In the face of growing use of cards at point of sale and industry hype around mobile payments, the ATM is often overlooked as a key channel. Ellie Chambers reports on the findings of the 2014 ATM Benchmarking Study, published jointly by Value Partners and the ATM Industry Association (ATMIA)
This year’s study is only the second one of its kind, following the 2012 ATM Benchmarking Study. The study surveys 42 ATM providers, including some of the world’s biggest. Two thirds of the participants in the 2012 study agreed to take part again.
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Of the survey respondents, around 65% are based in mature economies and 35% in emerging or transitioning economies.
The changing role of ATMs
According to the report, ATMs have changed their historical role of a mere cash dispenser and are expanding their potential to offer a wider range of services to banked, underbanked and unbanked populations.
ATMs remain one of the main channels for the provision of retail banking services, a point proven by many of the facts and figures in the study. Overall, an estimated 2.75m ATM units were installed in 2013, and this is forecasted to grow to over 3.22m by 2016, a 17% increase over a three-year period.
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By GlobalDataThe overall value of cash dispensed in 2013 is estimated to equal $10.47tr, with a forecasted increase of 26% over the next three years to over $13.19tr.
Despite this rapid growth, penetration and access to ATMs remain unevenly distributed, with South Asia and Sub-Saharan Africa being the regions with the highest growth, albeit from a very low baseline.
The ATM industry’s offering is now evolving in parallel to internet banking and newly developing mobile banking channel, developing its role from a pure teller substitution/cash dispensing service to being one of the most important touch-point between a financial services organisation and its retail and SME customers.
Increasing consumer familiarity with digital interfaces, driven by the growing use of smart phones and tablets is one of the key enablers that are accelerating the potential changing role of ATM estates.
Compared to the previous study, the current analysis outlined two key trends in regards to multi-functionality: multi-functionality is – in most cases – becoming the norm, and ATM operators are starting to select the services they wish to offer through their estates.
Growth in ATMs installed
The number of ATMs installed globally has grown rapidly at a rate of 8% CAGR of the installed base between 2006 and 2012. The growth rate is expected to remain high at a CAGR of 6% between 2012 and 2016.
While this may be wrongly seen a slow-down in a pace of growth that is outstripping that of GDP, it is an indicator that some markets might have reached saturation.
Overall, the African and Asia-Pacific regions are driving growth, with North America growing at a slower pace of 2% CAGR between 2004 and 2012.
It was reported in the previous edition of the ATMIA ATM Benchmarking Study and Industry Report that in 2009 the number of ATMs exceeded the number of bank branches in low-income countries.
Over the last two years, the installation of ATM units has increased in all countries across all regions, including North America, which has shown an increase of 3% CAGR between 2006 and 2012.
In comparison, Europe’s installed base grew by 6% CAGR in the same period, both the Middle East and Africa and Asia Pacific by 12% and South and Central America by 4%.
This ATM growth in developing economies, especially in the Asia-Pacific region, means that those countries often lead the way in terms of the value added offerings available at ATMs, but as time goes by and ATM acquirers in other parts of the world continue to extend the functionality of their ATM portfolio, this is less likely to be the case.
The ATM market continues to grow globally, in terms of the quantity of ATMs proportional to the population, in the volume and value of transactions captured through the channel and in the quantity and quality of services on offer.
Mobile and online channels, along with POS terminals, are evolving to complement rather than displace the role of ATMs as a key financial services channel.
Cost control
The ATM Benchmarking Study 2014 also collected anonymous data on a range of areas of ATM management, including cost metrics and performance monitoring.
While ATM operators were especially keen to bring down expenditure in a period of economic crisis, despite signs of economic recovery in many markets, financial institutions are now facing the challenge of tighter capital regulatory requirements.
Cost control has always been an important area of focus for all parts of the banking industry and this is of particular importance in the capital intensive ATM industry.
Cost efficiency is a key requisite to profitably operate a business within a channel that absorbs a relatively higher liquidity compared to other business lines in the financial services industry.
One of the key findings of the previous ATMIA ATM Benchmarking Study 2012 consists of outlining the lack of cost advantage provided by economies of scale in this channel.
This counterintuitive conclusion suggested that ATM operators were not able to fully leverage scale to drive cost efficiency and that there was a significant potential for optimising ATM operations.
The 2014 study also found the same to be true of transaction processing. The report suggests a number of potential explanations for this, ranging from contract management to a lack of price transparency from vendors and, in some markets, competitiveness with regards to alternative processing, platform providers and outsourcers.
Labour also remains a prominent cost for ATM operators, especially in mature markets where technology outsourcing and process streamlining have already reduced costs such as machine downtime.
Additionally, fraud remains a growing challenge to the industry and ATM operators are increasing their efforts to prevent and combat it. Investment in fraud prevention measures is increasing as, in general, fraud losses continues to increase.
Cash management
Although ATMs now have a broad range of functionalities, many consumers still rely on them for making cash withdrawals.
The 2014 Benchmarking Study shows that cash handling continues to be one of the biggest costs for ATM operators. A key opportunity to reduce costs lies in enhanced cash recirculation and accurate forecasting of cash demand.
Going by the results of the 2014 study, participants appear to be increasingly adopting in-house intelligence for cash demand forecasting purposes. Forecasting software remains widely used, but some companies surveyed do not perform cash demand forecasting at all.
This implies that significant improvements could be made in the management of cash in the ATM system.
The 2014 study also found that ATM operators continue to have different approaches to cash replenishment. The frequency of replenishment was inversely proportional to the amount reloaded and the float stored in the ATM.
ATMs located within bank branches are typically loaded more often while different ATM locations tend to be replenished to different levels of float.
Countries with lower incidence of attacks to ATMs and ATM theft tend to have higher amounts of float and replenishment value and frequency can vary significantly according to the geographical dispersion of ATM locations.
The report also notes that while cash recirculation is far from being the norm, over 17% of participants said they benefit from cash recirculation.
It goes on to say that the more replenishments an ATM receives the lower the cost of each individual replenishment – suggesting that better management of recirculation and replenishment could improve cost efficiency.
Conclusions
The report concludes that ATMs can be a profitable business line, but that there are exceptions. While the majority of participants are showing profitable ATM businesses, a minority is apparently running loss-making networks.
This could be because not all ATM operators have a strategy whereby profits are generated from the ATM channel, but rather rely on other lines of business. Nevertheless there is a room for improvement over a number of areas.
For instance, cost metrics have shown that the more often an ATM is refilled, the lower the cost of each replenishment, but many companies still do not invest in cash demand forecasting, making it hard for them to refill ATMs to the correct level.
Another area for improvement is cardholder satisfaction, as very few participants appear to be tracking cardholder complaints (or other types of customer satisfaction measures) in parallel to ATM performance monitoring.
Economies of scale are still not a source of competitive advantage, with the 2014 study finding that a larger scale does not necessarily result in lower unit costs. While, in general terms costs have been decreasing relatively to the previous ATM Benchmarking study, there is still no correlation between scale and cost efficiency.
The study concludes by saying that, once again, no single operator has emerged as an obvious best performer amongst all participants.
