June 1, 2005
By Patrick Totty
They remain the most direct, cost-effective way for credit unions to overcome their brick-and- mortar disadvantage relative to banks. ATMs function as 'credit unions in a box' at remote sites, such as businesses, factories, or shopping areas.
Impending new regulatory requirements and technological developments will push credit unions to modify their ATMs. These include triple DES (data encryption standard), Americans With Disability Act rules for voice guidance, and the arrival of Check 21, which ushers in the era of envelope- free deposits at the ATM.
Upcoming features, such as smart card capabilities, customized sales pitches, and natural voice recognition, will require member education.
Branch in a box
While ATMs are an integral part of many credit unions' strategies for countering the sheer number of banks' brick-and-mortar locations, they play another important role. 'On-premises ATMs at credit union branches and strategically placed off-premises ATMs tend to move deposit and withdrawal action away from tellers, freeing branch personnel to sell products and services and provide information and financial advice to members,' says Peg Bost, director of financial industry marketing at
Diebold Inc., North Canton, Ohio. 'The branch becomes a profit center rather than a transaction center.'
'ATMs are, in essence, self-service devices, and all financial institutions are looking to transfer routine tasks to machines,' says Sal Caprio, director of marketing and business development at
Wincor-Nixdorf, Austin, Texas. 'A teller has inherent cost:
salary, benefits, workspace, and tools vs. an ATM, which has a fixed annual cost, never gets sick, and works 24/7. This dovetails neatly with the acceleration in interest among credit unions in improving branch efficiency, especially since the cost of money is increasing.'
Compliance, security challenges
Bost says that beyond the physical endurance and security features of ATMs (built-in mirrors address consumers' desire to be able to see who/what's behind them during transactions, and anti- skimming features are becoming common), most worries about the machines are over data security.
'Triple DES addresses some concerns, especially consumers', about transaction security. With voice guidance, ATMs will have to deliver verbally what's onscreen to the visually challenged, via WAV files or a text-to-speech conversion engine, over earphones they can plug into a jack.'
'Check 21,' says Tom Conroy, Midwest area vice president for NCR Corp., Dayton, Ohio, 'is producing a quantum leap in ATM technology. Its imaging technology will reduce back-end costs by eliminating the need for armored services to pick up physical checks. Electronic processes via back-end offices will replace them
The cost benefit to credit unions will be great.' An indirect benefit to members will be extended deposit hours, with accounts likely to be credited the next day even if deposits are made late the evening before.
Bost says deposit automation, driven by Check 21, will eliminate deposit envelopes. 'Members will get verification of their deposits at the time of deposit--no more waiting for someone to physically open a deposit envelope and verify its contents--and be able to view an image of a check or cash on screen. If there are any subsequent questions about the deposit, the member will have solid confirmation.'
Another development affecting ATM technology is IBM's withdrawal of support for OS2, which has been the prime ATM operating system for years. 'IBM won't build any new capabilities into it or adapt it to new functions,' says Caprio. 'New machines probably won't be backward-compatible with OS2. However, as Windows replaces OS2, it opens a host of opportunities because so much software and Internet capability are oriented toward it.'
Out of the Ã¢â‚¬Ëœskunk works'
Lockheed Corp.'s famous 'skunk works,' the experimental lab where its best minds would bat around outlandish concepts and try to make them reality, has equivalents among ATM manufacturers.
At NCR it's called 'Room 504,' and the company sometimes rolls out to visitors unreleased technology that's been developed there just to see what they think.
'Our next step,' says Conroy, 'is Ã¢â‚¬ËœStella,' a natural-language ATM-consumer interface. It will understand simple instructions, such as Ã¢â‚¬ËœWithdrawal from share drafts' or Ã¢â‚¬ËœDeposit to shares.''
The thinking behind Stella is that if vendors can take buttons and printers out of the machine, there will be fewer things to break.
Less futuristic capabilities will include target marketing. 'ATMs are becoming unique marketing and transaction devices for members,' says Conroy. 'For example, a member who has bounced checks might be offered on-the-spot overdraft protection.'
Bost agrees that sophisticated target marketing on ATMs is close. 'Windows integrates so many capabilities, it's easy to get the right message to the right member at the right time. Your member database easily will be able to tell a member at an ATM, Ã¢â‚¬ËœHere's something you might be interested in.''
Conroy points to European use of smart-card technology as an innovation to watch. 'I see ATMs transferring value to smart cards and moving us a step closer to a cashless/ checkless society.'
Caprio sees another ATM-inspired European innovation that could allow U.S. credit unions to build low-cost, high-tech branches. 'The European equivalents of credit unions operate one-person branch facilities, where the employees have no access to cash. That person is available solely to advise and sell.'
Because ATMs are migrating toward being more software and electronics-driven than hardware- driven and now can emulate Web sites in terms of looks and capabilities, Caprio sees them becoming programmable to anticipate members' needs. Rob Evans, a staff security expert at NCR, predicts,
'Five years from now, with bar code technology, members will pay bills or redeem bonds. There will be a more customized interface, including language preferences. As the machines Ã¢â‚¬Ëœmemorize'
interactions they have with members, you'll see customized wallpapers and function key uses, unique sales pitches, and even wealth management.'
Introducing new features
New ATM capabilities can require member education, says Bost. 'It's not a case of Ã¢â‚¬ËœIf you build it, they will come.'' She says credit unions have tried various ways to get people to try out new features. 'Some use a concierge to greet users, introduce the innovations, and give hands-on demonstrations. Some offer video demos set up on or adjacent to the ATM.'
Bost recalls one credit union's direct-mail promotion, where it sent members three checks, each worth $5. 'They had value only if they were deposited via an ATM by the expiration date on each check. It was a risk-free inducement that both Ã¢â‚¬Ëœtrained' and reinforced members three times.'
Vendors advise credit unions to look for several things when shopping for ATMs. Evans says,
'Look for easy-to-integrate third-party technology,' while Caprio says to look for machines that can migrate to imaging capability.
Capacities figure, too. Bost says that when Diebold went to build its latest ATM line, 'we asked consumers and credit unions what their concerns were. For credit unions, cost was an important concern. The purchase price of an ATM amounts to about 25% of its cost over its lifetime. As a result, credit unions told us they wanted higher capacities so fewer replenishments are needed. They wanted the ability to upgrade, too.'
Also, look for vendors who are savvy about where to put ATMs. 'We have much experience in installing ATMs in difficult or odd locations,' says Evans, 'such as an ATM at Pt. Murdo in Antarctica and ATMs on Navy aircraft carriers.'
Plus, Conroy adds, 'some state governments have explicit codes governing ATM sites--vegetation height, lighting, and so on. We can help credit unions with regulatory requirements.'