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7: ATM and Self-Service Banking--Convergence and Control

The author mentions the "mechanical cash dispenser" that City Bank of New York attempted in 1939 and a 1967 attempt at a similar device in by Barclays Bank as precedents to the ATM. These innovations were driven by the desire to save cost, but the notion of the ATM did not catch on until it was accepted by consumers - at which point, it became the leading channel fro routine transactions, and a source of considerable cost-savings for banks.

The lesson is simple: no matter how good an idea, it will not achieve success unless it is valued by the customer.

Self-Service: The Promise and the Reality

Regulation has a significant effect on the banking industry: because the prices and quotas are effectively locked by regulatory organization, bank products are commoditized. As such , the primary means of competition for banks was geography: banks sought to effect growth by building branches, or acquiring them by acquisition and merger. The deregulation of the financial industry in the 1970's and 1980's opened up financial services, but only in terms of the nature of services that a financial institution could offer

Banks sought to become more profitable by operational efficiency, and in banking specifically, 70% of the cost of a branch bank operation is salaries of employees who do repetitive tasks (tellers and clerks).

It's also mentioned, as an aside, that the reason human employees were valued by customers is the level of trust people placed in other people, rather than machines. It was important to customers to deal with a person, and get a face-to-face confirmation that their deposit had been received by the bank. (EN: so clearly, the adoption of the ATM by consumers was largely slowed by factors the bank cannot control - the willingness to trust a machine with your money).

Back to ATMs, it is expected that the early adopters saw the machine as a convenience to standing in line. Especially since the machines were originally inside the bank, there was no other incentive to use them except as a means of avoiding the wait. Later, when the ATM was moved outdoors, accessible 24/7, there was time convenience. And even later, when ATMs were located in shopping malls and other high-traffic areas, there was location convenience.

Presently, ATMs are fully accepted by consumers, and the majority of customers use them instead of a teller. (EN: The author cites a figure of 63% in Australia and 69% in Europe - but frankly, I think the number is much higher in the USA. It's very rare for anyone to go into a bank, or even use a drive-through teller.)

It's noted that transaction fees have had some influence. While there is no statistical evidence, it seems reasonable to consider that charging a fee to use an ATM instead of a teller, or vice versa, encourages customers in ne direction or the other - and in the US, legislators have become involved in restricting fees for routine services.

A few random facts:

What about the Revenue?

Aside of operational savings, there are some potential for the ATM to generate revenue for the bank, though this is largely been overlooked. (EN: I think that may be dismissive. My sense is that there are more practical concerns than merely failure to consider it. For example, would a customer be willing to stand at an ATM in a shopping mall for the time it takes to fill out a loan application, and would other people be happy to wait?)

The primary revenue potential for ATMs was the transaction fees charged, both to bank customers as well as to other banks (for allowing their customers to use another bank's ATM). However, both have largely gone away. Customers objected (and eventually got legislators involved) in being charged a convenience fee, which banks could not defend because of the cost-savings of an ATM versus a teller. Banks also began absorbing or rebating the transaction fees charged by other banks, rather than making the customer pay them - both in order to save the cost of building their own ATMs as well as in defense of competitive pressure against banks that rebated fees.

An aside: the cost of a transaction was $0.50 at a third-party ATM, though banks would charge an average of $2 for the service, on top of the $2 fee transaction fee for the bank itself, which only serve to fuel customer outrage and undermine the ability to defend these charges against regulators.

It's also noted that third-party ATM networks have become a significant business: there are entirely independent ATM locations where the sole revenue is transaction fees - charged to the customer, but rebated to the customer by the customer's bank.

Finally, there hasn't been much innovation in the use of ATMs to generate revenue - it's just for dispensing cash. Other transactions (check balance, transfer funds) are complementary, it's still not possible to make a deposit to a foreign ATM, and the notion of using the ATM for services such as loan applications and electronic payments are unexploited.

(EN: To echo the earlier point, this may not be for lack of consideration, but because the ATM is not accepted by customers for other purposes. Customers are using kiosks for some of these transactions, such as loan applications, and the

The "Other" Self-Service Devices

The author mentions the Internet channel, citing personal experience with a company in Hong Kong that established a "highly successful" Web site that sold commodity insurance products. Specifically, the product chosen for this effort was travel insurance - which was an easy sell online because it fit the following criteria:

This went well, until a competitor one-upped them by offering the same product via self-service kiosks in transportation terminals, near ticket booths, and making the product available on mobile devices. They also specialized their product (travel insurance specifically for entering mainland China, sold at train stations), made the application even easier (just enter the number of days of travel and swipe a smart card, which 98% of residents carried), and the receipt/certificate would print out in seconds.

When their bank tried to compete, it failed for a number of reasons. The information systems and business processes within the bank made it impossible to simplify their application or even accept the smart card payment. Also, since they were now fighting an established competitor, they could not get prime locations for their kiosks, and customers were already familiar with the competing brand. As such, their attempt to fight kiosks with kiosks failed. The author also notes, in more sparse detail, that they also lost out on both kiosk and internet because of increased competition in mobile computing - eliminating the need to stop by a kiosk at all.

There are four key lessons from this anecdote:

  1. What works in one channel may not work in others
  2. A smaller, more nimble organization can easily outmaneuver a large one
  3. All other things being equal, customers will flock to the provider and channel of greatest convenience
  4. First-mover advantage remains a significant factor, but is not ironclad

What the Customer Really Wants Out of the ATM

While the ATM has been greatly successful, it has largely been embraced for reasons that serve the interests of the bank, without much regard for the needs of the customer. Also, there is the notion that the ATM is a standardized product - all machines are essentially the same - which may not be a sage approach: the usage of ATMs suggests that they should be more differentiated: the type of machine and features/functions should vary according to their location.

The author mentions a research project undertaken over a four-year period in Singapore, Hong Kong, and the UK that analyzed customer preferences regarding ATM usage.

For any non-cash transactions (actions other that withdrawal, check balance, transfer funds, and deposit), customers favored the notion of a separate machine. Most customers liked the idea of a cash-only machine, but were also keen on having a separate machine nearby for other transactions.

One customer's remark is telling: "I avoid paying bills using the ATM because it takes too long and other people waiting in line lose patience." (EN: This is a very Asian/British cultural reaction - concern for inconveniencing others - in the USA, I expect the same would hold true, but the perspective would be more along the lines of "because other people are taking too long and inconveniencing me.")

To a lesser extent, reasons people avoid ATMs for other transactions include security concerns, physical discomfort (standing at a terminal), location is too noisy to concentrate, and desire for more guidance from a bank employee.

Insights from User Research

The author provides a mishmash of various notes.

Regarding cash withdrawals: it is the most frequent transaction users conduct "in real life." Customers feel entirely comfortable and confident in doing so, and zip through without reading instructions and messages. The greatest usability issue is with users who have multiple accounts - either fumbling the account number when it had to be entered (which they hate) or not getting enough information on "buttons" to accurately choose which account. There was some frustration at machines that would spit out the card without asking the user if they wanted another transaction, but most accepted this, supposing it to be for security reasons (which is true - prior to this, many people who would take the money and forget to retrieve their card).

Regarding balance inquiries: it is the second most common transaction. (EN: the author provides no further information on this. Apparently, it's not been considered worthwhile to research.)

Regarding transferring funds: It is the third most common transaction. As with withdrawals, the largest problem is being able to select an account . Users also wanted to validate the transaction before committing to it, rather than having it take place immediately, as this si done for other transactions - but the author mentions that displaying account information on-screen to verify is a security concern (shoulder surfing).

Regarding paying bills: users found this fairly straightforward. Accoutn selection for users with multiple accounts remained a problem. Also, navigating a hierarchy of categories to find a specific vendor and choosing a specific vendor among similar options (more than one water company) were problematic.

Regarding deposits: customers often expressed that they were difficult to conduct, largely due to unfamiliarity with the process and the additional manual tasks (get an envelope, fill out a deposit slip, seal it, insert it a specific way) and made basic mistakes throughout the process - which caused uncertainty and frustration. There are also design problems with the machine, making the deposit slot easy to find and differentiate from the cash dispenser

The insights in this section pertain largely to usability matters: ensuring customers can perform the basic tasks to complete a transaction, but research has uncovered areas for improvement in addition to solving basic usability problems.

The Future of Self-Service

The author identifies a few "potential possibilities" for the near future.

One possibility is extending the capabilities of the ATM, adding a larger display and keyboard, to enable it to perform a wider variety of functions taht are similar to those offered by a bank's internet presence (in effect, creating a kiosk-like terminal for conducting bank business other than deposits and withdrawals). While this may at first seem redundant, the primary advantage is location (the customer need not "go home" to use the internet) and improved usability over the mobile platform (due to device capabilities).

The author also mentions using the ATM as a method for dispensing and refilling "smart cards" such as Visa prepaid, or adding funds to an account that enables users to pay using a device ("swipe your phone") in locations proximate to shopping, thereby enabling the user to "load" their card or device just before walking into a store.

There are also a few operations overseas (Philippines and Kenya) in which the ATM becomes a cash dispenser for non-customers who have received payments from account holders - the ability to scan a physical artifact (a bar code) or enter authentication information to dispense cash, much in the way a non-customer can cash a check at a branch office without having an account. These services are popular with migrant workers who wish to send cash to families in their home countries.

Biometrics have long been considered a substitute for a physical card: the use of a fingerprint or facial recognition would provide greater convenience to customers (no need to carry a card or remember a PIN) and enhanced security by making it more difficult to commit fraud. It's noted only two countries have implemented biometrics - Columbia (because of high incidence of fraud) and Japan (cultural bias against touching things that have been handled by other people).

There is the notion of tailoring the ATM experience to the customer - such that, based on the products they hold and their own previous behavior, the options and information presented is specific to what the individual customer is expected to want or need.

Advertising and Alternative Use

While it's been noted that customers do not notice advertising on ATMs and are generally annoyed by it, interest in using the ATM for selling is growing in the industry, and there is a potential for revenue by selling advertising to third-party advertisers. It is not uncommon for an ATM kiosk to contain display advertising (posters) for nearby merchants, and options for displaying advertising on screen are being explored.

While advertising during the transaction process is ineffective, there are other instances where the ATM can be more successful in getting attention: display advertisement on the "booth", video advertisements that play when the terminal is not in use, printed advertisements on receipts, ads on the final screen after a transaction is completed.

A few examples and concepts are explored:

Conclusion

The author suggests that the era of the ATM is not over, but that the "automated teller" is going to need to adapt in order to survive.

(EN: I'm not sure I entirely agree. The evidence in this chapter supports the notion that the ATM is good as a cash dispenser, but not very useful for other things - and I'm not convinced that improving ease of use will make customers adopt it. More likely, customers will switch to the mobile platform for simple transactions that don't involve physical artifacts, or go home to use the Internet for more complex tasks that require privacy and concentration. With mobile check deposits, and better relationships with merchants to enable cash to be handled at the register, the ATM seems likely to follow the path of the pay telephone.)

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