modern virtue, the butcher could take from them an acknowledgment that they had bought from him so much meat, and all we have to assume is that the community would recognize the obligation of the baker and the brewer to redeem these acknowledgments in bread or beer at the relative values current in the village market, whenever they might be presented to them, and we at once have a good and sufficient currency. A sale, according to this theory, is not the exchange of a commodity for some intermediate commodity called the “medium of exchange,” but the exchange of a commodity for a credit.
Innes continues his argument by pointing out that the root meaning of the verb “pay” derives from the Latin “pacare,” meaning to pacify, appease or make peace with another person through a unit of value customarily acceptable to both sides. While a debtor must be in a position to satisfy the creditor, the most important characteristic of a credit is not the right which it gives to payment of a debt, but the right that it confers on the holder to liberate oneself from debt by its means—a right recognized by all societies. By buying, we become debtors and by selling, we become creditors. Credit, rather than gold or silver, he concluded, “is the one property which all men seek, the acquisition of which is the aim and object of all commerce.” In short, Innes said that “credit—and credit alone—is money, and always has been. Money, then, is credit and nothing but credit.”1 If we accept Innes’s argument, then what is the true history of money? No one knows exactly when or how money was invented, or if invented is even the right word. Economists, anthropologists and other scholars have speculated widely on the subject. One side argues that for any monetary system to flourish, it must be created by a state with the power to exercise regulatory control and levy taxes. 2
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A 2,700-year History of Cash and Payments
According to this view, the primary function of money is to strengthen a government’s coercive power over its citizens. The opposing school points out that various currencies have emerged spontaneously throughout history without intervention or sponsorship of the state.2 (The ready acceptance of cigarettes and drugs as common currency in prisons has been popularized in movies and books.) 3 St. Augustine understood perfectly well the concept of time, so long as he didn’t have to explain it. “If no one asks me,” he wrote in his Confessions, “I know what [time] is. If I wish to explain it to him who asks me, I do not know.”4 The best-known and most succinct definition we have—time is money—is now so shop-worn as to sound almost flippant. Yet it may well be closer to the heart of the matter than any other definition yet proposed. Columnist George Will famously posited that money is “time spent working.” Money, he wrote, “is congealed labor.”5 Glyn Davies, in his History of Money, defined money as “anything that is widely used for making payments and accounting for debts and credits.” According to Davies, money originated largely from non-economic causes, “from tribute as well as from trade, from blood-money and bride-money as well as from barter, from ceremonial and religious rites as well as from commerce, from ostentatious ornamentation as well as from acting as the common drudge between economic men.”
PREHISTORY The exchange of resources or services for mutual advantage dates back tens of thousands of years, perhaps even to the dawn of modern humans.
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Humankind’s earliest functioning capital assets were livestock. The inventor and all-encompassing thinker R. Buckminster Fuller observed that monetary systems evolved in tandem with humans’ ability to travel the earth and therefore engage in trade with hitherto foreign peoples.6 * Transported livestock (such as cattle, lambs, goats, horses and pigs) was often used as money. This was “real life-support wealth, wealth you could actually eat.” (Note, too, that livestock held as security on a loan would provide the lender with transportation, labor, reproductive services, fertilizer or a daily yield of fresh milk as interest.) Davies pointed out that even well into the 20th century, the Kirghiz of the Russian steppes used horses as their main monetary unit with sheep as a subsidiary unit and small change dispensed in units of lambskins. For a time, the Phoenicians carried cattle with them along their trading routes, but the upkeep of such creatures proved cumbersome and expensive over the course of long voyages. Thus, when the Phoenicians abandoned the transport of actual cattle in favor of far more portable metal money, they fashioned iron into half-rings that resembled a pair of bull’s horns. Soon the traders found that those in previously unvisited foreign countries had no memory of the cattle-on-board trading days and didn’t recognize the miniature iron bull horn. If metal was accepted for trading, many of these peoples preferred other kinds of metal. These other metals—silver, copper and gold—were easy to judge the weight of by hefting and were more aesthetically pleasing than the forged iron bull horn symbols. This brought metal coinage into the game of world trading, with the first coin bearing the image of the sovereign of the Phoenician homeland. * According to Fuller, the switch from livestock to coinage occurred at roughly the same time as “the great changeover from city-state dominance to line-of-supply dominance of the power-structure group controlling most of world affairs. This was the time when the Phoenicians began trading with people of so many different languages that, in need of a means of recording the different word sounds made by people around the world, they invented phonetic spelling, which pronounced each successive sound separately” by employing letter symbols for each sound. “It was a big change from ideographs to the Phoenicians’ phonetic spelling, wherein each letter is a single sound—having no meaning in itself— and whereby it took several sounds to make a whole word and many such words to make any sense,” he said.
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The shekel, an ancient unit of both weight and measure, was first used in Mesopotamia around 3000 B.C . to define a specific weight of barley and equivalent amounts of materials such as silver, bronze
and copper. This ancient correlation between cattle and money is evident in the words “capital,” “chattels” and “cattle,”
THE FIRST MENTION of money within the Bible occurs in the book of Genesis when
which share a common root. The practical reasons for equating cattle with wealth are obvious, yet recent
Abraham purchased the Cave of Machpelah
anthropological studies show that when regarded as a form of money, scrawny cattle no less so than
for a quantity of silver, or “argentum,” a
healthy specimens were valued equally without regard to the natural resources required to support them.
currency known to be used by the Philistine
7
people between 2000 and 1900 B.C.
METAL MONEY, COINS AND TALLY STICKS The cowrie, or mollusk shell, has been widely used as currency in societies throughout history. In parts of Africa it was used for this purpose as recently as the middle of the 20th century. The earliest known Chinese character for “money” represented a cowrie shell. Replicas of cowrie shells cast from bronze and copper discovered in China date from the end of the Stone Age and are believed to be the earliest forms of metal coins. Metal tool money, or “coins” in the shape of objects such as spades, hoes and knives, also originated in China, although tool coins also have been found in the Western hemisphere. The ancient Greeks used iron nails while ancient Britons used sword blades as coins. These early metal monies developed into primitive versions of round coins. King Pheidon of Argos was the first ruler to officially set standards of weight and money in the 7th century B.C., even as the first manufactured coins occurred separately in India, China and in cities around the Aegean Sea. These Aegean coins were heated and hammered with a stamped insignia. The Indian coins were punched metal disks, and Chinese coins were cast bronze with holes in the center allowing them to be strung together. Coins made of base metals had little intrinsic worth. True coinage developed in Asia Minor sometime
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between 640 and 630 B.C., when the Lydians began stamping small round pieces of silver, bronze and gold. Later, as the Lydians’ metallurgical skills improved and these pieces became more regular in form and weight, the coins took on value in and of themselves. The techniques were quickly copied and further refined by the Greek, Persian, Macedonian and Roman empires. In 12th-century England, notched pieces of wood known as tally sticks were used as currency. The notches denoted various amounts of taxes payable to the crown. Each tally consisted of a matching pair, Shells, such as the Monetaria moneta, were used as a form of exchange before coinage was in common usage.
with one stick given to the taxpaper, representing the amount of taxes to be paid later, and the other held by the treasury, representing the amount of taxes be collected at a future date. Tallies were transferable, negotiable instruments, just like bills of exchange, banknotes or coins. Private tokens in England were issued by tradesmen and merchants and used chiefly for small sums. For many centuries, nearly all purchases of goods and loans of money were carried out exclusively by means of tally sticks.
FROM PAPER MONEY TO THE GOLD STANDARD The first known banknotes took the form of leather money. These one-foot-square pieces of white deerskin with colorful borders were used in China in 118 B.C. Forms of paper money were used in China for 500 years, from the 9th through the 15th centuries. During this period, the production of paper notes grew so much their value began to depreciate, and inflation soared. Midway through the 15th century, the use of paper money in China disappeared and did not come back for several hundred years. Although paper money had no intrinsic value, it was backed by a specific standard. One unit of currency was exchangeable for a specific quantity of a precious metal. (It is interesting to note that banknotes Chinese coins were cast bronze with holes in the center, allowing them to be strung together.
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originally gained acceptance as a substitute for actual money and only later did they come to be regarded as the real thing.) The acceptance of symbolic forms of money meant a symbol could be used
to represent something of actual value housed in some other location, such as grain in the warehouse. Symbolic forms, such as promissory notes or bills of exchange, could be used to represent something of value that would be available at a later time or when specified conditions had been fulfilled. After centuries of using silver as its standard of value exchange, Britain adopted the gold standard for the pound in 1816. At that time, guidelines were made to allow for a non-inflationary production of standard banknotes, which represented a certain amount of gold. Banknotes had been used in England and Europe for several hundred years before this time, but their worth had never been tied directly to gold. In the United States, the Gold Standard Act was officially enacted in 1900, which eventually led to the establishment of a central bank charged with oversight of the nation’s currency. With the outbreak of World War I in 1914, Britain withdrew its gold from internal circulation, and soon other countries followed suit. The massive depression of the 1930s contributed to the decline of the gold standard, whereby currencies could be converted into gold at fixed domestic prices. Some economic
In 12th-century England, notched pieces of wood known as tally sticks were used as currency.
historians blame adherence to the gold standard for prolonging the Great Depression because the standard prevented the Federal Reserve from expanding the money supply in order to stimulate the economy. Once the U.S. abandoned the gold standard, it could create money to fund insolvent banks and pay government debts, thus “priming the pump” for expansion.8 The British and international gold standards soon ended as well. In Great Britain, the standard was dropped entirely in 1933, heralding a far more complex era of international monetary regulation. This included the so-called Bretton Woods Accord of 1944, where convertibility between the U.S. dollar and gold was reinstated. Money that is not backed by reserves of another commodity is known as “fiat money.” (“Fiat” is Latin for “let it be done.”) It derives its value solely from governmental authority or royal decree. Governments dating back to the Song Dynasty in 11th-century China have switched to forms of fiat money during wartime or other national crises. Under these circumstances, a government may suspend the exchange of its currency for gold, or it may simply begin printing as much money as it needs.
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When a government’s production of money outpaces economic growth, the money supply overtakes economic value, diluting the market value of all money, resulting in inflation. The United States switched to fiat money indefinitely in 1971 when President Richard Nixon, combating massive inflation, abruptly ended the convertibility between U.S. dollars and gold. Because so many of the economically developed countries’ currencies were fixed to the U.S. dollar, this single step, which came to be known as the “Nixon Shock,” meant that much of the Western world’s currencies became fiat money-based. The severing of ties between currencies and precious metals in the early 1970s made the nature of money more elusive, at least in the minds of everyday consumers. This shift in thinking may have paved the way for the rapid acceptance of electronic money. (In some ways, e-money is a logical evolution from the wire transfers that came about with the adoption of the telegraph in the 19th century, although wire transfers had relatively miniscule impact on everyday transactions.) Many transactions now take place without any physical currency, or even printed receipts, ever changing hands. E-payments and m-payments collectively accounted for an estimated 22.5 billion transactions in 2010.9 In some ways, the new world of payments resembles the chaotic marketplace of old. Modern versions of hagglers and shopkeepers sit at the table with governments and technology purveyors, hashing out new forms of value that recall the technological and cultural leap from cattle to coin. While much of our treasure resides in a cloud underpinned by systems and standards beyond the comprehension or concern of the average citizen, the circulation of physical currency continues to grow. Perhaps this is why the ATM will endure for generations to come, as the history of cash itself continues to unfold.
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The ATM’s Colorful, Contested Story of Invention
2
Heading into the 20th century, self-service devices began leaping from concept to reality. In 1902, Horn & Hardart’s Automat (a self-service sandwich display) debuted in Philadelphia.1 A 1904 issue of Bankers Magazine published a sales pitch for an “automated coin-counting and coin-wrapping” machine.2 In 1914, Alfred Ilg was granted U.S. Patent 1094073 for an automatic identification device for unmanned financial transactions. (It’s not clear, however, if Ilg’s device found actual application.) The age of automation had arrived.
1902 Horn & Hardart’s Automat (a self-service sandwich display) debuted in Philadelphia.
1914
ADOPTION IN THE UNITED STATES After World War II, the U.S. assumed world leadership in manufacturing, science, technology and general knowledge. Despite the Soviet Union’s 1957 launch of Sputnik 1, the first artificial satellite to orbit the earth,3 the U.S. tipped off a tech race that reached beyond space to sectors such as automation in manufacturing. This burgeoned into a trend of unmanned retail and societal services extending into everyday life. That generation saw the first coin-operated candy machines, pump-your-own gas stations and self-service ticketing for public transportation systems.
Alfred Ilg was granted U.S. Patent 1094073, for an automatic identification device for unmanned financial transactions.
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Cash dispensers were born in the shadow of this emphasis on automation. Popular accounts often link the first attempt at mechanical cash-dispensing technology to the Bankograph, an automated envelope deposit machine developed by Luther George Simjian. Simjian’s U.S. Patent 3039582 was first filed on April 9, 1959 (and a second relevant one, U.S. Patent 3079603, on June 30, 1960) 4 . A full two years later—during which time Simjian’s company was acquired—the first Bankographs rolled off the line and were installed in New York City bank branches. Initially, cash deposit machines were often deployed in locations other than bank branches, such as drug stores and supermarkets. Legal challenges and other issues in several U.S. states initially hindered further adoption.5
ADOPTION IN EUROPE While U.S. banks were focusing on cash deposits, European banks were more concerned with cash distribution. Indeed, most of the significant banking devices emerged out of business necessity. In the United States, for instance, check clearing surged as a major cost center, while regulation limited branch expansion into the suburbs or the newly created shopping malls. In Europe, banks managed expanding retail branch networks and faced growing pressure to end Saturday business hours. Europe also suffered a shortage of male workers after two major wars in 30 years. Compounding the thin labor force, female workers turned over often, as many of them worked in low-skill, low-pay jobs. Simjian’s Bankograph
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While banks explored increasing deposits through paycheck direct deposit, their problem was that few people owned checking accounts. A ny possibilities to tap into the rising income of the urban working class required finding new ways to deliver services through means other than traditional brick-andmortar branches. This motivated banks on both sides of the Atlantic to invest heavily in advanced customer services such as drive-thru, drive-in and mobile branches.
CASH AUTOMATION IS BORN Some sources indicate a Japanese cash dispenser machine appeared in July 1966 (although unconfirmed
MAY 2,
G.B. Patent 1197183 filed by Anthony Davies and James Goodfellow. This patent was to become the industry norm for the coding of the personal identification number (PIN) that linked to a specific customer account.
reports suggest it could have been as early as 1964). Customers activated the device by a “special credit” card, and rather than accessing current account balances, it dispensed a ¥20,000 (about $55) threemonth loan. Although the early existence of this technology challenges the British claim to have the first operational cash dispenser, there are limited details about its workings. Moreover, it had no immediate impact on the international market, whereas British patents and devices were promptly operational, licensed or replicated elsewhere in Europe and North America. June 1967 saw the arrival of the much-celebrated De La Rue Automatic Cash System, or DACS.
1966
JUNE 25,
1967
Arrival of the muchcelebrated De La Rue Automatic Cash System, or DACS. Advertised as “Barclaycash” and dubbed the “robot cashier” by the press. Customers stuck a paper voucher in one drawer and pulled out another drawer to receive the dispensed cash.
JULY
1966
The first operational Japanese cash dispenser appeared. Customers activated the device by a “special credit” card, and rather than accessing current account balances, it dispensed a ¥20,000 (about $55) three-month loan.
JULY 6,
1967
First Bankomat was installed in Uppsala, Sweden.
JULY 27,
1967
The second device unveiled in Britain was called the Chubb MD2.
Advertised as “Barclaycash” and dubbed the “robot cashier” by the press, it was activated by a paper voucher (impregnated with the radioactive compound Carbon-14) which, once inside, was guillotined to look like a paper check. Customers stuck the voucher in one drawer and pulled out another drawer to receive the dispensed cash. The DACS would likely have resulted from the natural drive of British banks to computerize, but its advent was hastened when clearing banks (many of which were Barclay’s staff) acquiesced to union demands to end Saturday branch openings.6
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Shortly after the DACS debut, two other independently engineered devices were unveiled in July 1967.
Unintended Invention
The first was the Bankomat, designed and manufactured by Metior at the insistence of the Swedish savings banks. Its original concept originated in the late 1950s with the Technical Committee of the joint purchasing company Sparfrämjandet, which responded to a group of savings banks wishing to introduce direct-to-account payroll services to compete with commercial banks. Initial uptake of the technology was slow, but thanks to the savings banks’ links to unions, the number of payroll accounts rose. However, so did associated administrative costs, as savings banks had to expand their workforce to deal with increased transaction volume.
Between 1960 and 1964, De La Rue Instruments—an eightemployee division of a larger company devoted to multinational note-manufacturing—developed and patented the use of Carbon-14 as a token verification system in unmanned gas pumps. The company also developed a banknote transport system combined with a counting system (outlined in G.B. Patents 912215, 1109466, 990256 and 990255). These developments focused on the automation of customer services rather than a specific goal of self-service banking technology, but it was to prove central to the development of the cash dispenser. Shortly after being appointed managing director of De La Rue Instruments in 1964—and with a charge to close down the subsidiary—John Shepherd-Barron signed an exclusivity agreement with Barclays Bank.7 The deal culminated in a cash-dispensing device that became operational at Barclays’ Enfield branch on June 27, 1967, as depicted in the photo above.
The first Bankomat was installed in Uppsala, Sweden, on July 6, 1967.8 Two days later, a similar device was shown by commercial bank Svenska Handelsbanken in Stockholm. While the Barclays machine was activated through a paper token, the Bankomat had a plastic card with an encoded serial number, which was read by an optical device and translated to an account number by a computer. Also that month, the Chubb MD2 was unveiled in Britain. This machine activated upon insertion of a plastic card with perforated holes. It resulted from the collaboration of Smiths Industries, Chubb & Son’s Lock and Safe Company Group (Chubb) and Westminster Bank (today part of the Royal Bank of Scotland Group). Its main patent was G.B. Patent 1197183, filed on May 2, 1966, by Anthony Davies and James Goodfellow. This patent was to become the industry norm for the coding of the personal identification number (PIN ) that linked to a specific customer account. In a 2008 interview, James Goodfellow described the technology: The instigating factor was pressing the first digit of your PIN and that sent a pulse through a whole series of routing to a binary coded decimal group of switches … which decoded into a decimal number which was then compared with a push button which had been pressed.
John Shepherd-Barron (L) with Tom Harper and Alan Fryrear, co-founders of ATMIA.
12
I CHAPTER 2 I The ATM’s Colorful, Contested Story of Invention
And the very simplistic version of that is if you press 4 this goes round and it looks at the four
switches and says ‘8’ is inactive, ‘4’ is active, ‘2’ is inactive, ‘1’ is inactive therefore this is a ‘4’ and it goes down to the decoding and it looks at the ‘4’ coming in from the push button and it says bingo … right … very simplistic, open to abuse, totally insecure but the starting point.
A £10 note dispensed within a plastic cassette, awaiting customer withdrawal. Because of the lack of a video display unit (VDU ), the Chubb dispenser communicated with the customer using fixed light signals to indicate the card and PIN had been accepted. From the outset, banks adopting the Chubb MD2 and DACS chose to fix the cash dispenser to the exterior wall of the branch rather than inside the banking hall. Security was ensured through a stainless steel exterior and an interior cladding of thickened armor. Lurking in the shadows, a third British team made up of staff from Midland Bank (today HSBC )
The team at Speytec. The novelty of its plastic card with magnetic stripe was that it enabled the possibility of addressing security issues. Note that in the 1960s, credit cards were exclusively based on imprints.
conspired with a small engineering outfit called Speytec. Midland was then the second largest bank in the United Kingdom (after Barclays) in terms of deposits. More importantly, from the point of view of customer relations, “it had a larger number of units than is operated by any other financial institution in this country and the biggest branch system among the commercial banks of the western world.”9 The bank demanded airtight security in the device and even recruited the National Physics Laboratory (NPL) to test for the resilience of its activation token: a plastic card with a magnetic stripe that stored a six-digit secret number and was returned to the customer after the transaction. In a 2008 interview, Jack Donald of Speytec remembers: …the [Chubb] also had a card, but it also had its account number encoded in it. So not only was it retained but anyone could just read it in the bank and say it’s so and so’s card. But ours was different and you could get the card back. That created a number of security features we had to build in it. The first one was to restrict the number of times you could use the card. There were a number of prototypes to meet the basic
I 13
specification of limiting the number of uses to x times and to only use it once per day … . Initially, the NPL did a very clever thing in decoding the cards. But then we introduced magnetic spots hidden within an arrow [drawn on one side of the card]. The idea was that when the card went in we’d energize the spots, count up the number of spots and then when the card went back out again we’d erase the energizer when it came out. Now NPL thought there was something funny about the arrow but they didn’t actually understand it at all. What we did was we counted the spots and then coded the spots in this dynamic information with the number and then we did a comparison each time. In effect we had a personal number hidden within the card. The other thing was that it stopped people from cloning. That was important because the machines were not online. So if somebody found out that you could use the card as often as you liked or make lots of cards and use them, they would just clear out the machines.
As a result of continual security testing, Speytec delayed deployment, and its design couldn’t be patented until September 1969.10 The device became operational only after Detroit-based Burroughs Corp., the main supplier of computers to Midland, acquired Speytec at the insistence of the bank. Speytec’s work undergirded Burroughs’ RT series throughout the 1970s, and the machines were deployed in large numbers by the British savings banks. Meanwhile, an exclusivity agreement between De La Rue and Barclays, as well as lack of interest in the DACS in the United States, reduced De La Rue to supplying components for the ATM market, specifically the note feeding/ dispensing mechanism. On the other hand, both the Metior and Chubb machines were quite successful. The Chubb MD2 became the machine of choice for many banks in Britain; it was exported to France, Canada and, by 1974, to places as distant as Singapore. Meanwhile, Metior’s Bankomat was used chiefly throughout 14
I CHAPTER 2 I The ATM’s Colorful, Contested Story of Invention
Europe (including Scandinavia, The Netherlands, Spain, Germa ny and Portugal), Israel and even the Soviet Union. It became the dominant machine in France and Switzerland.11 Despite their growing popularity, these early cash dispensing machines had serious limitations. Withdrawals were limited to one per day and banks didn’t care too much about the customer experience. For instance, Barclaycash vouchers had to be purchased at the teller before they were redeemable at the robot cashier. In the case of the Chubb, the machine retained the token and banks returned it by post. Despite these inconveniences, this was the first time customers could access their cash at a ny branch fitted with a dispenser.
1969 Docuteller installed in New York’s Chemical Bank.
OCTOBER 7,
1971
First patent filed citing Don Wetzel, vice president of product planning at Docutel, as an applicant, along with a detailed description of a full-fledged cash dispensing system.
The convenience factor became the focus of senior managers, who were keen to advertise it. The service was described in a press release from the Royal Bank of Scotland dated July 31, 1967: CASH DISPENSER SERVICE: … The service is free to Westminster Bank customers who,
irrespective of the branch at which they may bank, may draw from the Victoria Dispenser. It is available 24 hours a day, 365 days a year … Already over 6,000 customers have applied for cards.
THE UNITED STATES' CLAIM TO FAME The United States was determined to stake its own claim in the cash dispenser race, even though European devices already operated in the real world. Perhaps the justification for this claim is best summed up in U.S. Patent 3761682, which displays for the first time in the record a full, free-standing automated teller system rather than, as in the cases above, an invention defined primarily by the verification/security system.
Docutel’s currency dispensing machine (U.S. Patent 3761682)
I 15
A number of people attribute this innovation to Don Wetzel, at the time vice president of product planning at Docutel.12 This is partly the result of an interview conducted with him on September 21, 1995, in which he claims a degree of ownership over the concept of a complete ATM system: “Finally, I suggested the idea of this machine that would do most of the work of a teller. In Docutel it was well received.”13 In the patent record, U.S. Patent 3761682, filed on October 7, 1971, cites Wetzel as an applicant and contains a detailed description of a full-fledged cash dispensing system. The patent record, however, cites at least three previous applications from Docutel without Wetzel appearing. Three applications were filed more than a year previous to the one with Wetzel, and within a day of each other, in late July 1970 (U.S. Patents 3651976, 3662343 and 368569). These patents feature the names M.R. Karecki, T.R. Barnes, K.S. Goldstien, G.R. Chastian and J.D. White. White claimed that he and Goldstein originated the concept of a complete automated teller system.14 Nevertheless, the Docutel patents are significant as they describe in detail a system that seems closer to the magneticcard ATM s of today. The Docuteller was installed in New York’s Chemical Bank in 1969.15
CHAIN INVENTING The emergence of the cash dispenser is best understood as part of a long chain of innovations. As we have seen, several early devices largely resulted from collaboration between bankers and engineers. These devices worked as stand-alone units, and most ate the activation token rather than returning it directly to the customer, operating more like a candy dispenser or self-service gas pump than a modern ATM . While customers enjoyed the convenience of these early cash automation machines, significant
security shortcomings hobbled their proliferation, and they were limited to only one function: cash dispensing when bank branches were closed.
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I CHAPTER 2 I The ATM’s Colorful, Contested Story of Invention
Early customer instructions.
Developed in the former DDR (East Germany), this machine is extremely rare. "Geldautomat" is German for ATM. Barclays ad promoting its new machine.
With the Burroughs Remote Teller System, all currency was dispensed to the customer in a plastic clip to minimize transaction time.
I 17
Activation token for the Barclays De la Rue (DACS) machine, circa 1967.
Activation token for Geldautomat—DDR (front), circa 1983.
Activation token for Geldautomat—DDR (back), circa 1983.
Advertisement for the Barclays DACS, circa 1967.
18
I CHAPTER 2 I The ATM’s Colorful, Contested Story of Invention
How the ATM Took Over the World
3
THE INTRODUCTION OF CASH DISPENSING MACHINES Though banks proliferated in the 1970s, widespread adoption of cash dispensers did not follow, nor did such adoption appear inevitable. Indeed, in 1971, only 11 banks in the United States (seven of which had more than $1 billion in assets) had a cash machine in operation.1 Some bankers looked at the equipment as increasing customer convenience, while others considered automated cash dispensing merely a marketing gimmick, albeit an expensive one. Gary Akey remembers: “I started working for Mosler in 1977 … [who at the time] had some of the first ATMs in the country that they marketed under the (if I recall correctly) TellerMatic name. These systems were quite feature-intensive and some considered them industry-leading! … Well, just a few months after I was hired, American-Standard, Mosler’s then parent company, decided to sell the ATM division because the idea would never catch on, people like dealing with tellers! (Someone also told me they would never get a reasonable return on their investment into making the ATMs.) The division was sold to TRW (again, if I’m recalling correctly). And, the rest is history! And, unfortunately, a sad history for Mosler.”2
In 1971, only 11 banks in the United States had a cash machine in operation.
I 19
Despite these reservations of some bankers and manufacturers, there was still insufficient capacity to satisfy the demand for cash machines in Europe and North America. Why was the future uncertain? Limited capability was one challenge, as most of the early devices could only dispense cash. Demand for more advanced services, such as providing balances, far outpaced existing technology. Uptime was another, more significant challenge. The early cash machines were single, integrated pieces of machinery—as opposed to today’s multi-component ATM s—and thus more intolerant of failure even among the smallest parts. This challenge meant machines could be idle for days or even weeks until an engineer or spare part became available. Security represented another major obstacle. The lack of online capabilities meant people could easily Lloyds Bank distributed brochures informing customers of the upcoming installation of the accounting machinery.
abuse the system, while other machines simply had a flawed design that was unable to withstand any serious attack. One of the biggest problems banks faced early in the use of cash dispensing machines was getting customers to use the equipment for the first time.3 Once a customer broke through this barrier, he was likely to continue using it with increasing frequency. Says a contemporary report: One bank helped to overcome this obstacle by using a group of girls to demonstrate the machines. In the demonstration the customer followed the machine instructions; however, the packet dispensed by the machine had a blank application for a personal machine activator rather than actual cash.4
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I How the ATM Took Over the World
The global economy also hindered the widespread adoption of cash dispensers due to variable exchange rates and volatile currency prices. International trade and macroeconomic conditions compounded consumer confusion on how and why to use the machines, resulting in drastically different models built by the various manufacturers as they all tried to find the right design.
cash machine
automated teller machine
A number of other technology solutions also appeared around this time. Some of them were successful (such as telephone banking) and many others have already been forgotten (such as the Mintel, TV banking, semi-automatic check-cashing in retail stores, videotext, etc.). All of these services competed for attention and capital investment in the development of automation in retail banking. But as we now know, the cash machine prevailed, thanks to internal and external transformation due to developments in computing, electronics and communications, as well as changes in bank strategies and consumer culture. Along the way, the cash dispenser “dinosaur” became today’s sleek, multifunctional automated teller machine (ATM ).
1965
1970
1975
1980
1985
1990
Frequency in use of “cash machine” versus “automated teller machine” within Google’s digital library. By the late 1970 s, “ATM ” had become the preferred term.
The 20 or so years that followed the introduction of the cash-dispensing machine saw a transformation in both functionality and hardware. At the same time, cash machines were slowly but steadily seen as a potentially important tool that would complement brick-and-mortar branches to help serve large numbers of retail customers. Let’s take a look at some of the developments that led to the modern ATM.
WHAT’S IN A NAME? Names for specific brands changed despite companies’ best branding efforts. In 1967, for instance, Barclays baptized its machines “Barclaycash,” but journalists resisted and called them “robo cashiers.”5 In Sweden, Metior and the savings banks labeled their machines “utbetalningsautomat” in 1967 but soon after the name was shortened to “Bankomat,” which became a brand name for cash dispensing in Italy, Portugal, the Baltic Sea region and Eastern Europe.6 By 1971, the growth in manufacturers led to a
I 21
FIRST DEPLOYMENTS BY REGION The color-coded map on this and the following page indicate when ATM s first appeared in bank
United Kingdom Sweden
1968
Netherlands Switzerland Germany Portugal Spain
1960s
1967
USA Canada France Denmark Japan
1983
Thailand Italy Brazil
1984
Costa Rica Argentina
1985
Ghana El Salvador
1986
Virgin Islands
1987
Chile India Venezula Jamacia
1988
Guatemala Bolivia Nigeria Kenya Tanzania Russia
Mexico
1974
Singapore Australia
1975
Colombia Finland Republic of Korea Ecuador
1990
Poland
1976
Cyprus
1992
Nicaragua Iran
1977
Norway
1993
Indonesia
1978
Uruguay Hong Kong Puerto Rico
1994
Lebanon Egypt
1979
Peru
1996
1980
China Ireland Austria Honduras
Dominican Republic Ukraine
1998
Pakistan
1999
Belarus
2004
Afghanistan Laos
2005
Iraq
2006
Vietnam
2007
Kazakhstan Guyana
1981
1982
South Africa Greece Iceland Malaysia Philippines New Zealand Turkey
22 I CHAPTER 3
1990s
1972
2000s
1980s
1970s
1969
1980s
branches around the world.
I How the ATM Took Over the World
1960s
1970s 1980s
1980s
1990s 1960s
I 23
wide variety of names, including “Money Machine” and “Cashpoint” (Lloyds Bank / IBM), “Total Teller System” (Docutel), “Check-$-Matic” (Digital Security) and “Automatic Teller System” (Diebold).7 The development of new names continued through the 1980s. “Bankamatik” was introduced in Turkey by İş Bank in 1982 and in 1989, the state savings bank Sberbank introduced the “Bankomat” to the former USSR .8 In some instances, people were invited to create a name themselves. Socrates Sulópulos from Banco Continental (Peru) remembers: In 1979 the bank was in government hands (during military rule) yet it set up a ballot amongst all the employees’ sons and daughters. As a result the first ATM in Peru was called “Ramón.” All machines were labelled as such until the bank was privatised in 1996, when international signposting was adopted.9 Bankomat became a brand name for cash dispensing in Italy, Portugal, the Baltic Sea region and Eastern Europe.
HOW THE PIN CAME TO BE Perhaps the most important steps in the transformation of the ATM were the development of online capabilities and the personal identification number (PIN ). Evidence of this emerged early in Sweden, since the first Swedish machines lacked robust safeguards. Sometime after the initial deployment in 1967, someone discovered that the algorithm used to associate card numbers with the PIN code was not very resilient.10 During the Easter vacation in 1968, this person traveled around Sweden withdrawing money from each machine he encountered. The banks only noticed during Eastertide, 50 days after Easter. The Easter incident led Metior to contact the weapons manufacturer Bofors to help improve security. In August 1969, Bofors acquired 80 percent of Metior’s shares. Code experts at Bofors developed applications to strengthen the PIN, but the company’s level of engineering competence with cash dispenser technology proved insufficient to solve all the security issues. The magnitude of the problems reported in October 1971 was such that the savings banks considered closing down the entire fleet of 24 I CHAPTER 3
I How the ATM Took Over the World
machines. In an attempt to remedy the situation, a “white knight” acquisition of Metior was organized in 1973 by the electronic engineering company ASEA . But however colorful the Swedish story, the origins of the coded token and PIN patent as the crucial ATM enabling invention can be pinned to 1965 and the work of James Goodfellow. Goodfellow was
born in 1937 in Scotland, and at the time of his invention he was employed at Smith Industries. As is so often the case with important industrial developments, he did not profit significantly from his invention, earning only $15 from the patent.11 Goodfellow was honored with an OBE in 2006 and was named one of the top three people in the 2012 list of British Visionary Innovators, published by the Intellectual Property Office.12 The contribution of Goodfellow, Geoffrey Constable (team leader), Anthony Davies, Ivan Oliveira and the rest of the team at Smiths Industries was G.B. Patent 1197183. It described a method of low-
A May 7, 1969, article in a Swedish daily newspaper reported on the first automated teller machine in use at a bank in Malmo, Sweden.
cost, high-security, accurate customer access to the machine.13 Goodfellow’s fundamental contribution was that “the system [would dispense] a pack of money only if there is correspondence between this number entered by the push-buttons and a number that is read by the card-reader from the card.” This novel idea was the genesis of the PIN and personal access number (PAN ) system common to ATM s today. Goodfellow had originally developed the concept for the oil industry, basing it on the Hollerith card system of “decade” switches, which managed manual data such as location along with input from clocks, thermometers and other measurement tools. For use in banking, the existing system required the addition of a security system. The initial approach used a series of numbers that conformed to another data point within the system, which would validate the customer. There could be a total of 60 digits on the quarter of the Hollerith card used by the system: six were used by sort code and eight by account number, leaving 46 digits that could be used for a PAN. This system had the advantage of a “no-cost” card, as all that was needed was a quarter of a Hollerith card, and which would work within existing technology. In contrast, the magnetic
I 25
stripe approach Goodfellow’s team considered would require the development of read/write heads and other technology, which would increase the overall cost of development and the card itself. The other advantage of the punched card approach was that the card acted as the ROM memory for the system, further reducing the development time and cost.
DEVELOPING ONLINE CAPABILITIES: THE MIGHTY IBM In 1994, Banque du Caire deployed the first ATM that linked to a central computer using cell phone networks.14 In 1997, the Canadian Imperial Bank of Commerce (CIBC ) launched the world’s first Webenabled ATM.15 Then in 1998, the Mercantile Bank of Indiana, a client of ATM specialists Gooitech, became the first U.S. bank to use wireless ATM s when it deployed them on a riverboat casino.16 Clearly there was a huge leap between the early models of the 1970s and those employing Internet technology. But just as there were several independent efforts to develop the original cash dispenser Advertisement for the NCR 770, circa 1975.
technology, multiple claims were made as to which was the first online machine connected to a networked computer. Some of these are summarized in the table below.
year of claim
engineering firm and bank
1968
Asea-Metior & Swedish savings banks
1969
Docutel & Chemical Bank
country
characteristics of the technology
Sweden
Cash dispenser in Malmö used an IBM 7714 interface to connect to an IBM 360 computer in Stockholm.17
United States
Docutel U.S. Patents 3761682, 3651976, 3662343 and 368569 describe for the first time in detail a system that seems closer to the ATMs of today.
TABLE 1: Selected claims as to the first online ATM, 1968-1980
26 I CHAPTER 3
I How the ATM Took Over the World
year of claim
engineering firm and bank
country
characteristics of the technology
Japan
Omron’s G.B. Patent 1300848 described for the first time an “online” method of transaction in which the system is directly connected to the user’s bank account to verify funds and uses a magnetic card as token.
1971
Tateisi Electronics Company (later to be known as OMRON) & Sumimoto Bank
1973
IBM & Lloyds Bank
United Kingdom
Lloyds’ Cashpoint (IBM 3614) was a device linked to the central computer, able to check the customer’s balance before withdrawal.18
1973
Burroughs & Midland Bank
United Kingdom
Magnetic card token
1974
NCR 770
United States
Very similar functionality to the IBM–Lloyds Cashpoint
1978
IBM 3624
United States
Second-generation ATM. Enabled customization based on a series of IBM Mainframe BAL macros.19
1983
Chungho ComNet Co
Korea
Machines had a direct connection via telephone lines with the bank's mainframe computers, but this connection was regarded as too high-risk and open to fraud. Mainframe records were only updated once a day.20
There is evidence that in Sweden, Korea, Japan, the United States and the United Kingdom, engineers developed and banks deployed machines working online (that is, with direct remote access to a central computer). However, these ensembles were very expensive because every branch had to be fitted with a cash machine and a mini-computer. Moreover, online operation of cash machines also had to contend with the high cost, low reliability and low availability of telephone lines for electronic data processing. Hence, for much of the 1970s and early 1980s, cash machines were manufactured to work offline in
Fascia of IBM 3624 (ReadyTeller) on location at a Security Pacific National Bank branch in Westwood, California, circa 1980.
“batch” mode, in which all transactions were transmitted at the end of the day or at fixed times.
I 27
The first true online machine was the IBM 3624, part of the company’s second generation of ATMs, designed in their California laboratory and marketed in eight different versions. The 3624 was originally manufactured at IBM facilities in Charlotte, North Carolina, and Havant, England, until all operations were sold to Diebold. Its first major deployment took place in 1980, when the Security Pacific National Bank deployed the largest online network of ATMs in the USA made out entirely of IBM 3624s.21 Philip Lippard remembers why the 3624 was successful when its predecessor, the 3614, was not: I entered the banking industry around 1975, about the time that the IBM 3614 was being introduced. Around this time in the United States, Docutel (later absorbed by Olivetti) ATMs were widely successful. But these early systems were heavily dependent on the magnetic card stripe for authorizations and were quite insecure by today’s standards. The IBM 3614/3624 ATMs were widely considered to be one of the first effective online ATMs. These machines would communicate via binary synchronous (bi-sync) protocol or synchronous data link control (SDLC ) protocol communications to IBM mainframes. The IBM 3624 was an IBM proprietary microprocessor and there was a well-defined set of firmware interfaces which controlled the device operations and status monitoring aspects of the device. In that sense, it behaved already as a computer terminal.22 Advertisement for the new 24-hour Bankomat service at Bank of Cyprus, circa 1975.
The world’s retail finance sector flocked to the IBM 3624, and eventually all major ATM manufacturers, including Diebold and NCR , emulated the IBM 3624 in competitive offerings.23 The 3624 eventually was replaced by the IBM 473x series; these new machines, however, were unsuccessful, partly because of their lack of backward compatibility to the 3624 protocol.
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I How the ATM Took Over the World
HOW NCR DEVELOPED MODULAR CAPABILITIES
24
The advent of memory storage within the ATM opened possibilities for customizing the device through software applications as well as storing different types of records (such as a table of canceled or overdrawn accounts). However, such functionality was not straightforward or easy to achieve, said James Adamson of NCR : The IBM machine was fascinating in these times, but to use it you almost needed a Ph.D. in engineering. The early machines had a fixed program inside the processing unit that was normally run off a reel. For the human being there was a slot with a series of LED s and it was horrible and it was anything but easy and the machines were all just totally unreliable.25
Adamson took over the management of NCR’s plant in Dundee, Scotland. This plant was the engine from which the U.S.-based manufacturer grew to become the world market leader. Roger Jensen remembers: I was involved in the ATM industry with NCR as early as the late 1960s … I remember when NCR was only the fifth-largest developer of ATMs and we rose to the No. 1 position in products sold. In the early days, there were many vendors such as IBM, Burroughs, TRW, Docutel, and of course, Diebold. How many of you remember all of these vendors? There were more, too, [like Honeywell and Phillips]. Of course, now we have a number of other vendors, such as those from Korea and Japan.26
Designed in the United States with very similar functionality to the IBM 3614, the 770 accepted a magnetic-stripe card.
NCR’s story begins around 1974, when the company released the NCR 770 and shortly after sold 100
units to Barclays in the U.K.27 Adamson writes: Right from the beginning, the NCR machines could interface with IBM and Burroughs and Siemens-Nixdorf. And the reason for that was NCR was in the whole of the banking business, from the point-of-teller terminals to central computers and cheque sorting machines. 28
I 29
Designed in the United States with functionality very similar to the IBM3614, the 770—a huge ATM even by the standards of the time—accepted a magnetic-stripe card. Due to concerns about the increasingly unionized labor force in Dayton, Ohio, NCR moved production of the 770 to Scotland. But problems with components and manufacturing resulted in NCR almost failing to deliver on the Barclays contract. Adamson came to the rescue in 1979; NCR hired him with a mandate to bring about a radical change in production quality, to focus on the manufacturing of a handful of world-beating products and to lift employee morale. Under Adamson, the Dundee plant greatly improved the performance and reliability of NCR’s ATM, at the same time increasing the machine’s functionality. The changes included introducing a customerfriendly display as well as delivering cash horizontally (i.e., long side) rather than vertically (i.e., short side). The improved contact and control of individual notes reduced jams. In 1981, the new NCR 1780 ATM boasted the following features: • Allowed transfer of funds, payment of bills and the option of dispensing one or two currency denominations • A keyboard with tactile and audible feedback • A 967 dot matrix printer (30 characters per line) and transparent door (to protect from vandalism and weather) • A modular design to enable choice between off-line cash dispensing or full service, but more importantly to compartmentalize faults so if one component failed, the machine continued to be operational • Encrypted data for added security of both customers and the financial institution.
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I How the ATM Took Over the World
These developments came not from the foresight of the manufacturers’ engineers, but rather from Adamson actively courting banks as well as asking consumers for feedback on their interaction with cash machines.
In 1984 NCR launched the 5070, considered the first full-function machine that offered transfers, payments, printing of detailed statements and envelope deposits. This model resulted from Adamson’s team outmaneuvering Dayton-based engineers and effectively relocating the design of cash machines within NCR to Dundee.29 The features and operability of the 5070 were so advanced for its time that other manufacturers were only at their planning stage and thinking of offering similar features three or four years down the line. Adamson’s small team was very much on its way to dominating the cash dispensing market. The experience of Roger Jensen gives insight into the breadth of activities at Dundee: By 1982 or ’83, I joined the Development Product Management Group in our corporate offices and worked directly with our manufacturing plant in Dundee … . At that time, there were only three product managers. We were responsible for the development of the NCR 5070 and 5080 ATMs. By the mid-1980s, I took on the Product Management responsibility for the NCR 5088 Drive-Up ATM … . Many will remember this as an ATM designed to fit in a
Brochure for the NCR 1770.
kiosk that was only 30 inches wide. The unit was serviced from the side with a safe door that actually opened into the drive lane. I continued working with the NCR Scotland Product Management Group until 2002. During that time I was a Senior Product Manager and had a number of responsibilities, including working with the developers of the ATM networks, such as ACI, SDM, Deluxe Data and others. Near the end of my career with NCR , I was responsible for the development of the Convenience Retail ATMs. Those were developed for convenience stores, gas stations, grocery stores, etc. Most of these ATMs were sold by third parties and my group provided training and support for them in addition to developing products for their market.30
I 31
In 1973, Diebold introduced the TABS 500 (Total Automatic Banking System). In 1975, the company introduced a TABS model that had online or offline capabilities. The TABS 9000 series, launched in 1977, was a modular system known for its easy adaptability (continued on next page).31
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I How the ATM Took Over the World
I 33
A SUMMARY OF FOUR DECADES During the 1970s, ATM designers introduced remote links to central computers. Some models stored transaction information electronically within the machines (first in magnetic tape cassettes and later in floppy disks). This information was transmitted for general clearing at the end of the day through an electronic funds terminal (EFT). PIN encryption in a mag-stripe card became the standard security feature. Through the 1980s, proprietary microprocessors were replaced by Intel-powered microchips, enabling software to run on MS-DOS, and, by the end of the decade, the Windows operating system. The ATM evolved into a true remote terminal connected to a central computer. As the technology evolved, however, so too did the manufacturing landscape. Indigenous manufacturers who had failed to achieve economies of scale were the first to exit. In 1982, Chubb left the cash dispenser market for good and in October 1984, the company lost its independence, due in large part to losses incurred during the last years of failed cash dispensing technology. By 1990, Burroughs, De La Rue and Docutel had abandoned the manufacturing of cash dispensers as well. But 1990 was memorable for two other reasons: First, it was the year IBM withdrew from ATM manufacturing, a move influenced as much by IBM’s lackluster performance in the market as by In the 1980 s, the ATM evolved into a true remote terminal connected to a central computer.
the restructuring of its business portfolio away from manufacturing into software development and consultancy. Secondly, NCR assumed market leadership, punctuated by the manufacturing of its 10,000th ATM (sold to Barclays Bank and installed as a working exhibit in the Science Museum in London). In 2007, however, a change of policy within NCR resulted in ATM manufacturing relocating to Eastern Europe.
34 I CHAPTER 3
I How the ATM Took Over the World
Money for the Masses: The Rise of the Low-end ATM
4
As both financial institutions and consumers grew accustomed to using an ATM to conduct transactions, the marketplace developed an interest in lower-priced units. But the early regulatory environment prevented the growth of independent ATM deployers, or IADs, the main source of low-end retail ATM s that would spread self-service technology further than anyone had imagined.
Like many breakthroughs, the low-end ATM came from an unexpected source—Triton Systems Inc., of Long Beach, Mississippi. The first Triton 9500 model took the ATM world by storm in 1994 when it was installed in a convenience store in Diamondhead, Mississippi.1 There already were more than 100,000 ATM s in the United States by that time, but they were owned and operated by banks.2 Changes in the regulatory environment, the rapid adoption of ATM s and the development of low-cost units meant the explosion of the low-end ATM and the rise of the IAD would go hand-in-hand.
TRITON LAUNCHES AN INDUSTRY Triton was a pioneer of the low-end ATM industry. Co-founder Frank Wilem is a partner in a multimedia outdoor company called Gulf South Outdoors, based in Gulfport, Mississippi and has authored two novels.
I 35
Early in his career, Wilem worked in research and development for two Fortune-500 companies, Texas Instruments and Chrysler, before his love of the ocean led him to join Computer Sciences Corp. at NASA’s Stennis Space Center near Bay St. Louis, Mississippi.
1994
Wilem left Computer Sciences Corp. to start Triton Systems Inc., and he and his partners eventually
The first Triton 9500 was installed in a convenience store in Diamondhead, Mississippi.
MARCH,
2010
2000
Triton was sold to Dover Industries.
grew their $1,500 cash investment into a $100 million company with 400 employees. At one time, it was the�largest manufacturer of ATM s in the world and now ranks fourth. The company won the Inc. 500 award three years in a row, rating as high as No. 30 out of 500. Triton was sold to Dover Industries in March of 2000.
Dover was sold to a group of private investors.
When banks were the only purchasers of ATMs, there was not much demand for low-cost units. Banks had a lock on the ATM market because, under Visa and MasterCard operating agreements at the time, surcharging for ATM use was not permitted. Banks also viewed ATMs as an extension of the branch that offered services to customers, rather than viewing them as profit centers.3 Without a revenue stream from surcharges, there was no economic incentive to develop an independent ATM-deployment industry. In the early days, a disconnected network of regional processors handled ATM transactions in the U.S. and in other countries without a single, nationwide processing network. For instance, in 1986 there were more than 200 different national networks in the U.S. 4 That meant consumers could use only the ATM s connected with their banks. The option to accept a fee to use an ATM on another network simply did not exist at the time.5 By 1998, the shared national LINK network emerged in the United Kingdom but prior to that, ATM s were connected to separate processing networks.6 Terry Turner, one of the founders of Hanco, an early Triton distributor in the U.K ., recalls the days when ATM s were linked to only one of three national processing networks. “If you wanted to cover all 36
I CHAPTER 4 I Money for the Masses
cardholders, you had to have three ATM s, which meant you could only put them in train stations or big supermarkets,” he said, “or you had to go along to your bank branch.”7 Soon, the banks and networks saw the value in forming connections, allowing consumers to use any machine, regardless of whether it belonged to the user’s bank. Then the practice of surcharging arose to cover the cost of handling transactions among the different processing networks.
1985 59 percent of ATMs were connected to shared networks, and some of them were only in regional networks.
A BUSINESS CASE FOR LOW-END ATMS For most of the history of the ATM in the U.S., processing networks did not allow surcharges. A successful legal challenge to these bans in the early 1990s forced the networks to change their rules and, in April of 1996, the two largest networks, Cirrus and Plus, began charging fees. The result of these changes has been to make most ATM terminals accessible to almost all ATM cards. In 1985, only 59 percent of ATM s were connected to shared networks, and some of them were only in regional networks. By 1998, 99 percent of ATM s in the U.S. were connected to shared, nationwide networks.8
1998 99 percent of ATMs in the U.S. were connected to shared, nationwide networks.
1996 A successful legal challenge to banning surcharges in the early 1990s forced the networks to change their rules and, in April 1996, the two largest networks, Cirrus and Plus, began charging fees.
2003 More than 88 percent of ATMs charged fees to users whose access cards were not associated with that ATM’s owner.
After the surcharge ban sunset and the dawn of national networks, the demand for affordable offpremises ATM s spread quickly. Grocery and convenience stores were among the first locations to benefit from installing on-premises ATM s. By providing convenient access to cash, ATM s increased customer traffic as well as the number of purchases per customer. Surcharge fees did not deter consumers from using the machines. By 2003, more than 88 percent of ATM s charged fees to users whose access cards were not associated with that ATM’s owner, a practice
that was virtually unheard of 10 years prior.9
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According to a Federal Reserve Bank history of the ATM, in 1975 Dahl’s Foods of Iowa was the first grocery to install ATM s in its stores. In the early 1980s, ATM installation at grocery stores and at convenience stores became widespread, further stimulating the development of shared networks.10
“In the old days on the Mosler Tellermatic units, I would need to load a boot loader tape first before I loaded the 8-inch paper tape roll. I used to sit and pray that the paper tape drive holes were not elongated enough to stop the software load. I spent many nights into the wee hours repairing the paper tape with patch kits. These models also used ‘drum memory’ which was not very reliable, and I was so happy to see my first 4K core memory board (TRW Tellermatic Series 8000), which was the size of our current-day PC motherboards!” —Jim Beirich, Director of Technical Services, Pendum
By the early 2000s, approximately half of all global ATM s were located away from a bank branch, with 67 percent of U.S. ATM s found off-premises.11 London-based Retail Banking Research estimates that by the end of 2007, approximately 808,000 ATM s worldwide were placed away from a bank branch.12 But ATMs still represented a significant investment. Early terminals from the major bank manufacturers such as NCR and Diebold cost $30,000 to $50,000 each.13 They also required expensive upkeep (see side bar). Like computers and mobile phones, ATM s have benefited from technological advancements and global manufacturing. Today, brand-new ATM s with many more security and marketing capabilities than their predecessors are available for as little as $2,000 to $3,000, and a flourishing second-hand market is lowering acquisition costs even further. Units in the low-end ATM market segment typically were only cash dispensers, compared to machines in bank branches that accepted deposits and performed more sophisticated functions. The low-end machines most often were standalone devices designed to be installed in a location and plugged into electricity and communication lines. They were usually bolted to the floor of the site, rather than being built into a facility such as a drive-thru lane or a wall at a bank. The low-end ATM s historically incorporated more plastic in the outer structure to cut costs, but the internal vault and security devices provided a high level of safety for the cash inside. Known as “white label” ATM s in Canada and other countries, independent ATM s are now found in many locations, such as convenience stores, airports, gas stations, entertainment venues, gaming
38
I CHAPTER 4 I Money for the Masses
casinos, tourist attractions and just about anywhere people require access to cash (see chapter eight). The “white label” description refers to the fact that financial institutions often partner with IADs on co-branding opportunities, in which a bank’s brand identity is applied to the off-premises ATM. It’s a blank slate on which a bank’s brand can be written. The branded bank’s customers typically receive transactions without surcharges, and the bank and IAD may split the fee income from other users. With this arrangement, banks take advantage of the lower costs associated with an off-premises ATM, while also providing customer service and a broader marketing presence.
THE DAWN OF THE OFF-PREMISES ATM INDUSTRY The road to Triton’s first low-end machine in that Mississippi convenience store began in 1979. Founders Ernest Burdette, Frank Wilem and Robert Sandoz launched the company to develop and manufacture sophisticated electronic systems by working closely with customers such as General Electric, Exxon, Magnavox and the U.S. Navy. Triton’s early manufacturing achievements include the world’s most accurate portable magnetic observatory, automated drifting buoys to measure ocean currents and high-speed seismic dataacquisition systems. Triton diversified its product line in 1984 when its bank expressed an interest in a training device to educate customers on the use of the ATM. In response, Triton developed the ATMjr, the world’s first battery-powered portable device for training consumers to use ATM s. In 1994, Triton began shipping the 9500, its first cash-dispensing ATM s in the U.S. market. In 1997, the company launched the 9600 series ATM, which quickly became known as the industry workhorse for the off-premises market. Triton cofounders, from left to right: Ernest Burdette, Frank Wilem and Robert Sandoz.
I 39
Frank Wilem noted: By 1999, the company was the second largest manufacturer of ATMs and, by 2004, Triton had shipped 100,000 units around the world. By 2011, Triton had shipped more than 200,000 ATMs.
BIRTH OF THE IAD The presence of low-end ATM s, the creation of connections among the processing networks, and the ability to surcharge all created a climate for the development of independent sales organizations, or ISO s, to service nonbank ATM owners and deployers. ISO s are now known as IAD s.
In the early days of the industry, ATM manufacturers marketed to larger banks, providing an In 1994, Triton began shipping the 9500, its first cash-dispensing ATM in the U.S. market.
opportunity for ATM IADs to service smaller banks and nonbank ATM owners. Originally, IADs provided payment card-processing devices and services to merchants and later offered debit-card payments at the point of sale. IAD s own ATM s, lease them to others, sell ATM s outright and may also operate their own fleets of ATM s. Their primary business is managing their own or others’ ATM s. They act as representatives
for merchants and small financial institutions by contracting with processors for driving ATM s and completing transactions. They may maintain and restock cash and material, or they may contract with others for these services.14 The rapid growth of off-premises ATM s drives the expansion of IADs because they can provide operating services for these ATM s at a lower cost than banks. Growth of off-premises ATM s also led to aggressive consolidation in the industry. Triton's manufacturing plant in Long Beach, Mississippi.
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I CHAPTER 4 I Money for the Masses
Hanco’s Turner recalled selling Triton ATM s that had cost only £3,000 to manufacture to merchants for £ 7,000. In the early days of off-premises ATM s, the company would hope to sell five or six Triton units a day. The company developed its own sales force and help desk, with engineers who traveled the U.K . helping customers with problems.
“There was no one really selling Tritons in the United Kingdom, and Triton had no presence here at all really, so we had to do it from scratch anyway,” Turner said. “So we set up the help desk, we had three engineers on day one out on the road covering the country, and we were literally just installing and servicing.”15
THE KILLER Ts TAKE OVER By the early 2000s the market was dominated by what were known as the “Three Ts”: Tranax Technologies and Tidel Technologies had grown to join Triton as the top ATM manufacturers. Tranax entered the U.S. market in 1998 as a distribution channel for South Korean manufacturer Hyosung Computer. Now called Nautilus Hyosung, the company supplied components for Tranax ATM s, which were assembled by Tranax in Fremont, California. Nautilus Hyosung developed cash-
dispensing ATM s for banks in 1993 and full-function ATM s in 1994 and launched its retail-line ATM s in 1997. It began exporting ATM s to the U.S. through Tranax the following year. South Korean manufacturer Hantle bought Tranax in 2008 and, in 2010, Tranax changed its name to Hantle U.S. to reflect the change in ownership.16 In 1992, the Tidel Engineering subsidiary of Tidel Technologies pioneered dial-up ATM technology with the AnyCard machine. Then in the late 1990s, Tidel launched the Chameleon, one of the first Internet-capable ATMs designed for additional functions, such as buying airline tickets and booking hotel rooms. In 2006, NCR purchased Tidel Engineering’s ATM assets and rolled them into NCR’s own
I 41
product line. Soon the Tidel name disappeared from the ATM marketplace, but many of the company’s machines remain in service. Tidel Technologies continues to produce cash-management systems.17
1992 Tidel Engineering pioneered dial-up ATM technology with the AnyCard machine.
1994 Nautilus Hyosung developed full-function ATMs.
1998 Tranax entered the U.S. market as a distribution channel for South Korean manufacturer Hyosung Computer. NCR collaborated with TBS First Inc. to manufacture "The Cash," a dial-up cash dispenser designed to be "non-banky."
Diebold launched its CashSource Plus, a POSbased terminal, to compete with Triton and Tidel.
2006 NCR purchased Tidel Engineering's ATM assets and rolled them into NCR's own product line, providing an NCR offering for the low-end market.
In 1998, NCR collaborated with TBS First Inc. to manufacture The Cash, a dial-up cash dispenser
1993
designed to be “non-banky.” That arrangement ended in 1999, when NCR introduced a low-end ATM of its own in conjunction with Willoughby, Ohio-based WRG Services Inc. Then NCR acquired Tidel,
Nautilus Hyosung developed cash-dispensing ATMs for banks.
which faced financial ruin after its largest IAD customer declared bankruptcy.18
1997
With only a few sources for the ATM’s main components such as card readers, printers and dispensers,
Nautilus Hyosung launched its retail-line ATMs.
1999 NCR introduced a low-end ATM in conjunction with WRG Services Inc.
2000 Brothers Eric and Tony Pack established Nextran and developed two machines that wholesaled for $3,000 to $5,000.
2008 South Korean manufacturer Hantle bought Tranax.
2010 Tranax changed its name to Hantle U.S. to reflect the change in ownership.
there was a low barrier to entry for manufacturers of low-end machines. Some IADs also became manufacturers, packaging off-the-shelf components into machines to serve specific markets. For instance, Midwest Bancard Corp. began manufacturing an inexpensive, through-the-wall ATM designed to be accessed from the rear for check-cashing stores. The machine cost about $4,000, but the purchase price was cut when it was bundled with a processing contract. The unit was based on a component kit from Greenlink Technologies, another low-end manufacturer.19 NCR partner WRG developed its own machine after NCR halted production of one of WRG’s most
popular models. Using common components, including a Hypercom POS terminal, WRG built a durable machine known for being able to take a beating and still function. It also developed a more sophisticated version capable of additional functions. Both machines retailed in the mid-$3,000 range.20 In 2000, South Korea’s Chungho Comnet established Nextran, a partially owned subsidiary in Hoboken, New Jersey, to make inroads in the U.S. market. Brothers Eric and Tony Pack, owners of Money Marketing Inc., an ISO with about 2,600 ATM s under contract at the time, started Nextran. The brothers had been inspired by the success of Tranax and developed two machines that wholesaled for $3,000 to $5,000.21
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I CHAPTER 4 I Money for the Masses
Although Triton was the first to market with a low-end, off-premises ATM, a number of other makers of low-end ATM s have come and gone over the years. Manufacturers have sprung up in China, delivering machines for other brands in addition to their own. South Korea remains an active center of ATM production as well, and manufacturers in India are building machines to serve that unique, dynamic market. For example, in India, the Tenet Group is developing the Gramateller to serve rural markets. Company officials note that conventional ATM s consume about 1,800 units of electricity a month, while Gramateller requires only 72 units. Using less power means there’s no need for air conditioning. It runs on open-source Linux software and can run on solar power. It also incorporates high-tech features, such as fingerprint-based biometric authentication and the ability to dispense soiled notes. 22 Countries in Africa also are deploying ATM s that do more than dispense cash. Last year, Kenya Commercial Bank Group deployed its first intelligent-deposit ATM, which verifies the value of the
Triton's Vice President of Sales and Marketing James Phillips reveals the inner workings of one of the company's rare models that they call the "9600 ATM bar."
deposited cash, confirms currency and rejects old and unusable or fake banknotes during the transactions. Today’s low-end machine would put a high-end bank machine of even five years ago to shame. It’s not uncommon for a reasonably priced off-premises retail unit to include an LCD video display, cash and check deposit and advanced functions such as gift-card dispensing and ticket sales. This competitive environment forced the high-end manufacturers to compete on price and features. Even financial institutions wanted low-cost machines for low-volume locations. For instance, NCR responded with its Cash Dispenser line, targeting retailers and financial institutions. In 1998, Diebold launched its CashSource Plus, a POS-based terminal, to compete with Triton and Tidel. The model cost $5,000 to $11,000, depending on volume and options.23
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A HIGH-END FUTURE FOR LOW-END MACHINES Despite economic difficulties and predictions of a cashless society, the future for the ATM appears to be positive. The worldwide installed base of ATM s is expected to reach 3.1 million units by 2015, according to a report from Global Industry Analysts Inc., a San Jose, California-based market researcher.24 Emerging markets in Asia Pacific, the Middle East, Latin America and Eastern Europe will offset slowing deployment in more mature regions, said Global Industry Analysts. Asia Pacific is the largest regional market for the deployment of ATM s, but the Middle East/Africa region is predicted to register the fastest compounded-annual-growth rate of ATM s through 2015.25
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I CHAPTER 4 I Money for the Masses
The History of the ATM Industry Association
5
The ATM Industry Association’s history reads like the story of many startups: a young entrepreneur with more energy than money stubs his toe time after time while daydreaming about what the organization could become, finally handing the reins to a capable leader who takes it to the moon. While ATMIA seemed like a good idea to its early backers, it faced countless challenges on its journey to becoming the only global trade association for the ATM industry. What began with sweat and luck yielded to drama, gathered steam, slammed into a few brick walls, and finally emerged a victorious underdog. This is the story of a small non-profit in a growing industry within the international payments space, accomplishing big victories and achieving audacious goals. From Capitol Hill in the U.S. to the corridors of the European Union and central banks around the world, ATMIA continues its fight to establish the ATM as the dominant payments channel amidst vigorous competition. With more than 550 member companies, a motivated, loyal staff of 12 spread around the world, and operating on a $ 3 million budget, the ATMIA case study offers lessons that can benefit anyone in business. For more information on the association, visit www.atmia.com.
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In 1996, Tom Harper was 26 and newly married. He quit his radio advertising job in Louisville, Kentucky, before a broadcast merger could claim him as a layoff casualty. Though he had survived two other radio mergers, this was the big one.
From 1994 to 1998, privately owned ATMs in the U.S. market grew from 3,000 to 30,000. —according to ATMIA’s Tenth Anniversary Book, page 18
Harper immediately joined Alan Fryrear, an experienced local businessman, as a part-time PR consultant for his small print brokerage called WaterMark Group. Soon, Harper's work turned full-time. A friend, Ed Hovan, owned an ATM refurbishing business called Bear Financial, and had just secured a national distribution contract for the new Siemens ATM. Harper built a supply division within WaterMark to sell consumables for the Siemens line as well as other makes and models. The off-premises ATM race had begun, and the rapidly expanding deployers demanded receipt rolls and printer cartridges by the truckload. Harper and Fryrear quickly built the supply division throughout 1997 and created a companion website—a novel bit of guerilla marketing at the time. Back then Google Adwords still belonged to the distant future, so to attract Web traffic, they bought ads in American Banker magazine and published ATM industry news on the site to get return visitors.
Then they decided to organize the news on a dedicated industry media site, and sell ads on it while they also promoted their ATM supply division.
WHEN A COMPANY COMPLETELY CHANGES ITS CORE Harper and Fryrear tried this for a while on WaterMark Group’s site, then launched ATM magazine.com in June of 1998 , and suddenly they were a media company at the center of this
exploding industry.
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I CHAPTER 5 I The History of the ATM Industry Association
They started the site for $14,000 in development costs, then soon hired someone to take over the supply business while Harper focused on building ad revenue, writing articles, and managing the website. Within a year they hired a sales manager and an editor. Harper tried and failed to generate publicity for the site by inviting Senate Banking Committee Chairman Sen. Alfonse D’Amato (D) of New York to participate in an online debate. His 1997 campaign against the ATM surcharge would drag on for years. In 1998 , he introduced Senate bill number S.885 whose purpose was to ban double ATM charges (see graphic on the right). By the end of 1998 , Harper and Fryrear had sold out most of their advertising inventory and generated more than $ 15,000 a month in revenue, overtaking their supply business. There were around 175,000 ATM s in the U.S—less than half the size of today’s market.
MEDIA, MEET ASSOCIATION The idea for an ATM association had hounded them for months, even before launching ATMmagazine.com. Harper engaged in regular brainstorming sessions with an entrepreneur who
proposed an idea for an industry buying group in which members would get negotiated discounts on supplies, hardware and other products and services. But Fryrear and Harper had their own idea: a traditional non-profit industry association. When they established the ATM Owners’ Association (ATMOA) in late 1997, their potential partner lost interest and they moved forward with no staff (except Harper), zero budget, and only a handful of members. Their first official ATMOA planning meeting took place on October 9, 1998 , at the end of the Faulkner & Gray Advanced ATM Conference in San Diego.
I 47
The group voted Lyle Elias as the new president, ratified a motion to change their name to the ATM Industry Association, and formed several committees. They also talked about launching their own conference to compete with the one they had just attended.
Global expansion
TIME TO INSURE THE INDUSTRY Harper loved organizing people and building structure, but now the beast needed to be fed. Lots of industry issues suddenly cried for attention. First, IADs wanted insurance. Physical attacks were rampant—thieves were breaking into machines, accosting cash handlers, stealing hardware. And with so many ATM s around, the larger deployers’ risk of catastrophic loss due to natural disaster grew every day. ATMIA launched an insurance benefit through a traditional U.S. carrier, but horrible customer service
The first in-person ATMIA board meeting took place in Dallas, Texas, in February, 2001. Seated from left to right: Tom Harper, Ellen Stebbins, Randy Stratton, Mike Lee, Lyle Elias. Soon after this photo was taken, they began plotting how to globalize the association. Not pictured: David Bartone.
quickly sank it. Harper invited Mark Coons of American Special Risk to visit his office in Pewee Valley, Kentucky, in 1998 . Despite the blanketing rain his Lloyd’s of London colleagues brought with them, the meeting
was a success and ATMIA's international ATM insurance program was born. Coons eventually joined ATMIA’s board.
Soon insurance became their lifeblood. During the next several years, the cash flow from premiums literally kept ATMIA alive. Over the years, ATMIA developed a whole range of products and services, including industry best practice manuals, regulatory monitoring and campaigning, conferences, webinars and global ATM benchmarking. Later that year, Harper received a call from a well-spoken executive named Michael Lee who was 48
I CHAPTER 5 I The History of the ATM Industry Association
organizing an international ATM conference in London. He asked Harper to chair the event and invited Fryrear and him to lead a workshop on the U.S. ATM industry. In 1999, at a dark table inside a London pub, Harper proposed to Lee that he join ATMIA as their European executive director, even though they had miniscule revenues—certainly not enough to pay
Global chapter launch dates
him what he was worth. Lee would need to generate his own salary, but eventually agreed and officially
SEPTEMBER, 2000: ATMIA Europe launched in the U.K.
came aboard in 2000 —the same year they launched their first conference in Orlando. Within a year,
Lee generated enough revenue in Europe through memberships, sponsorships and conferences to cover
that chapter’s operating expenses.
JUNE, 2002: ATMIA Africa launched MAY 2003: ATMIA Canada launched with a conference in Toronto, Ontario
Soon the conference replaced insurance as the cash cow. In 2005, the board named Mike Lee global CEO.
MAY, 2002: ATMIA Australasia launched in Sydney
APRIL, 2005: ATMIA Asia launched at their conference in Hong Kong
OCTOBER, 2005: ATMIA Latin America launched
A LEADER FOR ALL SEASONS From sunny Cape Town, South Africa, Lee manages a staff of home-based professionals strewn throughout Asia, Australia, the U.K., Canada and the U.S. In 2009, amidst the global credit crisis that began the year before and mushroomed into a widespread recession, ATMIA suffered its own cash crisis that pulled them dangerously below the water line. Everything they had built over the past 12 years was suddenly at risk. Their seasoned board pulled together, and Lee led them through a miraculous turnaround. He organized a finance team that reviewed every expense, carefully evaluated profit opportunities, and milked more bottom-line results from their events. He announced a goal to sock away a full year’s expenses, shoring up against any further financial storms. They planned to take a few years to achieve this. Harper often said of Lee that he was the best hire of his career (certainly the only one he’d hired in a pub).
I 49
But within only one year, ATMIA’s cash accounts were brimming again and the association generated its largest surplus in history. Not only had they hit the cash savings goal, but recurring annual surpluses have since enabled ATMIA to invest in organizational growth and expanded industry activities.
The Global ATM icon
GLOBAL ATM SECURITY ALLIANCE (GASA) ATMIA launched the Global ATM Security Alliance (GASA) in June 2003 . Within a year, the Alliance
had grown to over 60 members in 12 countries. GASA’s purpose was to protect the industry from the growing problem of cross-border ATM crime and card fraud. Its main projects included the creation of a global ATM crime database, a global fraud alert system, and a series of best-practice manuals covering the whole security lifecycle of the ATM. GASA has worked with the Secret Service, Interpol, the Metropolitan Police Flying Squad for New
Scotland Yard, and major card issuers. Now renamed the ATM Security Forum, it continues to coordinate industry security efforts and education around the world. In 2001, Lee initiated an international design contest to create a graphic that would be instantly recognizable worldwide as “ATM here,” regardless of the local language or culture.
In 2008, ATMIA registered its official global pictogram as an international public sign (see graphic at left). The icon was successfully tested in three cultures—the United Kingdom, Iran and Korea—as part of the registration process with the International Organization for Standardization. The process of establishing this global standard symbol for the ATM ran across the desks of some interesting people: • Andy Kitt, formerly of NCR , who designed the winning entry for the pictogram design competition in 2001.
50
I CHAPTER 5 I The History of the ATM Industry Association
• Professor Yukio Ota of Tama Art University in Tokyo, creator of the international public sign for the fire escape and emergency exit, who adjudicated and selected the winning design. • Barry Gray, chairman of the British Standards Institute, who fine-tuned the winning design, advised ATMIA, and then passed it on to the Design Research Unit at BSI. • Wendy Wilsher of the Design Research Unit, who created the final design (based on Andy Kitt’s pictogram), which received the highest ratings in all three countries during testing for comprehensibility. • Dr. Jeremy Foster of the Department of Psychology at Manchester Metropolitan University, who managed the complex testing process across three different cultures.
ATMIA Services and Committees Annual conferences, webinars and workshops Regional industry committees for all sectors of the ATM value chain Industry consulting ATM Cash Council to monitor the global demand for cash Regulatory monitoring Global Bank Council International Payments Forum
ATMIA's story is one of brilliant execution, low turnover of key employees, a family-like culture, clear
and compelling vision, impeccable staff professionalism, skilled international diplomacy, clarity of membership benefits, and a focus on core revenue generators. These practices have not only grown the association—they have transformed the entire industry.
Global ATM benchmarking service Online library of industry best practices, position papers and white papers ATM insurance program through Lloyds of London ATM risk assessment system
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6
Regulators Can’t Tame the Raging Machine The off-premises ATM industry owes its existence to the same regulatory structure that threatens it.
1989 First Texas Savings Association won arbitration against the regional PULSE ATM network to allow surcharging. Valley Bank of Nevada won a legal battle with Cirrus to allow surcharging of cardholders with accounts at other banks.
1998 Sen. Alfonse D'Amato (R–NY) introduced a bill that would have prohibited banks from collecting ATM surcharges from nonbank customers.
As a part of the financial network, ATM s come under heavy regulatory scrutiny for a wide variety of financial and operational reasons. ATM operators have to deal with a number of local, national and APRIL 1,
1996
Cirrus and Plus ATM networks lifted the selfimposed surcharge ban on ATMs owned by all their member financial institutions.
The industry in the United States has faced some tough opponents and close calls that could have left it crippled. High-stakes drama in the halls of Congress, courthouses and state legislatures has shaped the market in interesting ways.
1999 Rep. Maurice D. Hinchey (R-NY) introduced House Bill 1575, the Fair ATM for Consumers Act, which used the same language as D'Amato's bill. It also failed. Berkeley, California, became the first city in the nation to pass an ordinance banning ATM surcharges for individuals who used terminals not owned by their bank.
52
international privacy and security regulations.
I CHAPTER 6 I The History of the ATM Industry Association
An early development came in 1985, when the U.S. Supreme Court ruled that ATM s do not represent bank branches, which encouraged development of interstate electronic-funds-transfer, or EFT, networks.1 Until then there was considerable uncertainty about the legal status of ATM s. If ATM s were considered branches, the limitations on interstate banking would affect their placement and, in turn, might put any EFT network that operated across state lines in legal jeopardy. The Supreme Court decision removed a potential barrier to forming networks across state lines and also was a factor in the trend toward consolidation of shared networks.
The development of shared networks led directly to the need for surcharging to compensate the various parties in the payments system. The ATM industry operates on two types of fees: wholesale, or interchange; and retail, or surcharge fees. Wholesale fees comprise the network membership fee, the switch fee and the interchange fee. These represent the cost to belong to the payment network, a payment for routing transactions through the network’s computer-switching system, and a payment from the card-issuing bank to the ATM owner for each transaction.
THE BATTLE OVER FEES The surcharge, or retail, fee is set by the cardholder’s bank and the ATM owners. To recoup the costs of the switch and interchange fees, banks charge their customers a foreign-network fee. In her paper “‘Show Me the Money’ But Don’t Make Me Pay For It,” Anne C. Pidgeon noted that Americans are accustomed to paying surcharges and fees for all sorts of conveniences and services. Convenience fees are certainly not unique to banking. In fact, the American consumer pays for convenience on a daily basis, for example, when using a public telephone, ordering tickets over the phone, or purchasing items via the Internet. Just as TicketMaster adds a surcharge to the tickets it sells, banks should not be prohibited from adding a surcharge in exchange for the convenience of a non-customer’s use of their ATM. Alternatively, one can analogize an ATM surcharge to a membership fee. In the same way that members of a particular gym must go to that gym’s locations or pay an additional fee to use another gym, customers of one bank must use their own bank’s ATMs in order to avoid paying a surcharge. Becoming a member of a certain bank comes with the knowledge that
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cash may be withdrawn at only a finite number of ATMs free of charge. If those locations are not convenient to consumers, they are free to join another bank.2
As the popularity of ATM s spread in the 1980 s and 1990 s, consumers were limited to using machines connected to their financial institutions. The concept of using an ATM belonging to another bank was attractive, but the national and regional networks were not all connected. Before 1996, the two largest national ATM networks—Visa’s Plus network and MasterCard’s Cirrus network—did not permit an ATM owner who wanted to connect to either network to impose a surcharge on users.
On April 1, 1996, the Cirrus and Plus ATM networks lifted the self-imposed surcharge ban on ATM s owned by all their member financial institutions. When the policy changed, the bank ATM
operators imposed a second fee for non-customers who used their ATM s. The added surcharge was unaffectionately dubbed the “double dip” by Senator Alfonse D’Amato (R-NY) and his colleagues.3 Now, consumers had to pay twice for access to their own money, the critics said. The card networks’ ban had not stopped everyone from surcharging. Prior to the card-network rules change in 1996, some 15 states had enacted legislation to overrule the ban, and many regional networks allowed surcharging. Valley Bank of Nevada won a legal battle with Cirrus in 1989 to allow surcharging of cardholders with accounts at other banks.4 The surcharge landscape quickly began to change when First Texas Savings Association in 1989 won arbitration against the regional PULSE ATM network to allow surcharging. First Texas had deployed a large number of ATM s in nonbank locations and wanted to add surcharge fees. PULSE responded by dropping the interchange fee, leading to First Texas’s legal actions. PULSE allowed surcharging, and soon Cirrus and Plus followed suit.5
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Ironically, the fight to allow surcharging was followed by a battle just as vehement to halt or limit surcharge fees. A number of states and municipalities across the country tried to enact surcharging bans, but the greatest threat came from federal legislation. The industry came under fire from Washington in 1997, when Sen. D’Amato, chairman of the Senate Banking Committee and an outspoken opponent of ATM surcharges, brought the debate to the floor of the U.S. Senate.6 As ATM marketplace.com reported at the time, historical proponents of the surcharge said the traditional dollar paid to the bank when a consumer uses another bank’s machine helps defray the bank’s costs in operating its ATM network. This is originally how banks planned to fund the convenience of ATM s and draw traffic from teller lines, but banks didn’t get the expected benefits from the added machines. Initially intending to cut operational costs, banks only saw an increase in customer transactions due to the availability of ATM s but saw no significant cut in their operational expenses. Faced with this new problem of increased costs with very little profit, banks began responding to the demand for more off-site ATMs and decided to ask consumers to help pay for this added convenience. Hence the surcharge—the extra $ 1.50 or more paid when a person uses an ATM owned by another bank. According to D’Amato, the surcharge was unfair because consumers didn’t receive any additional services for this second charge, and in many locations it was almost impossible to find a surcharge-fee ATM. At D’Amato’s behest, the Government Accounting Office in 1998 surveyed 246 U.S. banks. The survey found that the number of ATMs that double-charged consumers had risen by 320 percent. It also
I 55
uncovered that ATM surcharges averaged $ 1.27, the most common charge was $ 1.50, and 64 percent of the nation’s banks imposed them.7 Enraged by the survey results, D’Amato threatened ATM networks with subpoenas if they didn’t provide data on transaction costs. However, spokesmen for the biggest networks said they did not have such information and that only individual banks tracked their own fees. Consequently, Sen. D’Amato introduced a bill that would have prohibited banks from collecting ATM surcharges from nonbank customers. The bill failed to pass the Senate in 1998. D’Amato, who was running for re-election, told the Associated Press: This is not the end; this is just the beginning of the battle to protect consumers from the greedy grasp of bankers who prey on the middle-class wage earner. ATM double-charging is particularly oppressive to working people who make $20 or $40 ATM withdrawals and have to pay a $1.50 surcharge on top of the $1 or more they’re already charged.8
Of course, the wisdom of limiting the business case for an industry was lost on some in Congress. As Anne C. Pidgeon wrote: Inviting the federal, state, or local government to interfere with market forces by prohibiting surcharging is an invalid government intrusion into business practice. The result will be decreased ATM availability and decreased convenience—or perhaps the flashing message, “This ATM provides cash only to the bank’s account holders” the next time a consumer attempts to withdraw money.9
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I CHAPTER 6 I The History of the ATM Industry Association
Sen. Charles Schumer, who took D’Amato’s seat in the 1998 election, was softer on ATM fees and supported a bill that required only the disclosure of fees charged by the bank.10 However, in 1999, Rep. Maurice D. Hinchey (R-NY) introduced House Bill 1575, the Fair ATM for Consumers Act, which used the same language as D’Amato’s bill. It also failed.11
As the anti-surcharge campaigns languished at the federal level, states jumped on the bandwagon. Between 1997 and 2000 , 26 states introduced bills to ban or limit surcharges. At the time, only Iowa was successful in enacting the ban. The conflict raged even at the municipal level. In 1999, Berkeley,
DECEMBER 11,
2012
H.R. 4367 was passed by the Senate and signed by the president. It eliminated the requirement to post fee notices on the outside of the machine.
California, became the first city in the nation to pass an ordinance banning ATM surcharges for individuals who used terminals not owned by their bank.12 The measure also allowed citizens to file civil lawsuits if a financial institution levied a surcharge. Santa Monica and San Francisco soon followed in banning surcharges.13 In response, Wells Fargo and Bank of America reprogrammed their ATM s in Santa Monica to respond to non-customers with the message, “Thanks to a recent vote by the city council, the ATM s are providing cash only to the bank’s account holders.”14 Only a few states have capped ATM surcharges, and some localities have also attempted to cap or eliminate surcharge fees.15
REGULATION E: LAW OF UNINTENDED CONSEQUENCES The state and municipal efforts to regulate surcharges were struck down by courts over the years. But these efforts led to regulations regarding consumer disclosures of fees. Under Regulation E of
FEE NOTICE The owner of this ATM may assess a fee for Financial Transactions. This fee is added to the amount of your transaction and is in addition to any fees that may be charged by your financial institution.
the Electronic Funds Transfer Act, an ATM must “post in a prominent and conspicuous location” a notice that fees will (or may) be charged for a balance inquiry or electronic fund transfer services. Fee disclosure notices were required both on the screen and on the exterior of the ATM, usually through
Until late 2012, fee disclosure notices were required both on the screen and on the exterior of the ATM, usually through a fee placard or sticker.
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a fee placard or sticker. The onscreen notice allowed consumers to cancel the transaction if they did not wish to pay the fee.
JULY 21,
2010
Dodd–Frank Wall Street Reform and Consumer Protection Act became law.
The Electronic Funds Transfer Association, or EFTA, and the ATM Industry Association led efforts to eliminate the requirement for the external sticker, successfully influencing the passage of H.R . 4367 on Dec. 11, 2012. This bill effectively ended Reg. E. The industry had been rocked by frivolous individual and class-action lawsuits by attorneys and serial plaintiffs who alleged the stickers were missing or illegible on ATM s. Many ATM deployers had simply settled with the plaintiffs rather than fight the lawsuits. They took this route despite well-known cases of plaintiffs caught on surveillance video removing fee-notice placards prior to filing lawsuits. The ATM industry argued that the regulation made sense in the early days of surcharge fees, because
Due to their involvement with the bill, the committee voted to name the bill after Financial Services Committee Chairman Barney Frank and the Senate Banking Committee Chairman Chris Dodd.
it was a new process for consumers. Also, the screens on some early machines were not capable of presenting the message. Today, consumers are aware of ATM fees. And many machines have video or LCD screens that display the fee message clearly.
DODD-FRANK ACT—A BULLET DODGED … FOR NOW Introduced in the wake of the 2008 banking crisis, the Dodd–Frank Wall Street Reform and Consumer Protection Act became law on July 21, 2010.16 Early versions of the bill contained provisions aimed, once again, at the ATM industry’s ability to charge fees. The original goal of the legislation was to prevent another significant financial crisis by creating new financial regulatory processes that enforce transparency and accountability, and by implementing rules Sen. Dick Durbin (D-Ill.)
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I CHAPTER 6 I The History of the ATM Industry Association
for consumer protection.
Like many proposed bills, Dodd-Frank attracted efforts to regulate other aspects of the financial industry. Sen. Tom Harkin (D-Iowa) proposed an amendment to the Dodd-Frank bill that would cap surcharge fees at 50 cents per transaction. Harkin argued that the national average for ATM transactions is $ 2 .50 , with some terminals assessing as much as $ 5 per transaction, even though actual processing costs were typically no more than 30 to 50 cents. The Harkin Amendment to the DoddFrank Act did not receive enough votes to become part of the final legislation. Meanwhile, Sen. Dick Durbin (D-Ill.) attached an amendment to the Senate bill that regulates debit card-swipe fees and encourages competition in payment processing. The law requires banks with more than $ 10 billion in assets to charge debit card swipe fees that are “reasonable and proportional to the actual cost� of processing the transaction. The bill aimed to restrict anticompetitive practices and to encourage competition and includes provisions that allow retailers to refuse to accept cards for small purchases and to offer incentives for using cash or another type of card. The original proposal limited banks with more than $ 10 billion in assets to a 12 -cent fee charged to merchants per debit-card transaction. After persuasion by the retail lobby, the Federal Reserve capped merchant debit-card fees at 21 cents per transaction—plus the potential of a few cents more to cover fraud costs, altogether down from an average of 44 cents. The debit-card part of the law has been a particularly prickly issue. Banks fought the new cap, which they said would cost the industry more than $ 6 billion a year. Immediately afterward, banks announced plans to recover the lost revenue through other fees. For instance, Bank of America announced a $ 5 monthly fee to consumers for using their debit cards. Chase and Wells Fargo tested $ 3 monthly debit card fees in select markets. However, customer outrage forced banks to abandon those plans or to at least be less public about the fees.
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Also, the Federal Reserves' final rule prohibited issuers and networks from restricting the number of networks over which a debit card transaction can be processed. In theory, this would encourage competition by giving merchants a choice in networks, thus providing a savings to the merchant that would be passed on to the customer. “I think it was clear from the discussions during the Q&A after the final rule was delivered that the Fed was skeptical that merchants would pass along any savings to their customers. There has just been little to no evidence of that, and I think in their remarks they made that clear,” said Kurt Helwig, president and CEO at EFTA . Banks have decreased or closed their debit-rewards card programs. For instance, New York-based JPMorgan Chase cited the Durbin Amendment in a letter to its customers as the reason it could no
longer issue debit rewards cards. Helwig said that this amendment, while well intentioned, would further marginalize the underbanked consumer, similar to the Credit Card Act of 2009 and overdraft protection laws that led to, among other things, the reduction of credit. “So, if there’s no savings from the merchants because they aren’t passing it along to the consumer, and the issuers are going to look for ways to recover the lost revenue, then it seems to me the consumer is getting squeezed,” Helwig said. Ultimately ATM operators and networks were not part of the new regulations, noted Helwig. “I don’t think there is any impact on ATM operators under the Durbin amendment as it passed,” Helwig said. Networks that process point-of-sale purchases must abide by the Durbin amendment rules. This includes ATM-like transactions at the POS, in which a customer receives cash from his or her account while also making a purchase or other transaction.
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I CHAPTER 6 I The History of the ATM Industry Association
Under the final rules of the Durbin amendment, the new regulations apply only to debit-card payment transactions made for goods and services or for other purposes such as charitable contributions. The rationale for excluding ATM s from the interchange fee and network exclusivity rules included the following points: • ATM transactions are not considered payments. Rather, ATM operators facilitate
cardholders’ access to their own funds. • Withdrawing money from one’s own account is not a payment to an ATM operator in exchange for goods or services, to satisfy an obligation, or for other purposes. • However, a debit transaction covered by the regulations includes the use of a debit card for subsequent transactions connected with the initial transaction and cash withdrawal at the point of sale (provided the cardholder also purchased goods or services). Although ATM s are not explicitly included, the Dodd-Frank Act still casts a large shadow over the financial services industry. To recover revenues lost to the interchange cap, many banks have boosted their fees for customers who use out-of-network ATM s. Fees of $ 2 to $ 2 .50 are common, which are in addition to any convenience fees charged by the ATM owner. According to the Bankrate 2012 Checking Survey, the average fee that banks charge non-customers to use ATM s is $ 2 .50.17 It remains unclear how another aspect of the Dodd-Frank Act will impact the ATM industry. Under the law, the authority for making and enforcing rules under the Electronic Funds Transfer Act falls to the new Consumer Financial Protection Bureau, or CFPB. “Legislative and regulatory developments like Dodd-Frank, the creation of the Consumer Financial Protection Bureau and interchange pricing controls have had a profound effect over the last three years
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7
Busting Crime and Fighting Fraudsters As customers withdrew rupees from the Standard Chartered ATM at the Tri-Star Petroleum station in Islamabad, Pakistan, they had no idea someone was stealing their card information. In what is billed as Pakistan’s first ATM crime, in June 2011 five university students installed a cardskimming device on the ATM at a busy petrol station across the road from a wooded section of south central Islamabad. The electronic engineering students—who told prosecutors they turned to ATM skimming after they could not find jobs—preyed on customers by using a homemade skimming device that captured information from the cards’ magnetic stripes. The suspects used a wireless key logger to capture PINs from unsuspecting users. They later created fake cards to withdraw money from the accounts. “This credit card crime, known as skimming in foreign countries, is almost unprecedented in Pakistan,” investigators said in court documents. Unfortunately, with this incident Pakistan has become the latest front in the battle against ATM crime Homemade skimming devices capture information from the cards’ magnetic stripes.
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and fraud. It seems like since the first ATM was installed in the late 1960 s, criminals have sought to steal cash and card data.
A BRIEF HISTORY OF CRIME In Sweden, the first machines manufactured by Metior came under attack. One Easter holiday in the late 1960 s, someone visited many of the machines across the country, withdrawing kroner from each of them. The perpetrator had cracked the algorithm used to associate card numbers with PIN codes. By 1971, ongoing security problems led the Swedish savings bank that owned them to consider closing its entire fleet of Metior machines.
1993 First known instance of a criminal installing a fake ATM was at a shopping mall in Manchester, Connecticut.
Like the events in Sweden, much of the crime that is called ATM fraud is actually PIN fraud (or debitcard fraud), in which counterfeit cards are used to withdraw cash from ATM s by fraudsters employing PINs compromised at point-of-sale terminals in the retail environment or in massive data breaches.
There are, however, frequent direct attacks on ATM s as well. Some attacks are crimes of opportunity, committed by people under the influence of intoxicating substances. Other cases are the work of organized, often global, gangs of criminals that use sophisticated technological and social-engineering techniques to gain access to account information on a grand scale. Although there are no definitive global figures, ATM-related crime around the world is thought to cost hundreds of millions of dollars per year. The Secret Service estimates that losses from skimming in the U.S. alone reach $ 350 ,000 per day. Companies involved in the payments ecosystem have to continue
to invest in an ever-escalating arms race to stay one step ahead of the criminals.
CRIME DOESN’T PAY Still, one can’t help but admire the ingenuity of the criminal mind. Some ATM fraud efforts are the work of criminal geniuses, creating mayham up until the point they are caught.
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For instance, the first known instance of a criminal installing a fake ATM was at a shopping mall in Manchester, Connecticut, in 1993. By modifying the inner workings of a Fujitsu model 7020 ATM, a gang known as The Bucklands Boys was able to steal information from cards inserted into the machine. Or consider the masterminds in Ogden, Utah, who used a stolen front-end loader to rip an ATM out of a credit union. The pair of thieves abandoned their quarry after pushing it down the street for five blocks, drawing significant attention to themselves. The thieves made a clean getaway, but the cash inside the ATM was recovered. In New York City, on New Year’s Eve 1999, thieves preyed on Citibank ATM s stocked to serve revelers. According to news reports, the gang broke through the floor of a vacant apartment to gain access to the bank vestibule where the machines were housed. Nine ATM s were loaded to capacity, ready to serve customers on their biggest night of the year. First, the thieves jammed a nail into the card reader outside the vestibule to keep customers out, and then they broke through two layers of plywood flooring in the apartment and dropped down to the area where the machines are serviced. They tried to break into six ATM s but only got cash from three before fleeing the scene. In Australia and the Netherlands, among other countries, thieves pump explosive gas such as propane or oxy-acetylene into the ATM and ignite it. The idea is to blow open the vault. Of course, there is a The hard part for the criminals seemed to be working out exactly how much gas to use to blow open the door of the cash safe without totally destroying the ATM and most of the surrounding building.
great hazard to people and property from the explosion. According to the European ATM Security Team, explosive and gas attacks rose by 88 percent in 2010 compared to 2009, increasing from 148 reported incidents to 278. In a 2010 attack reported in Croatia, thieves detonated gas from a cylinder to rob an ATM in the small locality of Mihovljani in Zagorje (north of Zagreb). The thieves blew up the ATM late in the evening, after it had been filled with cash. The ATM was located in a retail store, which was demolished in the incident.
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I CHAPTER 7 I Busting Crime and Fighting Fraudsters
The hard part for the criminals seems to be working out exactly how much gas to use to blow open the door of the cash safe without totally destroying the ATM and most of the surrounding building, and either destroying the money or blowing it into the air like confetti at a parade.
1992 TARGETS OF OPPORTUNITY Some of the first ATM crimes were not targeted at the hardware, but at the people withdrawing cash. In 1982 there were about 35,000 ATM s in the U.S. ready for mischeif. “By then robberies had begun to increase, and the banking industry had begun to recognize the need for improved security at ATM s,” Rob T. Guerett and Ronald Clarke wrote in Security Journal in 2003 .
New York City Council enacted the most stringent ATM security regulations in the United States.
FEBRUARY,
2009
A group of criminals used counterfeit ATM cards to steal $9 million from 130 ATMs in 49 cities, including New York, Atlanta, Chicago, Moscow and Montreal, within a 30-minute period.
Early tragedies focused attention on the need to protect people withdrawing money from ATM s. In New York City, an assistant district attorney was shot at an ATM, and a police officer was killed attempting to intervene in a robbery at an ATM. Over the protestations of the banking industry, the New York City Council in 1992 enacted the most stringent ATM-security regulations in the nation. The measure mandated enclosed vestibules, increased lighting, surveillance cameras, mirrors for users and other measures. Failure to comply with the rules carried fines up to $ 2 ,000 for the banks. Similar regulations were adopted in Los Angeles and other cities around the same time. ATM crime knows no boundaries. Among the prominent victims of ATM robberies in recent years is
a former U.S. Secretary of Health and Human Services, who successfully resisted the offenders and later identified them. The son of Time Warner Inc.’s chief executive, who also was a popular New York City teacher, was murdered after his ATM card was taken and he was forced to reveal his PIN. Also, a New York City councilwoman, police officers and assistant district attorneys have all been victims. In 2011, U.S. Attorney Jenny Durkan, the chair of the Justice Department’s Cybercrime Subcommittee,
lost $ 1,000 from her bank account due to skimming. In South Africa, the chairman of the country’s
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Community Policing Forum was nearly taken in by criminals who put a skimmer on the ATM card slot and tried to grab his PIN while purporting to help him with the transaction. Of course, sometimes ATM deployers are their own worst enemies. A few times in recent years, news has spread across the criminal community—and the evening news—that certain ATM s still used the default factory password to access the machine’s systems. Criminals who discovered this were able to reprogram machines to think they were dispensing currency in a different denomination. Furthermore, criminals were able to find passwords in operator’s manuals for machines that a helpful distributor had posted for its customers. For instance, in September 2006 a hacker who had most likely obtained a factory-default admin password for a gas station’s white-label ATM tricked the unit into thinking it was loaded with $ 5 bills instead of $ 20 s. Then the thief—and many other customers—walked away with four times the money they would have legitimately withdrawn. The machine spit out excess cash for nine days until someone reported it to authorities. Sometimes, criminals just get lucky. In Saudi Arabia, four teenagers discovered that game cards from the local mall allowed them to withdraw the same amount of money as the ATM’s last legitimate user. Fortunately, the trick worked only with the ATM s of one bank that used an outdated system. Officials couldn’t figure out how the game cards worked and suspect additional skimming or reprogramming of the cards to allow access. Crooks go to great lengths to compromise PIN and magnetic-stripe data. In 1996, Andrew Stone, a computer security consultant in the U.K., was convicted of stealing more than £ 1 million from ATM s. He used a high-definition video camera to record users at ATM s from a considerable distance and was able to capture card numbers and expiration dates from the embossed detail on the ATM cards, along with video footage of the PINs being entered. 66
I CHAPTER 7 I Busting Crime and Fighting Fraudsters
He was able to get enough information from the videotape to produce clone cards and withdraw the full daily limit for each account. He also cheated the withdrawal limits by using multiple copied cards. In court, it was shown that he could withdraw as much as £ 10 ,000 per hour. In Russia in 2009, criminals managed to insert malware into ATM s made by some of the most prominent manufacturers. Authorities suspect the criminals had intimate knowledge of the ATM’s software and had physical access to the machine to install it on the ATM’s computer hardware. The malware siphoned payment card information, including passwords. The malware included sophisticated instructions to encrypt the stolen data and instructions on using the ATM’s printing capabilities to retrieve the captured data. Authorities differed on how the malware was actually installed. Theories
2006 The Payment Card Industry, or PCI, Security Standards Council was formed. The PCI Council established an array of standards for data security in the payments industry, including ATMs and point-ofsale terminals. Japan passed legislation shifting liability to banks for fraudulent cash withdrawals.
ranged from access on the production line to hacking into the bank’s network. In February 2009, a group of criminals used counterfeit ATM cards to steal $ 9 million from 130 ATM s in 49 cities, including New York, Atlanta, Chicago, Moscow and Montreal, within a 30 -minute
period. Hackers had breached security at a firm that put workers’ pay on a payroll card. The scam artists stole personal data to make duplicate ATM cards. No arrests were made immediately after the fraud was discovered.
THE GREAT DATA ROBBERY Perhaps one of the largest security breaches ever recorded was the work of hacker mastermind Albert Gonzalez. From 2005 through 2007, Gonzales stole more than 170 million card numbers using sophisticated attacks on corporate networks with common security flaws. He was indicted for three major security breaches on Heartland Payments, TJ Maxx and Dave & Busters. In each case, Gonzalez and his “shadow crew” of conspirators broke into corporate databases containing card numbers and cardholders’ private data. The son of Cuban immigrants, Gonzalez started hacking
2005-2007 Albert Gonzalez stole more than 170 million card numbers using sophisticated attacks on corporate networks with common security flaws.
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into computer systems in high school. Later, he ran a group of hackers that traded 1.5 million stolen credit card and ATM card numbers through a website. He was caught by the U.S. Secret Service but avoided jail time by cooperating with authorities. While he was working with the government, he masterminded the hacking of TJX Companies, resulting in 45 .6 million stolen card numbers over an 18 -month period.
Gonzalez also was indicted for stealing 130 million card numbers from Heartland Payment Systems, Citibank-branded ATMs at 7-Eleven stores and Hannaford Brothers grocery stores. Gonzalez had help from hackers in Latvia, Ukraine and the Netherlands. In 2010, he was sentenced to 20 years in federal prison.
THE INDUSTRY STRIKES BACK Given the potential for losses to financial institutions, merchants and consumers, the payments industry has responded aggressively to ensure the safety of cardholder data and to reduce fraud. Groups such as ATMIA’s ATM Security Forum, the European ATM Security Team (EAST), the ATM Security Working Group, the ATM Integrity Task Force and others monitor criminal activity and share information in the industry. One of the most import recent security developments was the 2006 formation of the Payment Card Industry, or PCI, Security Standards Council. The PCI Council has established an array of standards for data security in the payments industry, including ATM s and point-of-sale terminals. It was launched to manage payments security, taking over for the five major global payments brands: American Express, Discover Financial Services, JCB International, MasterCard Worldwide and Visa Inc. The PCI Council develops, maintains and manages the PCI Security Standards, which include the Data Security Standard, or DSS ; Payment Application Data Security Standard, or PA-DSS ; and PIN Transaction Security, or PTS , requirements. The open forum aims to protect and educate industry
players such as merchants, processors, financial institutions and any other organizations that store, 68
I CHAPTER 7 I Busting Crime and Fighting Fraudsters
process and transmit cardholder data. The council does not, however, monitor and enforce compliance. That is left up to the individual card brands. Manufacturers have led the way in devising ingenious deterrents to ATM crime. Biometric technology, which uses physical characteristics of the user to provide identification, is one innovation that is gaining ground. Fingerprints are a common form of biometrics, but manufacturers are taking the idea to new levels. ATM s that rely on fingerprint data have been around a while. Riverside Health System Employees
Credit Union in Newport News, Virginia, has used biometric “kiosks” since July 1998. They use a fingerprint scan for identification. The machines also accept cards for the members who don’t sign up for the fingerprint service. Identification technology is moving to other parts of the body. NCR Corp. and Hitachi, among others, have developed vein-recognition technology that reads the vein pattern in a person’s finger. All people have a unique pattern of microscopic veins in their fingers but, unlike fingerprints, the veins can’t be
Biometric technology, which uses physical characteristics of the user to provide identification, is one innovation that is gaining ground.
duplicated. In 2010 , Poland’s cooperative BPS bank was the first in Europe to install a biometric ATM that allowed customers to withdraw cash simply with the touch of a fingertip. The digit-scanning ATM, introduced in the Polish capital of Warsaw, employed the latest in “finger vein” technology. Japan-based tech giant Hitachi developed the authentication system, which passes infrared light through the finger to detect a unique pattern of micro-veins beneath the surface of the skin. Japan has been a hotbed of biometric technology since the country passed legislation, in 2006, shifting liability to banks for fraudulent cash withdrawals.
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In Brazil, Itautec SA developed an ATM that uses holograph images to allow customers to make transactions using hand gestures. The machine can then be placed behind bulletproof glass with only the cash dispenser door exposed. Customers using the ATM gesture left or right or point forward to input instructions. The only thing they would need to touch is the cash dispensed by the machine. Itautec also unveiled face-tracking technology, which automatically ends an ATM session if the user walks away or if another person walks up. Even if someone peeks over the user’s shoulder, the software recognizes a new face and terminates the session. Infonox also implemented facial-recognition technology for automated cashier machines in casinos. Once enrolled in the system, users don’t need a card or PIN to withdraw cash. EMV—named for the card associations that launched the security standard (Europay, MasterCard, Visa)—offers a more efficient, secure method of handling credit card transactions.
Large-scale technological solutions are on the way to combat fraud as well. The spread of inexpensive wired and wireless network connections has made possible remote operation of ATM s via cloud computing. In a cloud-connected ATM, there’s no local software to hijack; thieves would have to look elsewhere for a route into the brains of the machine.
THE NEXT STEP: EMV Card skimming still causes the biggest cash losses to the industry. ADT Security Solutions, which provides anti-skimming solutions to the industry, estimates that the average skimming results in $ 30 ,000 in losses. To combat this, the industry has introduced EMV, or the chip-and-PIN card, named for the card associations that launched the security standard (Europay, MasterCard, Visa). These smart cards carry a computer chip that houses the card data and that must be presented to a properly equipped ATM to complete a transaction. Since 1998 , when the transition to EMV began, about 99 percent of all European ATM s have become EMV compliant. However, many cards still use a magnetic stripe that provides an opportunity for skimming. 70
I CHAPTER 7 I Busting Crime and Fighting Fraudsters
Because fraud always migrates to the weakest, most unprotected areas, delays in the introduction of EMV to the U.S. have left the market vulnerable, with criminal activity moving into the region now that neighboring Canada and Mexico have made the switch. Criminals in countries that have implemented EMV obtain card data there and use it in the U.S. to make fraudulent transactions. Conservative estimates put card-skimming losses at around $ 1 billion. Visa and MasterCard are introducing a liability shift for EMV compliance in the U.S., which means any party in the payments system that is not EMV-compliant will bear the cost of fraud losses. Implementation of EMV in the U.S. may curtail criminal activity, at least in the short term.
Crime has been a part of the ATM industry from its beginning and will be a part of its future. Unfortunately, it seems as if the criminals stay one step ahead. As one industry expert said, “Criminals only have to get it right once in a while; we in the industry have to get it right all the time.� Security efforts will continue to ensure the ATM remains a safe way to conduct financial transactions.
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8
Cold Hard Cash: ATMs in the Antarctic (and Other Unlikely Locations) From Afghanistan to Zimbabwe, ATM s can be found in more than 210 countries around the world. Some still-developing countries have very few or no ATM s or are not connected to the international networks. These countries include Cuba, Myanmar, North Korea and parts of Africa. There may be ATM s in these countries, but they accept only local bank cards. ATM s pop up in some surprising places on the planet. From the highest to the lowest, from north to
More ATMs in unlikely places
south, ATM s are a part of everyday life in many places. This fact is a testament to the value that ATM s
• South Rim of the Grand Canyon
bring to people’s lives and to the tenacity and innovation of those in the industry who go literally to
• Buckingham Palace
the ends of the earth to provide service.
• Atacama Desert, Chile (one of the driest places on Earth)
LOOK TO THE SOUTH The world’s southernmost ATM can be found in McMurdo Station, Antarctica. Since 1998 , two NCR ATM s, operated by Wells Fargo bank, have served the hundreds of people who populate the globe’s
southernmost continent.
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I CHAPTER 8 I Cold Hard Cash: ATMs in the Antarctic (and Other Unlikely Locations)
Wells Fargo, a San Francisco-based bank, is the United States’ third-largest bank owner of ATM s. It operates 12 ,352 machines nationwide, including the two located in Antarctica. The ATM s in McMurdo Station, the hub of the U.S. Antarctic Scientific Research Program, have won Wells Fargo a mention in the Guinness Book of World Records for the world’s southernmost ATM s. Even though there are two machines at the location, only one is deployed at a time. The second ATM supplies spare parts as necessary or is pressed into service if the first is inoperable. Every two years, Wells Fargo flies a technician to McMurdo Station to replace the ATM belts, cash
The ATMs in McMurdo Station, the hub of the U.S. Antarctic Scientific Research Program, have won Wells Fargo a mention in the Guinness Book of World Records for the world’s southernmost ATMs.
cartridges and other parts. Because air travel in Antarctica is confined to the relatively hospitable summer months, the technician has to wait his turn, as higher priority cargo and passengers make the trip first. Wells Fargo first flies the technician to New Zealand, where he must undergo a physical, have dental work checked and pass psychological tests. If a storm should occur while the technician is at McMurdo Station, he has to remain there six months until the weather permits him to leave. The ATM s are surcharge-free cash dispensers and are housed inside one of the station’s 85 or so buildings. McMurdo Station employees have their paychecks direct-deposited to their bank accounts.
Punjab National Bank, based in New Delhi, India, launched mobile ATMs to serve customers.
So what do they purchase with the funds dispensed by the two ATM s? Employees use their cash in a company store, a bar and restaurants. During Antarctica’s summer months (October through January), the station’s population swells to more than 1,000. During winter, which falls in July, August and September, the population drops to fewer than 200. Temperatures in August sink to minus 18 degrees Fahrenheit (minus 28 degrees Celsius). In January, the temperature is 37 degrees Fahrenheit (3 degrees Celsius). During Antarctica’s summer, the number of cash withdrawals
is double those during the winter.
This ATM is the first combined BT public telephone box and HSBC ATM in Barnstaple, England. The ATM is located on one face of the box with the telephone on another, although neither offers shelter for users.
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The machines are cash-recycling ATM s. Since there is no armored-car service to deliver cash, that job is left to McMurdo Station employees. They are trained to replace the withdrawn cash so there is always an available supply of funds.
LOOK TO THE NORTH Wells Fargo also has a candidate for the northernmost ATM, with a Diebold automated-deposit machine deployed near the Arctic Circle in Barrow, Alaska. The bank’s ATM s in the Arctic and Antarctic are 7,000 miles apart.
Slagharen, one of the largest theme parks in Holland, features an ATM in a treasure chest.
However, the acknowledged record holder in the frozen north category is a Sparebank 1 Nord-Norge ATM in Longyearbyen, Svalbard, Norway. A former coal-mining town that is now a thriving tourist
destination, Longyearbyen has a permanent population of about 2 ,040 people who brave a dark, Arctic winter during which the sun does not rise. Perhaps the midnight sun from April 19 through Aug. 23 makes up for it. Still, temperatures range from 39 degrees Fahrenheit (4 degrees Celsius) in the summer to a low of minus 3 degrees Fahrenheit (minus 19 degrees Celsius) in the winter.
LOOK UP The Union Bank of India claims to have the world’s highest installed ATM s at Nathu La Pass, at 14,150 feet (4,310 meters). The pass connects the Indian state of Sikkim with China’s Tibet Autonomous Region. Despite that claim, the highest ATM actually can be found at nearly 15,000 feet, nestled among the peaks of the Himalayas in Tibet. The Agricultural Bank of China installed an ATM in Nagqu Town The mobile ATM units can be found at carnivals, festivals, concerts, picnics as well as many other outdoor events.
in Nagchu County, situated in the northernmost prefecture in the country. In the winter, temperatures drop below minus 4 degrees Fahrenheit (minus 20 degrees Celsius), and in the summer they rise to 61 degrees Fahrenheit (16 degrees Celsius).
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I CHAPTER 8 I Cold Hard Cash: ATMs in the Antarctic (and Other Unlikely Locations)
LOOK DOWN The lowest ATM can be found in Israel at the Dead Sea resort area in Ein Bokek. The ATM, installed by a local grocer, sits near the beach at 1,380 feet (421 meters) below sea level. In Israel, ATM s are commonly referred to as Kaspomat. This is a compound word meaning “automatic money” in Hebrew, and it originated from the Bank Leumi & Israel Discount Bank brand of machines.
LOOK TO THE SEA U.S. Navy personnel have access to ATM s onboard many ships. In 2005 , The Naval Supply Systems
Command rolled out the Navy/Marine Cash financial system on 160 Navy vessels. Onboard ATM s were introduced in 2001 in a pilot program on eight ships, including the amphibious assault ship USS Bonhomme Richard. The cash management system allows sailors and marines to conduct personal banking and make electronic purchases while deployed. The system consists of an electronic purse on a commercial debit
In 2005, The Naval Supply Systems Command rolled out the Navy/ Marine Cash financial system on 160 Navy vessels.
card, which uses both stored-value chip and magnetic-stripe technology. Navy/Marine Cash reduces the need for cash onboard the ship. Personnel can use the cards in the Ship’s store and post office, at vending machines and for Morale, Welfare and Recreation, or MWR . Aboard a ship, cashless ATM s are used to verify card funds, transfer funds to and from the Navy/ Marine Cash card chip and magnetic stripe and authenticate PINs. Purchases are made using point-ofsale devices and vending machine card readers that access the card’s chip. Once ashore, sailors can use the magnetic-stripe card to withdraw funds from most any ATM worldwide and to make purchases from merchants. The Navy/Marine Cash system replaced the previous ATM s-at-Sea initiative, an NCR� program that installed more than 500 ATM s aboard U.S. Navy ships through 1996. The program began in 1988 after
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NCR proved through a pilot deployment the utility of ATM s aboard ships and the company’s ability
to service the machines in worldwide usage. Of course, ATM s are common on large cruise ships, ferries and other passenger vessels.
LOOK TO THE HEAVENS The Vatican houses the only ATM in the world that offers Latin as a language option. A service of the Vatican bank, the Institute for the Works of Religion, the ATM provides access to some 33 ,000 accounts belonging to clerics, religious orders and foundations, Vatican employees and diplomats accredited to the Holy See. For Latin users, the welcome screen reads “Submitted scidulam quaeso ut faciundam cognoscas rationem.” In English, this translates to “Please insert the card to access the operations permitted.” When finished, users are bid farwell with “Carus exspectatusque venisti,” which is basically, “You are welcome.” In the U.S., some houses of worship have installed ATM s to make it easy for parishioners to give money.
The Dusit Zoo in Bangkok, Thailand, features ATMs in the shape of an elephant and panda.
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I CHAPTER 8 I Cold Hard Cash: ATMs in the Antarctic (and Other Unlikely Locations)
More than Money: ATM Advertising and Other Non-cash Functionality
9
CAN ATMS DO MORE THAN DISPENSE CASH? During the mid-1960 s, the cash box emerged concurrently with computerized ticket sales for sports, movies and other events.1 But like the ATM, the commercial success of ticketing took off many years later (the mid-1980 s) when vendors started levying a service charge.
Number of ATMs, 2009–2017
The ATM convenience charge emerged in the U.S. in 1994 , when Nevada and Louisiana allowed surcharges on their states’ cash machines, a move that caught on nationally when Visa and MasterCard 2,248,317
2,418,248
2,592,405
2,785,010
2,980,020
3,169,585
3,354,805
3,534,440
By the end of the 1990 s, more than half of the adult ATM users in the United States had paid to
2,098,938
ended their ban on surcharging in April 1996.
2009
2010
2011
2012
2013
2014
2015
2016
2017
withdraw cash from a device not owned by their card-issuing institution.2 As noted in chapter four, this catalyzed the development of the low-end ATM as well as significantly increasing the number of devices deployed outside bank branches.
Source: Global ATM Market and Forcasts to 2017 ( RBR )
By 1990 there were some 60,000 cash machines deployed in the United States. In the following 20 years, this number increased to nearly half a million.3 According to RBR, by 2017, the global installed
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base is expected to rise by 46 percent over the current footprint to 3.5 million ATMs. Asia-Pacific and the Middle East and Africa are forecast to rise significantly faster than other regions, and the rate of ATM cash withdrawals is also expected to rise rapidly in these two areas, increasing by around 90 percent by 2017, according to “Global ATM Market and Forecasts to 2017,� a report published by
Retail Banking Research.
NEW PLAYERS HIT THE FIELD ATM advertising provides advertisers with a one-to-one engagement opportunity with customers.
Growth in the demand for ATM s since 1980 attracted a number of new manufacturers. These included European companies, such as Phillips, Olivetti and Siemens-Nixdorf; others based in Asia, such as Fujitsu, Hyosung and Hitachi; as well as the likes of Tidel and Triton Systems in the United States, which introduced not only the first dial-up machines but also sold them at a much more affordable price than the then-going rate of US $ 30 ,000 per ATM. At the same time, banks began to open up and share their proprietary networks.4 For instance, reaching a peak of about 200 throughout the 1990 s, regional shared networks of interconnected proprietary devices began a process of amalgamation that would result in less than a handful of networks dominating the U.S. marketplace.5 The upside of shared networks was to lower the average cost of provision, opening up any single machine for transactions by customers of different banks. The downside was the dreaded interchange fee and surcharges as well as, in many cases, the stifling of innovation.6 But over and above the amazing growth in quantity, the functionality (or services provided) through these machines also increased. In some countries, functionality went so far beyond banking services that some models forwent dispensing cash altogether. In others, the machines were used as a new advertising channel. Indeed, in the mid-1990 s, the ATM was seen as having the greatest potential for growth, not so much for the machines themselves, but rather for the potential revenue stream. That
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I CHAPTER 9 I More than Money: ATM Advertising and Other Non-cash Functionality
revenue stream was to come not primarily from surcharges, but rather from customized advertising messages that could be delivered via the ATM using what at the time were innovative graphic capabilities.
NON-BANKING SERVICES In September 1992 , Caixa d’Estalvis i Pensions de Barcelona (la Caixa), then a savings bank with roots in the 19th century 7, announced a ground-breaking service called ServiCaixa.8 It was built around a lobby-based ATM, developed in conjunction with IBM, to expand traditional service offerings. At the same time, the service was designed to link la Caixa’s ATMs with several non-bank providers and create a single point of contact with customers. Thus, this financial institution deployed machines capable of dispensing cash as well as issuing tickets for entry to events, public transportion and information. These services are summarized in Table 1 below. non-banking
banking • Cash dispensing • Balance inquiries • Card services (including changing PIN) • Transfers between accounts
• Ticketing (movies, opera, sports, live entertainment, amusement park, air fares, etc.) • Local transport tickets (metro and bus) • Products (subscriptions to magazines, music services, etc.)
• Set up domestic payments
• Regional and local government services (payment of fines, taxes, register for civil service exams)
• Summary of tax notices
• Charity donations (e.g., Red Cross)
• Request checkbooks
• Other services (real estate, payment of university fees, cable TV)
• Change of language • Recharging electronic wallet
• Telephone cards
TABLE 1: Provision of banking and non-banking services at la Caixa, 1992-1995 9
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The ServiCaixa network expanded throughout Spain on the back of 500 proprietary machines while linking with Visa, MasterCard and other savings banks, using the latter’s shared platform (i.e., Red Tarjeta 6000). This connectivity meant ServiCaixa was open to anyone, regardless of whether they wanted to pay using a credit card, debit card or passbook. However, IBM was unable to fulfill its promise with la Caixa.10 Instead, the savings bank contracted Fujitsu, which at the time was the main ATM supplier to the Spanish savings banks, to provide 250 multifunctional units out of the total 500 planned for deployment. Prior to this contract, the leading supplier of ATM s to banks in Spain was NCR , with a 55 percent market share. Fujitsu claimed one third of the market; IBM, 5 percent; and others, such as Olivetti, Siemens-Nixdorf and more, the remaining 7 percent.11 At that time, Spain had more ATM s than any other European country. In terms of demographic density, moreover, it was more populated than any A futuristic concept for ServiCaixa circa 2010.
other European country.12 By 2009, ServiCaixa had an annual turnover of 168 million euros, thanks to fee income generated through the sales of more than 47 million tickets through ATM s, telephone and Internet. However, the financial crisis and subsequent focus on core business by the Spanish savings banks led la Caixa to sell
ServiCaixa Operativa de "la Caixa" - Consulta saldo/ Exracte de compte - Operations amb targetes - Trapàs entre comptes de "la Caixa" - Consultes financeres Toqul - Comunicats fiscals sobre el color - Petició talonaris - Altres operacions de "la Caixa" que correspongul
Venda de productes - Bitllets de transport - Immobles - Productes d'altres entitats
amount (thought to be close to 100 million euros) in 2011.13
Venda d'entrades - Teatre, música, cine - Esports - Parcs d'atraccions - Espectacles disponibles - Altres espectales i activitats
Of course, la Caixa was not the only deposit-taking financial institution to offer third-party services
Serveis diversos
Bank of Commerce (CIBC ) “smart” ATM s provided enhanced visuals with full-color graphics, a mix
- Pagament de rebuts, impostos, multes i martícules - Donatius - Altres serveis concertats
cancel - lar
Screenshot of original touchscreen menu at ServiCaixa, 1992.
80
ServiCaixa to the U.S. group Live Nation Entertainment (owners of Ticketmaster) for an undisclosed
through its ATM network. Just like the multifunctional devices of la Caixa, the Canadian Imperial of upper and lowercase characters and touchscreens. CIBC offered customers the ability to reserve and purchase movie tickets at selected ATM s. Throughout the early 2000 s, CIBC was the first Canadian bank to introduce more new ATM features, including deposit/withdrawals of U.S. currency from U.S. dollar accounts, prepaid long-distance/cellular top-up cards and the ability to select telephone banking and Internet passwords directly at the ATM.14
I CHAPTER 9 I More than Money: ATM Advertising and Other Non-cash Functionality
Meanwhile, the focus of self-service in the United States was the check-cashing ATM. This was a reasonable expectation for a country still utilizing a 17 th-century innovation and clearing roughly two-thirds of the world’s total volume of paper checks. Check-cashing ATM s had been around since the late 1990 s, made popular by a joint venture of Wells Fargo, InnoVentry and Kroger grocery stores.15 And even before that, the now defunct savings and loans institutions deployed a hybrid technology (partly automated, partly manned kiosk) within local retailers during the late 1970 s.16 But a string of misfires, unreliable technology (such as checks getting caught within the path) and, above all, unfettered opportunities for fraud, consistently torpedoed the model. This checkered history did not deter the development of a partnership between Genmega and Nexxo, which in 2012 began offering a new check-cashing ATM kiosk.
INNOVATION'S ROCKY ROAD Other developments, such as those by la Caixa and CIBC , forced those in the industry to question whether the ATM would become a multipurpose, self-service machine that would enable customers to cash checks, pay bills, order flowers, purchase theater tickets and more, or whether it would remain merely a convenient and practically ubiquitous delivery channel for cash. There was no straightforward answer, partly because of the common assumption that technology changes faster than culture. Yet think how many times promoters of the cashless society have forecasted the demise of ATM s, and yet they are still here. Both la Caixa and CIBC were examples of innovations within proprietary networks, but the process can be a bit different when innovations need to be rolled out throughout joint networks. LINK's joint single shared network of ATMs in the United Kingdom, established in 1985, dominated the U.K. market by 1998.17 LINK’s preeminence was rooted in its design, which reflected the average (fully burdened) cost of
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serving a transaction while at the same time acting as a clearinghouse and facilitator of the movement of fees. Interoperability was developed through connections to the central computer. Each new participating organization was associated with greater business volume which, in turn, led to a lower average cost per transaction (i.e., downward pressure on interchange fees). The network thus became more attractive to ultimate users (i.e., retail consumers) as it offered an increasing number of cash-dispensing points. Financial as well as convenience reasons eventually became a high barrier for others to imitate the success of the LINK network. The result of a shared network was a highly standardized software product, but the downside was that innovations (in the form of new services across the whole network) were very hard to incorporate. Adding money to the balance of a cell phone account (mobile top-up) was the only third-party application offered by LINK . As noted by one participant: We have seen in the industry a number of companies over time come to us and say “we’ve got a new and better solution to a PIN number.” For instance, we’ve seen a sort of rolling numbers. Biometrics are now around as a complement to a PIN or, indeed, a replacement. We are seeing that in Arabic Gulf states and perhaps newer banking environments where they can just jump technology steps. I guess one of the things about having a very mature and large ATM [fleet] in the United Kingdom is that you need a “LINK recommendation” and an agreed rule to change things. If that were the case, it would probably require a five-year migration path and not everyone is ready to buy into such commitment.18
Besides the cost of implementing an innovation, as noted above, there is a risk that consumer culture will not change and thus reject what otherwise seems like a perfectly viable technological solution. In any case, the emergence of multi-function ATM /kiosk platforms marks a significant departure from the fundamental rationale to deploy ATM s—namely, for cash dispensing and deposit taking. In effect, the blending of self-service kiosks, full-service ATM s and smartcard applications would evolve to create a hybrid ATM industry, illustrated by ATM advertising. 82
I CHAPTER 9 I More than Money: ATM Advertising and Other Non-cash Functionality
ADVERTISING In the mid-1980 s, as the ATM became a success story throughout the world, its potential as a tool to strengthen relationships with customers also emerged. ATM s were reconceptualized from devices that reduced the cost of running retail branches to a marketing channel. Evidence of this is found as early as 1981 in the United States, when Automated Papers Co. announced a speciality line of paper compatible with the then-popular models (namely, Docutel 2300 , Diebold TABS, NCR 1770 /1780 and Honeywell 7712 ).19 The company would pre-print single-ink advertising messages on white, canary, pink, blue, gold and green paper rolls, so that a message was shown on the back of a customer’s receipt. The company offered this at a cost of one-tenth of a cent per 5-inch roll. The introduction of pre-printed paper rolls was not much progress in terms of customizing advertising for different customer groups, but it was a start. New devices and new forms of interconnection brought new possibilities. For instance, in 1997, CIBC launched the world’s first Web-based ATM, a device
The introduction of pre-printed paper rolls allowed ATM deployments to seek out advertising dollars with local merchants.
powered by the same technology that drives the Internet (that is, NT/IP technology).20 These ATM s displayed targeted messages to specific customer profiles. The messages could encourage customers who were not signed up for electronic bill pay to do so, among other customer activities.21 The idea behind ATM advertising was that when customers use the device, their attention is focused on the machine and the transaction, and they are a captive audience. Additionally, the machines had a printing capability, so that the possibility of issuing coupons via ATM receipts was seen as attractive to advertisers because it could give them exact numbers of transactions and receipt take-ups. By 2006, third-party ATM advertising had yet to find mainstream acceptance in the United States. Some experts said it never would, as U.S. companies had tried to offer third-party capabilities at the start of the 2000 s with little or no success. Stable revenue streams for financial institutions and independent deployers from advertising heavy hitters, such as auto manufacturers and consumer packaged-goods makers, had not materialized.
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Other important elements explaining the slow uptake of ATM advertising in the United States were 1 ) the average age of the American fleet, 2 ) a lack of standards and 3 ) a fragmented footprint made up
of disparate networks. Regarding platform and infrastructure limitations, one estimate was that 58 percent of all ATM s in the United States were still running in OS /2 in 2006, whereas the big opportunities for third-party and in-house advertising came from migrating to Windows-based devices. These promised not only superior graphic capacity but also the possibility of managing the fleet as a whole, rather than having to update individual machines. Secondly, the absence of standards resulted from each financial institution's administering its own proprietary network, thus having to sell and manage the ad content themselves. The length of advertisements varied significantly and not one single entity (not even Bank of America, the biggest single owner of ATM s in the United States) could deliver comprehensive coverage of any of the 25 key advertising areas in the United States. The response of the ATM Industry Association (ATMIA) was to create, ina March 2000, the ATM Advertising Council, with the stated aim to set ATM branding and wraps can help deployers gain attention in a crowded convenience store environment.
up standards and promote advertising in ATM s through market intelligence reports and active discussions with advertisers.22 Meanwhile, the underlying platform had moved faster in the United Kingdom, where ATM receipts and screens were actively being used, as an advertising channel. ATM s had become a valued source of mass communication not only for banks’ own service offerings but also for retailers and regional governments. ATM s also had become an additional revenue source for financial institutions.23 Success in the United Kingdom was partly a result of the fact that the ATM fleet was owned by a small number of financial institutions, and partly as a result of the emergence of specialist providers, most notably of the Dundee, Scotland-based i-design, a company that developed platform-agnostic software to deliver and manage advertising on ATM s. Launched in 2004 , i-design had become a single point to
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I CHAPTER 9 I More than Money: ATM Advertising and Other Non-cash Functionality
negotiate with advertisers and managed to secure ATM ads for the likes of British Airways in the United Kingdom and Volkswagen in Australia. In summary, just over a decade into the new millennium, the ever-crucial 30 seconds customers are willing to spend in front of an ATM screen could be filled with targeted advertisements, information or features while cash is being dispensed, provided these other activities are lawful, fast, intuitive and easy to understand.
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10
Cashless Mythology: The Future of ATMs, Payments and Cash Ever since the first general-purpose charge card debuted in the early 1950 s, pundits have predicted a “cashless society.� But is the cashless trend real, driven by consumers in search of convenience and control? Or are the credit card schemes and e-payment purveyors playing to their own corporate growth strategies? Is the trend occurring in some sectors and not others? The answer requires an analysis of both historical and futures data. This chapter has been perhaps the trickiest of this entire book, if for no other reason than payments history is being made as we write. We find ourselves in a time of payments upheaval, a transition that will lead to the cohabitation of cash, cards and mobile payments in new and exciting ways. For the moment, and within the limited scope of this chapter, we will consider the persuasive case that cash is not dead. In fact, it is growing while new payments technologies experience volatile births and sometimes early deaths.
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Cashless Mythology: The Future of ATMs, Payments and Cash
CASH IN THE SHADOWS Did you know there are two different economies in every country? The secondary, “shadow” economy, or what economists call the “informal” economy dictates a large percentage of the world’s demand for cash. This informal sector may be defined as economic trade which is not registered for taxation (excluding the proceeds of organized crime), and it is growing in developed, developing and transitional countries. According to the World Bank, in the European Union there are 48 million workers in this sector. In India, informal sector trade provides more than 90 percent of the total available jobs, employing some 360 million workers. In South Africa, 25 percent of the labor force works in the informal economy,
which is responsible for 10 percent of all retail sales in that country. In Russia, the informal sector makes up 14 percent of total employment.1 What is astonishing about these numbers is that globally, the average size of informal trade is about 30 percent of Gross Domestic Product, or GDP. This means that if cash were eradicated, most governments
The informal sector includes all jobs which are not recognized as normal income sources and on which taxes are not paid.
would see a one-third drop in their sovereign economies, risking increased unemployment rates and poverty levels—all in the name of modernizing the payment infrastructure. For hundreds of millions around the world who rely on physical currency, giving up cash would require drastic life changes. Many people use cash envelopes to budget and control their spending. Millions of service workers depend on cash tips for a significant part of their income. In Japanese culture, cash is
Read more:
a must-have for personal emergencies and gifts for special occasions such as weddings and graduations.
Read more: http://www.businessdictionary.com/definition/ informal-sector.html#ixzz29Nj1uaMQ
In the United States, having cash on hand creates a sense of security. It’s also true that many innovative payment tools have value for millions more people who enjoy the convenience of credit at their fingertips, quick access to tap-and-go mobile payments or long-distance, person-to-person funds transfers.
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But we ask you to indulge a concept at the core of the ATM’s endurance for five decades: The cash box fulfills financial needs of ordinary citizens of nearly every country in the world, and those needs are not abating. If anything, they're growing.
HISTORY WAS ONCE FAR OFF Picture yourself standing in a bank teller line in the ’50 s, ready to write a check to yourself for enough cash to cover the week’s expenses. Who would have thought automated versions of those tellers would pop up at all your shopping destinations and many points in between, ready to hand you money at all hours of the day or night, with no need to write checks? What did the visionaries of that day foresee 50 years hence? One of the most popular ideas was the cashless society. The race was on to prepare for the coming technology storm that would transform consumer habits. John Diebold (no apparent relation to the manufacturer) popularized the term “automation” through his book by the same name. He continued to publish books on the topic, prophesying to the business world about the coming tsunami of automation in every sector of society. He wrote in business journals of an impending “transaction overload,” cautioning that “the ‘cashless society’ is no longer an option but a necessity.” He acknowledged that there was “considerable vagueness” surrounding the details of how such a society might be achieved but argued that “some system must and will develop in which money (and credit) moves quickly and safely” around the world.2 This “considerable vagueness” plagues proponents of the cashless future. Moving credit around the world and transferring value from one person to another do not preclude the presence of cash. They simply offer more flexibility and choice for consumer financial transactions. 88
I CHAPTER 10 I Cashless Mythology: The Future of ATMs, Payments and Cash
While the U.S. Federal Reserve urged banks in the late ’60 s to rethink how “the computer can drastically change money and its use,”3 the media pounced on the financial world of tomorrow, perhaps as a natural outcropping of the American infatuation with technology fueled by the budding space age. Bankers directed their research and development budgets toward envisioning a national electronicfunds-transfer, or EFT, system, complete with an identification card acting as the consumer interface. The idea was sound, but they failed to predict the resulting resistance from consumers and regulators, plus the banks themselves fought over just how an EFT system should work. After the network finally came to fruition, two competing U.S. credit card associations formed: Interbank (which would later become MasterCard) and National BankAmericard Inc. (later to become Visa). These new networks presented themselves as preferred platforms for a cashless society. Visa is still trying to convince the world of its cashless vision. In a March 12 , 2012, blog post on one
Since Somaliland was founded in 1991, it has lacked formal banks, ATM s and credit card facilities, forcing citizens and visitors to haul around wads of currency to make larger purchases.
of its websites, the author cited sources that call cash “inconvenience incarnate” and state that “cash is getting bumped further and further to the edges of our everyday lives.”4 So what of cash? Will the digital wallet—a moniker for using a phone for purchases—threaten the dirty bank notes and coins that have been circulating for centuries?
CASHLESS POCKETS It is true that in parts of the world, cash seems to have fallen from vogue. But on closer inspection, these pockets of mobile financial innovation have married cash and mobile in creative ways to benefit underbanked populations. Consider the following global case studies: INDIA. My Mobile Payments Ltd., a mobile payment service provider, recently launched its Money-
on-Mobile, or MOM, mobile wallet to the Indian consumer market. The service, which is not tied to
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any mobile carrier or bank, allows subscribers to pay for a wide range of goods and services using a mobile phone. Consumers can load their MOM m-wallet with cash at one of the company’s hundreds of thousands of retail touchpoints and use the wallet to pay for electricity, gas, mobile bills and top-ups
Strong demand for ATM cash withdrawals will remain one of the major drivers of ATM growth in the next few years. RBR expects the global installed base of ATMs to increase by 42 percent to 3.2 million terminals by 2016.
a well as airline, bus and movie tickets. The service has 500 ,000 subscribers and does a business volume of 20 million rupees (US $ 358 ,422 ) daily. SOMALILAND. This state’s abundance of low-value cash currency literally makes it impossible to carry
around enough cash for much more than basic daily needs. Since the country was founded in 1991, after breaking from Somalia, it has lacked formal banks, ATMs and credit card facilities, forcing citizens and visitors to haul around wads of currency to make larger purchases. But that is about to change as the former British protectorate recently established a central bank and is preparing to pass a banking law that will allow companies to operate as formal banks. Until now, Somalilanders have relied on remittance companies, notably Dahabshii—one of Africa’s biggest money-transfer companies—for their financial needs. KENYA . Kenyan mobile airtime reseller Safaricom launched M-Pesa in 2007 and now boasts 17
million users. M-Pesa (“Pesa” means “money” in Swahili) allows customers to move funds through a network of airtime resellers and retail outlets that act as banking agents. Customers can deposit and withdraw cash, make transfers to others and pay bills. Also in Kenya, Paddy Micro Investments introduced “Pesa Pata” kiosks to provide low-income Kenyans access to quick loans. “We realized that there are times when people need instant cash, and going to a bank or micro-finance institution for a loan is not an option,” said Joyce Wangui, a director at Paddy Micro Investments. “Other people who work in the informal sector at most times cannot even qualify for bank loans.” At the kiosk, the customer obtains a scratch card valued between $ 3 and $ 59. Each card has a unique number, which is loaded onto the customer’s mobile phone. An amount associated with that card number is then credited to the customer’s Safaricom M-Pesa mobile money account. The borrower has two weeks to pay back the loan at an interest rate of five percent to 10 percent. 90
I CHAPTER 10 I
Cashless Mythology: The Future of ATMs, Payments and Cash
AFRICA AND THE MIDDLE EAST. Mobile provider Orange gives millions of its customers access
to basic financial services through their mobile devices. Unbanked customers can transfer funds, set up a savings account and make payments. SWEDEN. Compared with nine percent for other Eurozone nations and seven percent in the U.S.,
this country’s currency represents only three percent of its economy, and that rate is trending down. According to a March 2012 Mobile Payments Today article, “In most Swedish cities, public buses don’t accept cash; tickets are prepaid or purchased with a cell phone text message. A small but growing number of businesses only take cards, and some bank offices—which make money on electronic transactions— have stopped handling cash altogether.” But not everyone is convinced cash will completely disappear. Lars Nyber, the former deputy governor of Sweden’s central bank, says cash use may shrink, but it will survive “like the crocodile, even though it may be forced to see its habitat gradually cut back.”5 NIGERIA . The Central Bank of Nigeria’s cashless policy in Lagos has left most residents less than
satisfied. One businessman told the Nation Online that on the same day the policy went live, the POS system at one of Lagos’ most popular shopping malls went dead. The man said he had been forced to go outside to use an ATM to get cash for a purchase. Others had to cancel purchases altogether. Lagosians retain a cash mentality due to a lack of confidence in Nigeria’s electronic payment system.
CASH FACTS Despite mobile’s impact and the proliferation of plastic, cash continues to grow and adapt into the new mobile society. The following facts and figures were largely contributed by Mike Lee of ATMIA and Guillaume
“Europe, more than any other region of the world, has encouraged the decline of cash. The European Commission and European Payments Council are promoting non-cash payments through the cashless payment system called the Single Euro Payment Area (SEPA ). And in France, authorities have limited the use of cash by law, e.g. transactions over €3,000 may not be conducted in cash, and wages may not be paid in cash.” —Mike Lee, CEO, ATMIA
Lepecq of AGIS consulting, who authored the “Future of Cash 2012” report.
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Cash as a Store of Value Cash presents a number of attractive features for those who hoard it: LIQUIDITY. By definition, cash is a liquid asset which can be immediately transformed for consumption or to acquire other assets.
Euromonitor International reported that $14.4 trillion in consumer payments was made with cash worldwide in 2010, compared to consumer payment cardtransaction value, excluding commercial payments, of $9.6 trillion. It is no wonder, given these and similar figures, that the second edition of Money: A History said, “Despite the rise of plastic cards and electronic money transfers, cash is still the most important kind of money in the world.”
AVAILABILITY. Cash is available to all, including those who do not have access to banking services or who do not understand or trust other assets. TRUST. Currencies which are hoarded are perceived as strong, stable currencies. As an illustration, in spite of the recent debt crises which have hit both the U.S. and the Eurozone, there has been little impact on currency demand.
Europe's Cash Demand Value of Cash in Circulation (in thousands of euros)
8M 7M
500 6M
200 100
5M
50 4M
20 10
3M
5 2M 1M 0
2002
2003
2004
2005
2006
2007
2008
2009
2002–2011 CAGR +14.65% Source: European Central Bank
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2010
2011
2012
“There is something powerfully simple about cash, which is the secret of its longevity. It works easily and quickly. All people, old and young, rich and poor, uneducated and educated, weak and strong, can use cash and enjoy the security and simplicity of its timeless exchanges of value. The robust qualities of cash have enabled it to survive an enormous span of human history.”
—Mike Lee, CEO, ATMIA
Value of Currency in Circulation
(Billions of dollars as of December 31 of each year)
Growth of Cash in the United States 2007
3%
2008
3%
2009
3%
2010
4%
2011
6%
1,000
100
800
50 20 600
10 5 2
400
1 200
0
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
Includes Federal Reserve notes, U.S. notes and currency no longer issued Excludes the dollar value of denominations larger than the $100 note.
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Worldwide Cash Usage Capgemini estimated in January 2011 that more than 80 percent (about 715 billion) of all world payments were made using cash. “Three billion of the world’s seven billion population live on less than $2 per day ( UNFPA statistics). With that kind of disposable income, one has no use for cards and their associated fees.” —Ron Delnevo, chief executive of Bank Machine ( UK )
Both the dollar and the euro are prominent international currencies, and they are used extensively outside their borders. In the case of the dollar, it is estimated that between 55 percent and 66 percent of the value of U.S. currency is held in foreign countries.16 Two and-a-half billion people do not use formal financial services to save or borrow.17
Cash in Canada “Reports of the death of cash are greatly exaggerated. Our research shows that cash is used for more than half of all shopping transactions.”9
Cash in the U.K. According to the British Retail Consortium, or BRC, in 2010 cash accounted for 55 percent of transactions but only 12 percent of costs; debit cards accounted for 34 percent of transactions and 38 percent of costs; and credit cards accounted for only 10 percent of transactions but 45 percent of costs. The 2010 BRC survey of 17,000 shops found cash was the most cost-effective way for retailers to accept payments.10
—Mark Carney, governor, Bank of Canada
Cash in Germany
Cash in the United States Cash’s share of transactions in the U.S.
2008 20.8%
2009 28.2%
2010 28.9%
Source: FRB Boston, Study of Consumer Payment Choice
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Cash is still the preferred method of payment for German consumers. Nevertheless, there has been a slow but steady decline over the past few years in the percentage of cash payments in German retail sales. The decline in the percentage share has, however, been offset by the absolute increase in the volume of transactions.11
Cash is likely to remain the most commonly used payment instrument in the future, even though its share of total payment transactions will decrease further in the medium to long-term future. The same important reasons for using cash as a means of payment will, however, remain.12
Cash in the Nordic Countries Nordic countries have seen a decline in cash usage; in these cases, banks have rendered access to cash more difficult and costly by reducing their ATM fleets and closing down cash services in their branches. As a result, ATM s in Finland and Sweden have the highest usage rate in the European Union with 8,500 and 5,000 withdrawals per month, respectively.
Cash in Russia The Russian economy can be characterized by a very large amount of currency in circulation.13
Cash Throughout Europe According to RBR , cash accounted for 78 percent of retail payments in Europe in 2008 and 93 percent in Central and Eastern Europe. The value of Euro cash in circulation grew by nearly 19 percent between January 2002 and December 2008.15
Cash in the Netherands In the Netherlands, the decline in cash usage has been driven by an industry initiative to promote card payments rather than by consumer preferences.
Cash in China Cash in Australia Cash remains the payment method of choice for small retail transactions and transfers of value between individuals. Cash payments make up 40 percent of the value of all retail payments in Australia, but in food and convenience stores cash sales account for nearly 56 percent of sales.
“
China is a cash-preferring society.”14 —Dr. Huang Ping, deputy director, payments department, People’s Bank of China
“In China, the world’s future superpower, credit is not regarded as real money— real money in Chinese culture is cash in the bank that has been earned through hard work.” —Mike Lee, CEO, ATMIA
Source: Reserve Bank of Australia
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CASH SWOT ANALYSIS Strong market share
Does not require a bank account
Anonymous payment instrument
Convergence with new technologies
OPPORTUNITIES
No infrastructure required for payments
STRENGTHS
“The total number of ATM cash withdrawals worldwide is expected to increase at an average of eight percent per year between 2010 and 2016, compared to an average of six percent per year in the number of [ATM ] installations.”
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Increasing “electronification” of cash
Development of new uses for cash Immediate settlement Government measures restricting cash payments Broad range of uses
WEAKNESSES
Cost of cash
Need for physical infrastructure for distribution and processing
THREATS
Facilitates budget control
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Events likely to disrupt main trends: natural disasters, financial crises
Ease of use
—Retail Banking Research
The U.S. manufactures more than 80 million items of cash every working day—namely 38 million banknotes and 42 million coins a day.6
Potential for efficiencies
Increasing competition from new payment instruments
Growth in online and mobile transactions
Banks are concerned with cost of cash
Growth of channels where cash usage is limited Poses a security challenge Source: GIS Consulting 2012 Future of Cash report
Limited use for new distribution channels (e-commerce, m-commerce)
Cashless Mythology: The Future of ATMs, Payments and Cash
“Not only is cash used in the huge informal economies of both advanced and emerging countries and among lower income groups as an important budgeting tool, but the demographic group of the elderly depend heavily on this form of money.” —Guillaume Lepecq, CEO, AGIS Consulting.
Given the prediction by RBR of three million ATMs by 2015, and the average number of monthly cash withdrawals per ATM in Western Europe between 1994-2015 as an industry benchmark, namely 2,877, we can forecast that by 2015 there could well be a total number of 8.6 billion cash withdrawals every month in the world. This is a mind-boggling number.
From 1980 to 2009, U.S. currency in circulation increased an average of 7 percent per year from $124.8 billion to $888.3 billion.7
A visit to the websites of central banks in virtually every country of the world will reveal healthy year-on-year growth of banknotes in circulation in both developing and developed countries.
WHY IS CASH GROWING? AGIS Consulting’s “Future of Cash 2012” report states that during the past decade, cash in circulation has been growing at exceptional rates in Brazil, the euro zone, South Africa and the U.S. In Brazil and South Africa, this has been driven primarily by transactional cash, fueled by sustained growth of GDP and consumer expenditure. In the euro zone and the U.S., the larger part of this growth results from hoarding, both at domestic and international levels; nonetheless, transactional cash has been growing as well.
In 2010, $14.4 trillion in consumer payments was made with cash worldwide, compared to consumer payment card transaction value (excluding commercial payments) of $9.6 trillion.8
In 2009, there were 62 billion ATM cash withdrawals worldwide, and that number is forecast to rise to 94 billion cash withdrawals in 2015. This strong growth rate for cash will push the number of ATMs well beyond the three million milestone within five years, according to ATMmarketplace’s 2012 Future Trends Report.
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Forces working against cash David Chan, CEO of Barclaycard Consumer Europe (in a 2012 Raconteur report): “With (PIN’s) £20 limit, contactless is slowly but surely eating, not into debit and credit transactions, but into cash purchases. Our research shows that over the last 12 months there has been a real shift in consumer spending preferences, with a remarkable 61 percent of people saying they preferred using cards over cash to buy items up to the value of £20.” WALMART. The Wall Street Journal reports that every second saved at the checkout process decreases Walmart’s labor costs by $12 million. The chain is testing new mobile payments systems to see if they offer any time savings. According to the Payments Council in the UK, by 2018 the volume of cash payments is projected to fall by 20 percent, after adjusting for inflation. And in five years, cash is likely to make up less than half (45 percent) of U.K. transactions for the first time.?
THE COST OF CASH INTEREST OPPORTUNITY. Hoarding cash eliminates the opportunity of earning interest in a deposit account. HANDLING. Costs related to manual cash transactions (e.g. labor costs, cash registers, counter space, in-store safes, cash counters and reconciliation software) can be significant in large retail environments. PROCESSING. In addition to counting and sorting, back-office costs can include authentication, fitness sorting and packaging of banknotes and coins, usually done with automated equipment. TRANSPORTATION. Cash-in-transit, or CIT, companies (armored cars) typically move cash into circulation, but it is a labor-intensive activity and is subject to increasing securityrelated regulations, not to mention rising fuel prices. As a result, CIT prices increase regularly. “If you ask most card schemes what is on their agenda, they say it is to declare war on cash.” —Jacob De Geer, CEO of iZettle, in a 2012 report by Raconteur
CHARTING THE FUTURE OF CASH: THE FOUR Cs We see four main forces affecting the future of currency in the world. CRISES . During the 2008 financial crisis, people around the world hoarded cash to protect against
further fallout in the financial markets. This significant increase in cash demand has been repeated throughout recent history: 1999: The Y2K changeover (in the U.S., cash in circulation grew by 20 percent in anticipation of massive technical glitches) 2001: The 9/11 terrorist attacks on the U.S. 2005: Hurricane Katrina in New Orleans 2011: The earthquake and tsunami in Japan 2012: The Greek debt crisis (which led to a sharp increase in cash demand), the London Olympics and Hurricane Sandy While in general the shorter term impact on cash demand is plain to see in the wake of disasters and conflicts, a more difficult prediction is whether consumers will go back to their pre-debt crisis payments and savings habits as soon as the current global economy recovers. The generation that lived through the Great Depression saved differently as a result of its own financial crisis, though it may be argued whether succeeding generations followed suit. Because each generation has crises of its own, we will continue to see cash hoarding and a demand for nonelectronic currency mitigate the effects of future disasters on the world’s electronic-payment infrastructure. This crisis factor is a significant indicator for future cash demand, as the world does not seem to be calming down.
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COMPETITION. The first technology designed to substitute for cash was the check, appearing first
in Holland in the early 1500 s during that country’s rise to seafaring prominence. But in five centuries the paper check has failed to replace cash and, in fact, is itself quickly disappearing. Over the past six decades, cash has been increasingly challenged by payment technologies like credit and debit cards. Competition for low-value transactions is intensifying among alternative payments instruments such as pre-paid cards, contactless cards, mobile phones and other web-based tools. Cash is the only payment method truly based on demand. Every other payment tool is promoted by various financial entities hoping to brand their own solution to customers. Cash is even targeted by payment-solutions providers who see cash substitution as a way of increasing their transaction volumes. As we have seen, this is not a new trend; it has been the case in the past with checks, credit cards, debit cards and smart cards. Today’s most voracious cash competitors are contactless cards and mobile, but
As the world of electronic payments largely competes with itself, cash will remain a viable low-tech alternative into the foreseeable future, filling the demand for universally accepted currency, regardless of location, access to networks or environmental crises.
they are having limited success in the war against cash, and the prospects for cash substitution will come into clearer focus based on whether these technologies are significantly faster, more convenient and cheaper than cash. The fundamental attributes of cash—universality, trust and anonymity—are not challenged by new payment instruments. For example, the contactless card typically targets low-value transactions, for which it offers a supposedly faster alternative than chip or magnetic-stripe cards. As a result, consumers and merchants offer contactless technology for low-value transactions, typically under $ 10 , and magnetic-stripe or EMV technology for higher value transactions. As the world of electronic payments largely competes with itself, cash will remain a viable low-tech alternative into the foreseeable future, filling the demand for universally accepted currency, regardless of location, access to networks or environmental crises. To what degree it will lose market share to
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alternative payments will be the topic of future editions of this book; however, we don’t believe there will be a mass exodus from physical currency anytime soon. CONSUMERS. Over the last five years, countries in emerging markets have experienced substantial growth in ATM installations due to rising consumer demand for cash and banking services. At the end of 2011, there were a total of 2.3 million ATM devices installed worldwide. This number is projected to exceed 3.1 million by 2015, which represents a 37-percent increase in four years, or nearly 10 percent per annum.18 A recent technological movement in the effort to reduce costs in the cash cycle is retail automation, including intelligent safes, recirculation devices, cash-recycling ATM s, self-service payment terminals and end-to-end closed-loop systems. Consumer-facing devices such as ATM s, cash-back checkout terminals and multifunction kiosks have introduced more cash-access points. The continual migration toward currency recirculation and processing further down the cash supply chain will further reduce the cost of providing cash at convenient retail locations. According to the Boston Consulting Group, the global volume of consumer retail transactions is expected to grow from 234 billion in 2010 to 569 billion in 2020. The majority of these new transactions will likely be captured by electronic-payment instruments, but cash will be used for some percentage of them, fueling the growth of circulated currency. The consumer’s seemingly bipolar demand for financial self-service technology along with cash is evolving the payments landscape in fascinating ways. CREATIVITY. While competition and innovation combine to drive the evolution of any market, we
contend that creativity as a market force is alive and well in the payments industry. For instance, the owners of vast ATM fleets around the world naturally want to see a return on their investment. How 100
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can they capitalize on the explosion of mobile in the payments space, yet retain their legacy cashdelivery systems? Spanish bank la Caixa is well-known for being among the first to commercially deploy contactless payments technology. The bank upgraded its ATM s to accept contactless cards and mobile phones. Consumers perceived the combination as a faster, more convenient and secure way to access cash. Similarly, South African bank FNB has introduced cash withdrawals using SMS PIN codes sent to their mobile phones. ATM hardware manufacturers and software vendors are keeping up with this trend, offering systems
It is often assumed that new technologies will further eat away at cash. But history has shown that it benefits from new technologies.
that drastically cut ATM transaction time. NCR , for example, developed software allowing users to initiate and authenticate an ATM transaction on a phone app—whether at work, on the train or while waiting in line at the ATM —and then scan a QR code on the terminal screen with their phones, triggering the machine to dispense the requested cash. Not only is the transaction shorter (often by two-thirds), but it’s also safer: The consumer’s data is not stored on the mobile device or within the 2 -D barcode, and his card and PIN are not at risk of being compromised by fraudsters.19
It is often assumed that new technologies will foster alternative payment instruments and cash substitution. However, history has shown that cash has largely benefitted from new technologies. Just as the ATM and the payment card have improved the availability of and access to cash, mobile will likely widen cash distribution, even as it threatens to replace it.
THE FINAL WORD ON CASHLESS We believe the sun will never set on cash, at least not until electronic payments are truly universal. As long as there are potential catastrophic risks to electronic networks, and as long as segments of the population prefer cash over electronic, currency will be in demand.
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The cashless society will exist in certain places, but never in total. Cash may recede, but it will never disappear. Wherever you land on the cashless debate, even a cursory analysis of trends will yield the fact that cash is here to stay and, by association, so are ATM s. That’s good news if you sell or service
“The world’s most successful mobile payment system, M-Pesa in Kenya, has failed to halt the growth of cash in circulation in that country. The number of M-Pesa customers increased from 6.18 million in 2009 to 14.91 in 2012, but currency in circulation in Kenya rose from 89.9 billion KShs (Kenyan shillings) in 2007 to 147.7 billion in 2011.”
these ubiquitous cash boxes, but it also should shape your strategy if you work in any other area of payments. Cash isn’t going anywhere. But payment innovation will continue. We don’t see mobile payments replacing cash to any significant extent. Replacement of card payments appears to be more likely, and cards will be converted to mobile more often than cash transactions will. For example, mobile wallets are consolidating cards, rather than replacing cash. Mobile will continue to enable cash usage in the underbanked world, too. Mobile phones support person-to-person, or P2P, money transfers, often resulting in a cash withdrawal. The transaction can be instantaneous, with no record of payment. This informal transaction isn’t taxed, and there is no need to access an account to use the funds received. Another reason for cash’s staying power is that there is currently no back-up system if electronic forms of payment are impossible due to lost phones, natural disasters, wars, loss of power or system security breaches. And what if a consumer simply prefers to use cash? If she doesn’t have a bank account and relies on envelope budgeting, there must be a mechanism to accept her currency into the financial ecosystem.
—Mike Lee, CEO, ATMIA
Many people will pay with different methods depending on location, amount, brand trust, perception of security, or discount. In the morning, I may use my Starbucks mobile payment app in order to track my points, then hand over my business credit card for a lunch meeting, head over to the gas station to fill up with my debit card, use PayPal on my phone that night for a household purchase, then plop down cash at my neighbor’s garage sale that weekend. At the core of this slice-of-life example is choice. I want to pay how I want to pay. I love the convenience 102
I CHAPTER 10 I Cashless Mythology: The Future of ATMs, Payments and Cash
and versatility of each type of payment tool, but I use each for different reasons. While new and existing payment mechanisms will continue to challenge cash, the core attributes of cash—trust, anonymity and universality—will remain unchallenged. Cash is the only 100 -percent trusted form of payment. It protects privacy in an age when everything we do is tracked, including phone calls, e-mails, texts, card purchases and mobile transactions.
Cash isn’t going anywhere. But payment innovation will continue.
To those prognosticators who see a dearth of dollars down the road, we say, “Don’t bet on it.” Cash will continue to meet the demands of a world in need of security, anonymity and control. Here’s to the cash box—ironically, the killer app of the new mobile, global economy.
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Notes
Chapter 1: The History of Cash 1. Mitchell A. Innes. “What is Money?” The Banking Law Journal, 30 (1913), 377-408. Accessed at: http:// www.ces.org.za/docs/what%20is%20money.htm. 2. “On the Origin of Species: Theories on where money comes from say something about where the dollar and euro will go.” The Economist, August 18, 2012. Accessed at: http://www.economist.com/ node/21560554. 3. Vanessa Wong. “Cigarettes: The Most Stable International Currency.” Businessweek, March 4, 2012. Accessed at: www.businessweek.com/articles/2012-03-04/cigarettes-the-most-stable-internationalcurrency. 4. Saint Augustine, Bishop of Hippo. The Confessions of St. Augustine. Translated and edited by Albert Cook Outler (Mineola, NY: Dover Publications, Inc., 2002), 224. 5. George Will. “Contributing Money to Campaigns Is No Vice.” Spartanburg Herald-Journal, July 29, 1999. Accessed at: http://news.google.com/newspapers?nid=1876&dat=19990729&id=_z0f AAAAIBAJ&s jid=0M8EAAAAIBAJ&pg=2548,89943134. 6. R. Buckminster Fuller. Critical Path. (New York: St. Martin’s Press, 1981), 73-75. 7. Glyn Davies. A History of Money: From Ancient Times to The Present Day. (Cardiff: University of Wales Press, 2002), 43.
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8. Barry Eichengreen. Golden Fetters: The Gold Standard and the Great Depression, 1919-1939. (New York: Oxford University Press, 1992), 3-4. 9. World Payments Report 2011. Capgemini, The Royal Bank of Scotland (RBS), Efma, 2011. Accessed at: http://gbm.rbs.com/docs/gbm/insight/gts/perspectives/ WPR_2011.pdf.
Chapter 2: The Colorful and Contested Story of Invention 1. David Van Biema, John Cloud, Richard Corliss, Lisa Takeuchi Cullen, Justin Fox, Barbara Kiviat, Amanda Ripley, Jeffrey D. Sachs, Bryan Walsh, “10 Ideas That Are Changing the World,” in Time 171 (2008). Accessed October 9, 2012. http://www.time.com/time/specials/2007/ article/0,28804,1720049_1720050_1721684,00.html. 2. “An automatic coin-counting and coin-wrapping machine,” in Bankers Magazine, 68 (New York: Bradford-Rhodes & Co., 1904), 660-664. Accessed July 3, 2012. http://ow.ly/bZpCU. 3. Alan Booth, “The Political Economy of Technical Change,” The Management of Technical Change: Automation in the UK and USA Since 1950 (New York: Palgrave Macmillan; 2007), 1-23. 4. An apparent typographical error seems to have perpetrated the idea that Simjian had a 1939 patent, but there is no record of any patent having been filed under Simjian’s name before 1959 relating to a system that in one way or the other conveys the idea of cash dispensing or self-service technology in financial services. 5. Linda A. Fenner, “A status report on cash dispensing machines and automated tellers,” in The Magazine of Bank Administration, November 1971, 112. 6. British banks conceded and ended Saturday services at retail branches in 1969. 7. Bernard Bátiz-Lazo, “Shepherd-Barron, John Adrian (1925-2010),” in Oxford Dictionary of National Biography (Oxford: Oxford University Press; forthcoming).
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8. Bernardo Bátiz-Lazo, Tobias Karlsson, Björn Thodenius, “Building Bankomat: The Development of Online, Real-time Systems in British and Swedish Savings Banks, c.1965-1985,” MRPA Paper No. 27084, 2010. 9. A.R. Holmes, Edward Green, Midland: 150 Years of Banking Business (London: Batsford Ltd; 1986), 232-41. 10. G.B. Patent 1329964 was filed on September 9, 1969, along with U.S. Patent 3697729 and F.R. Patent 2061005. 11. André Michaud, Contribution à l’ histoire de la Société TRANSAC—1970-1982, 7e Colloque sur l’Histoire de l’Informatique et des Télécommunications, Jacques André y Pierre Mounier-Kuhn, Rennes-Cesson (France), INRIA/Université de Rennes: 24-37, 2004. 12. Anthony Miller, “Who invented the ATM? Part 1,” www.atminventor.com. Accessed June 8, 2012. http:// www.atminventor.com. 13. Interview with Don Wetzel, Co-Patentee of the Automatic Teller Machine, conducted by D.K. Alison, Curator of the National Museum of American History. September 21, 1995. Accessed June 8, 2012. http:// americanhistory.si.edu/collections/comphist/wetzel.htm. 14. Miller, “Who invented the ATM? Part 1.” 15. Cornelius Robat, “ATM: Automatic Teller Machine.” It is worth noting here that Shepherd-Barron’s inspirational account of a eureka moment is not supported by the historical record. See Bátiz-Lazo, ‘Shepherd-Barron, John Adrian(1925–2010)’.
Chapter 3: ATMs Infiltrate the World 1. Fenner, “A status report.” 2. Personal communication of Gary Akey with Tom Harper on May 5, 2012. Along these lines, Casey Turcott noted that “in 1978 TRW purchased the rights to manufacture and sell the 6000 and 8000 series of ATMs from Mosler out of Cincinnati and moved the manufacturing to Orlando, Florida. I was
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the plant controller and cost accountant and was with TRW, TRW/Fujitsu, Fujitsu Systems of America and Fujitsu ICL through 1995 as their ATMs transitioned to ATMs manufactured in Japan with final configuration in California to ATMs assembled in California.” (Contribution of Casey Turcott to “Discussion: Looking for stories from the early days” (LinkedIn Group: ATM Industry Association). http://www.linkedin.com/groupItem?view=&gid=89626&type=member&item=105031328&trk=gro up_search_item_list-0-b-cmr&goback=%2Egna_89626 (August 17, 2012). 3. Fenner, “A status report.” 4. Fenner, “A status report.” 5. Bernardo Bátiz-Lazo, “Emergence and Evolution of Proprietary ATM Networks in the UK,” Business History, 51 (2009): 1-27. 6. Bátiz-Lazo et al., “Building Bankomat.” 7. Fenner, “A status report.” 8. According to several Russian sources, the first ATM in the then USSR was a French-made Bankomat deployed in 1989 by the state bank Sberbank (or Savings Bank) of the USSR. This was part of a pilot project to issue Visa credit cards. The bank purchased four ATMs from the French company Electronic Serge Dassault. All four were installed in Moscow: two were installed in the headquarters of Sberbank, and two in the Sberbank branch on Olympiiskii prospect (Olympics Avenue). The cards for using these ATMs were issued to the top managers of the bank and to a few employees of the branch. The pilot project did not go any further, and no more ATMs were installed. The next mention of the ATM dates to 1992 and suggests that the first “commercial” ATMs were installed in Moscow by a (private/non-state) bank called SBS-Agro, which bought the ATMs from IBM (apparently produced by Diebold and sold under the brand name InterBold). 9. Personal communication (email) with Bernardo Bátiz-Lazo (July 23, 2012). 10. Unless otherwise stated, the reminder of this paragraph borrows freely from Bátiz-Lazo et al., “Building Bankomat.”
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11. “Pin Patent Gets Owner $15,” ATMmarketplace.com, (April 25, 2012). Accessed July 20, 2012. http:// www.atmmarketplace.com/article/193558/PIN-patent-gets-owner-15. 12. “Winner – Favourite British Visionary Innovator 2012,” Intellectual Property Office. Accessed July 20, 2012. http://www.ipo.gov.uk/wipd-2012/wipd-2012-innovators.htm. 13. Unless otherwise stated, the reminder of this paragraph borrows freely from Bátiz-Lazo and Reid, “Evidence from the Patent Record.” 14. Bernardo Bátiz-Lazo and Robert J.K. Reid, “Evidence from the Patent Record on the Development of Cash Dispensing Technology,” IEEE History of Telecommunications Conference, 2008; Bernardo BátizLazo and Robert J.K. Reid. “The Development of Cash-Dispensing Technology in the UK,” Annals of the History of Computing IEEE 33 (2011): 32-45 15. Personal communication from Katia Gobbato with Tom Harper, “CIBC’s achievements with over 40 years of ATM deployment” (May 29, 2012). 17. Personal communication (email) of Lars Arfvidson with Bernardo Bátiz-Lazo (June 14, 2012).Bátiz-Lazo, “Emergence and Evolution” and IBM Archives. Accessed August 15, 2012. http://www-03.ibm.com/ibm/ history/history/decade_1970.html. 18. “IBM 3624,” Wikipedia. Accessed August 15,2012.http://en.wikipedia.org/wiki/IBM_3624. 19. Robat, “ATM: Automatic Teller Machine.” Accessed August 15, 2012. http://www.thocp.net/hardware/ atm.htm. 20. Accessed July 14, 2012. http://www.plippard.com/page/A-Coders-Chronology.aspx. 21. Personal communication (email) of Philip Lippard with Bernardo Bátiz-Lazo (August 11, 2012). 22. http://www.plippard.com/page/A-Coders-Chronology.aspx (July 14, 2012) 23. This paragraph borrows from “IBM 3624,” Accessed August 15, 2012. http://en.wikipedia.org/wiki/ IBM_3624.
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24. Unless otherwise stated, the reminder of this section borrows freely from Bátiz-Lazo, “Emergence and Evolution.” 25. Personal interview with Bernardo Bátiz-Lazo (June 18, 2008). 26. Contribution from Roger Jensen to “Discussion: Looking for stories from the early days” (LinkedIn Group: ATM Industry Association) http://www.linkedin.com/groupItem?view=&gid=89626&type=mem ber&item=105031328&trk=group_search_item_list-0-b-cmr&goback=%2Egna_89626 (August 17, 2012). 27. In 1975, Burroughs launched a competitor to the NCR 770, the TC750, with a price tag ranging from $10,500 to $12,000 (equivalent leases valued at $303 to $344 per month, per device). Advertised as “an intelligent, programmable terminal,” it sought to reduce maintenance costs by being fully compatible with its predecessor (TC700) as well as other electronic funds transfer (EFT) terminals (such as the popular TC500). This offered financial intermediaries a hardware upgrade without modification to the host’s computer programs while also enabling the same engineer to service a range of machines during a single call. Other features included updating passbooks (while aiming at mutual financial institutions) and saving in communication costs by using the same line as other terminals. 28. Personal interview with Bernardo Bátiz-Lazo (June 18, 2008). 29. Dayton continued designing models for some time, such as the NCR 1773 Secure Lobby ATM, which probably was the first ATM with a built-in safe. Contribution from Roger Jensen to “Discussion: Looking for stories from the early days” (LinkedIn Group: ATM Industry Association) http://www.linkedin.com/ groupItem?view=&gid=89626&type=member&item=105031328&trk=group_search_item_list-0-bcmr&goback=%2Egna_89626 (August 17, 2012). 30. Contribution from Roger Jensen to “Discussion: Looking for stories from the early days” (LinkedIn Group: ATM Industry Association) http://www.linkedin.com/groupItem?view=&gid=89626&type=mem ber&item=105031328&trk=group_search_item_list-0-b-cmr&goback=%2Egna_89626 (August 17, 2012). 31. Text from http://www.diebold.com/150/featurestories_1970.htm
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Chapter 4: Money for the Masses: The Rise of the Low-End ATM 1. “Triton Finds its Oldest Operating ATM,” ATMmarketplace.com, (2004). Accessed from: http://www. atmmarketplace.com/article_print/134175/Triton-finds-its-oldest-operating-ATM. 2. “The Stand Alone Walk Up ATM, And The Brief History Of Surcharges,” ATMInventor.com, (2011). Accessed from: http://www.atminventor.com/atm-history.html. 3. “Electronic Payments and ATMs: Changing Technology and Cost Efficiency in Banking,” in Balling, M., F. Lierman, and A. Mullineaux (eds.), Competition and Profitability in European Financial Services. Strategic, Systemic and Policy Issues, Routledge, Abingdon (UK), 2006: 96-113 (S. Carbo and R. Lopez, joint authors), 2. Accessed from: http://www.ugr.es/~scarbo/Electronic%20Payment%20and%20ATMs.PDF 4. Stan Sienkiewicz, “The Evolution of EFT Networks from ATMs to New On-Line Debit Payment Products,” Federal Reserve Bank of Philadelphia, (2002), 4. Accessed from: http://www.philadelphiafed. org/consumer-credit-and-payments/payment-cards-center/publications/discussion-papers/2002/ EFTNetworks_042002.pdf. 5. Ellen Florian, “The Money Machines: The Humble ATM Revolutionized the Way We Deal with Money and Turned Global Commerce into a 24/7 Affair,” CNNMoney.com, (July 26, 2004). Accessed from: http://money.cnn.com/magazines/fortune/fortune_archive/2004/07/26/377172/index.htm. 6. Bátiz-Lazo, B. and Reese, C. “Is the Future of the ATM Past?’ in Alexandros-Andreas Kyrtsis (ed) Financial Markets and Organizational Technologies: System Architectures, Practices and Risks in the Era of Deregulation, Basingstoke: Palgrave-Macmillan. 7. Terry Turner of Hanco, unpublished interview by Bernardo Batiz-Lazo (December 4, 2007). 8. Fumiko Hayashi, Richard Sullivan, and Stuart E. Weiner, “A Guide to the ATM and Debit Card Industry,” Federal Reserve Bank of Kansas City (2003), 26. Accessed from: http://www.kansascityfed. org/publicat/psr/BksJournArticles/ATMpaper.pdf. 9. Ibid. p. 2 10. Ibid. p. 13
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11. NCR Works With Cardtronics to Bring Bank-Grade ATM Performance to Off Premise Locations,” NCR Inc., (February 23, 2011). Accessed from: http://www.ncr.com/newsroom/resources/ncr-works-withcardtronics-to-bring-bank-grade-atm-performance-to-off-premise-locations 12. Royal Banking Research, Global ATM Market and Forecasts (2007). 13. “The Stand Alone Walk Up ATM, And The Brief History Of Surcharges.” 14. “A Guide to the ATM and Debit Card Industry,” p. 11. 15. Turner interview. 16. “Tranax Changes Name to Hantle USA,” ATMmarketplace.com, (February 4, 2010). Accessed from: http://www.atmmarketplace.com/article/127872/Tranax-changes-name-to-Hantle-USA. 17. “Tidel Company History,” Tidel.com, (2012). Accessed from: http://tidel.com/company_info_history.asp 18. Tracy Kitten, “With Tidel in its Quiver Will NCR Have a New Shot at Retail?,” ATMmarketplace.com (March 31,2005). Accessed from: http://www.atmmarketplace.com/article/133883/With-Tidel-in-itsquiver-will-NCR-have-a-new-shot-at-retail. 19. “Taking on the Ts,” ATMmarketplace.com, (November 25, 2002). Accessed from: http://www. atmmarketplace.com/article/136313/Taking-on-the-Ts. 20. Ibid. 21. Ibid. 22. “Solar-powered ATMs Benefit Rural India,” ATMmarketplace.com, (April 23,2012). Accessed from: http://www.atmmarketplace.com/article/193420/Solar-powered-ATMs-benefit-rural-india. 23. Frederick Lowe, “Installed ATM-base is expected to reach 3.1 million units by 2015,” ATMmarketplace. com, (February 16, 2011). Accessed from: http://www.atmmarketplace.com/article/179446/InstalledATM-base-is-expected-to-reach-3-1-million-units-by-2015?rc_id=313.
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24. “Getting the (Price) Point,” ATMmarketplace.com, (March 11, 2011). Accessed from: http://www. atmmarketplace.com/article/137044/Getting-the-price-point. 25. “Installed ATM-base is expected to reach 3.1 million units by 2015.” 26. Ibid.
Chapter 6: Regulators Can’t Tame the Raging Machine 1. Fumiko Hayashi, Richard Sullivan, and Stuart E. Weiner, “A Guide to the ATM and Debit Card Industry,” Federal Reserve Bank of Kansas City, (2003), 14. Accessed from: http://www.kansascityfed. org/publicat/psr/BksJournArticles/ATMpaper.pdf. 2. Anne C. Pidgeon, “Show Me The Money—But Don’t Make Me Pay For It: An Analysis Of Why Legislation Banning ATM Surcharges Is Inappropriate And Unwarranted.” Legislation and Public Policy Vol. 3:393, (2000), 393-427. Accessed from: http://www.law.nyu.edu/ecm_dlv4/groups/public/@ nyu_law_website_journals_journal_of_legislation_and_public_policy/documents/documents/ecm_ pro_060627.pdf. 3. Pidgeon, p. 402. 4. “D’Amato’s Anti-surcharge Crusade Continues,” ATMmarketplace.com, (1997). Accessed from: http:// www.atmmarketplace.com/article_print/138997/D-Amato-s-Anti-surcharge-Crusade-Continues. 5. Pidgeon, p. 400. 6. Pidgeon, pp. 400-401. 7. “D’Amato’s Anti-surcharge Crusade Continues.” 8. “Automated Teller Machines: Banks Reported That Use of Surcharge Fees Has Increased, Report to the Chairman, Committee on Banking, Housing and Urban Affairs,” General Accounting Office,
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(May 1997), 8. Accessed from: http://www.gpo.gov/fdsys/pkg/GAOREPORTS-GGD-97-90/pdf/ GAOREPORTS-GGD-97-90.pdf. 9. Marcy Gordon, “Panel Blocks ATM Surcharge Ban,” Associated Press, (July 21, 1998). Accessed from: http:// www.apnewsarchive.com/1998/Panel-Blocks-ATM-Surcharge-Ban/id-d51f7479a8583db230c5452716fa7915. 10. Pidgeon, p. 427. 11. Pidgeon, p. 409. 12. Pidgeon, p. 410. 13. Pidgeon, p. 412. 14. Pidgeon, p. 413. 15. Pidgeon, p. 414. 16. “Fat Lady Isn’t Singing But Is She Clearing Her Throat?,” ATMmarketplace.com, (March 11, 2012). Accessed October 16, 2012. http://www.atmmarketplace.com/article/137042/Fat-lady-isn-t-singing-but-isshe-clearing-her-throat. 17. Dodd-Frank Wall Street Reform and Consumer Protection Act, Bill Summary & Status 111th Congress (2009–2010) H.R. 4173. 18. Claes Bell, “Checking fees rise to record highs in 2012,” Bankrate.com, (September 24, 2012). Accessed October 16, 2012. http://www.bankrate.com/finance/checking/checking-fees-record-highs-in-2012.aspx.
Chapter 9: More than Money: ATM Advertising and Other Non-cash Functionality 1. Dean Budnick, “Concert Tickets Too Expensive? Blame Box Office History,” Bloomberg, (August 24, 2012). Accessed August 25, 2012. http://www.bloomberg.com/news/2012-08-24/concert-tickets-tooexpensive-blame-box-office-history.html.
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2. Edwards, “Video-equipped ATMs.” 3. The actual numbers were 80,128 in 1990 and 401,500 in 2009, (“ATM Fact Sheet,” American Bankers Association [2011]). Accessed August 23, 2012. http://www.texasbankers.com/pdfs/2 ATM_Facts.pdf. Bátiz-Lazo, “Emergence and Evolution.” 4. Sienkiewicz, “The Evolution of EFT Networks.” 5. Bátiz-Lazo and Reese, “Is the Future of the ATM Past?” 6. See further Maixé-Altés, Innovación y compromiso social; Sudrià and Nadal, “La Caixa de Pensions.” 7. “Multas y tributos se podrán pagar en cajeros de ‘la Caixa,’” La Vanguardia, (September 16, 1991), 59. 8. Author from “la Caixa” annual reports (1994 and 1995), La Vanguardia (several issues, 1992-1995), personal communication (email) between Josep Martin Salat and Bernardo Bátiz-Lazo (August 22, 2012) and Maixé-Altés, Innovación y compromiso social, 295. 9. “La Caixa contract to Fujitsu to supply 500 ATMs,” Business Spain (May 1995). 10. “La Caixa contract to Fujitsu to supply 500 ATMs,” Business Spain (May 1995). 11. Bátiz-Lazo and Maixé-Altes, “ATMs en España y Reino Unido;” Bátiz-Lazo and Maixé-Altes, “Sistemas de Pagos en España y el Reino Unido.” 12. “La Caixa Vende Servicaixa al Mayor Promotor de Conciertos del Mundo,” Expansion.com (February 4, 2011). 13. Personal communication (email) from Katia Gobbato (eChannel Startegy, CIBC) with Tom Harper and Bernardo Bátiz-Lazo (July 14, 2012). 14. Suzanne Cluckey, “Has the Check-cashing ATM Finally Arrived?,” ATMmarketplace.com, (March 27, 2012). Accessed September 5, 2012. http://www.atmmarketplace.com/article/192259/Has-the-checkcashing-ATM-finally-arrived. 15. Hagley Museum and Archives, accession 2062, Box 13, RG I/2.
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16. Bátiz-Lazo, “Emergence and Evolution,” 17. 17. Bátiz-Lazo and Reese, “Is the Future of the ATM Past?,” 9. 18. Bátiz-Lazo and Reese, “Is the Future of the ATM Past?,” 9. 19. “ATM Receipt Rolls Can Carry Advertising,” ABA Banking Journal (May 1981), 230. 20. With the added benefit of disbanding the use of fixed, dedicated telephone lines. 21. Personal communication from Katia Gobbato (eChannel Startegy, CIBC) (email) with Tom Harper and Bernardo Bátiz-Lazo (July 14, 2012). 22. A similar development took place in the United States until 1999, when Diebold and Memphis, Tenn.based Union Planters Bank marked the first “live” ATM doing transactions via the Internet. 23. Valerie Killifer, “ATM Advertising Rides Big Wave in England, Ripple in U.S.,” ATMmarketplace.com, (October 29, 2006). Accessed August 29, 2012. http://www.atmmarketplace.com/article/131510/ATMadvertising-rides-big-wave-in-England-ripple-in-U-S. 24. “New Group Promotes ATM Advertising,” ATMmarketplace.com, (January 23, 2002). Accessed September 12, 2012. http://www.atmmarketplace.com/article/137938/New-group-promotes-ATM-advertising. 25. Killifer, “ATM Advertising Rides Big Wave in England, Ripple in U.S.”
Chapter 10: Cashless Mythology: The Future of ATM s, Payments and Cash 1. Shadow Economies All over the World: New Estimates for 162 Countries from 1999 to 2007, published by the World Bank in 2010. 2. Bernardo Bátiz-Lazo, Thomas Haigh and David Stearns, “Visions of a Cashless Society: Echoes,” Bloomberg, (March 29, 2012). Accessed October 16, 2012. http://www.bloomberg.com/news/2012-03-29/ visions-of-a-cashless-society-echoes.html.
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3. Richard Mills, “Financial Ignorance Is A Temporary Condition,” The Market Oracle, (June 8, 2012). Accessed October 16, 2012. http://www.marketoracle.co.uk/Article35059.html. 4. Ted Carr, “Moving Closer to a Cashless Society,” Visa, (March 27, 2012). Accessed October 16, 2012. http://blog.visa.com/2012/03/27/moving-closer-to-a-cashless-society. 5. “Sweden shows a nation going cashless,” MobilePaymentsToday.com, (March 19, 2012). Accessed October 16, 2012. http://www.mobilepaymentstoday.com/article/191909/Sweden-shows-a-nation-going-cashless. 6. 2007 production data from the U.S. Mint (coins) and Bureau of Engraving & Printing. 7. “The state of U.S. coins and currency” FRB testimony before the Subcommittee on Domestic Monetary Policy and Technology, Committee on Financial Services, U.S. House of Representatives, Washington, D.C. Accessed July 20, 2010. http://www.federalreserve.gov/newsevents/testimony/roseman20100720a.htm. 8. Euromonitor International, May 2011. 9. Grant Robertson, “Bank of Canada puts plastic $100 bill into circulation” The Globe and Mail, (November 15, 2011). 10. Cost of Payment Collection Survey 2010, BRC. 11. Payment behaviour in Germany–Summary–Deutsche Bundesbank 2009. 12. Payment behaviour in Germany–Summary–Deutsche Bundesbank 2009. 13. Sberbank, Russia, March 2011. 14. Dr. Huang Ping, Deputy Director, Payments Department, People’s Bank of China at “China ATMs 2011,” Beijing, China, March 14, 2011. 15. “Cash remains the predominant payment method in Europe,” Banking Automation Bulletin, May 2009, Issue 264. 16. AGIS “Future of Cash 2012” report.
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17. AGIS Consulting. 18. AGIS report. 19. Suzanne Cluckey, “NCR makes the case for ‘just phoning it in,’” ATMmarketplace.com, (June 11, 2012). Accessed October 16, 2012. http://www.atmmarketplace.com/article/195737/NCR-makes-the-case-forjust-phoning-it-in.
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Photo Credits
13 Jack Donald
15 Patent 3,761,682
17
18 top: Barclays Group Archives bottom left: Lars Arfvidson bottom right: Lars Arfvidson right: Barclays Group Archives
CHAPTER 1
left: Barclays Group Archives middle top: Barclays Group Archives middle bottom: Jack Donald right: Lars Arfvidson
The History of Cash
1
band: Ayla87 via stock.xchang margin: Public domain
6 top: Public domain bottom: homestudio via Masterfile
The ATM ’s Colorful, Contested Story of Invention
I PHOTO CREDITS
How the ATM Took Over the World
19 banner: Lars Arfvidson margin: CIBC
20 Lloyds Banking Group Archives
21 Google N-grams
24 Lars Arfvidson
25 Lars Arfvidson
26 Ian Ormerod (NCR Fellowship)
27 top: Philip Lippard bottom: Philip Lippard
28 Bank of Cyprus
29 Ian Ormerod (NCR Fellowship)
31 Ian Ormerod (NCR Fellowship)
7 SSPL/Getty Images
CHAPTER 2
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CHAPTER 3
9 band: stock.xchang margin: Patent 1,094,073
10 Patent 3,056,132
12 top left: Barclays Group Archives top right: xxx bottom: Barclays Group Archives
32 all: Jim Beirich
CHAPTER 6
33 all: Jim Beirich
Regulators Can't Tame the Raging Machine
34 Archivio Storico Olivetti
52 banner: Lars Arfvidson
57 GetBranded.com
58 top: U.S. Congress bottom: U.S. Congress
CHAPTER 4
Money for the Masses: The Rise of the Low-end ATM
39 Barclays Group Archives
CHAPTER 7
39 Triton
Busting Crime and Fighting Fraudsters
40 top: Triton bottom: Tom Harper
62 Dennis Wong via Flickr
62 Flickr via akpoff
43 Tom Harper
64 iStock via whitemay
69 iStock via malexeum
70 iStock via nobeastsofierce
CHAPTER 5
The Birth of the Super-niche ATM Industry Association
CHAPTER 8
45 bshafer via stock.xchang
48 ATMIA
Cold Hard Cash: ATM s in the Arctic (and Other Unlikely Locations)
49 ATMIA
72 Brandi Kusen
50 ATMIA
73 top: U.S. Antarctic Scientific Research Program middle: Punjab National Bank bottom: Stephen McKay
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74 top: simon8899 bottom: Brandi Kusen
75 U.S. Navy
76 top: Random Tony via Flickr bottom: Phileep via Panoramio
FRONT COVER & END SHEETS
BACK COVER
CHAPTER 9
More than Money: ATM Advertising and Other Non-cash Functionality
77 Dennis Wong via Flickr
78 Dennis Wong via Flickr
80 top: la Caixa Bank bottom: la Caixa Bank
83 Shenzhen Sailing Paper Co.
84 Payment Alliance International
CHAPTER 10
Cashless Mythology: The Future of ATM s, Payments and Cash
86 istockphoto.com
87 Andre Epstein
89 Andre Epstein
97 left: stockcam via istockphoto
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right: cogal via istockphoto
majeye via stock.xchng
left to right, top to bottom:
Bank of Cyprus xxx CIBC Barclays Group Archives Andre Epstein Random Tony via Flickr ATMIA Flickr via akpoff Triton Phileep via Panoramio
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About the Authors
Tom Harper is president of Networld Media Group, publisher of ATMmarketplace.com, MobilePaymentsToday.com and eight other industry information portals. He is the cofounder of the ATM Industry Association (ATMIA) and currently serves as its president. His related works include three editions of the ATM Future Trends Report, an international research project encompassing every sector of the industry.
Bernardo Bรกtiz-Lazo, Professor of Business History and Bank Management at Bangor University in Wales, has written on ATMs for international journals and magazines since 2000. He has been featured on BBC radio, participated in the Payment Systems Group at University of Cambridge, and has spoken at the Federal Reserve Bank of Kansas City.
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