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With thinning margins and the continuous decline in the use of cash, independent ATM deployers are facing an uphill battle. VIXIO sat down with the ATM Industry Association (ATMIA) to discuss the challenges and initiatives to bring in a new generation of cash-supporting machines.
The US has one of the largest ATM markets globally, which is dominated by independent ATM deployers (IADs).
According to a 2018 study, there were more than 470,000 ATMs in the country, around 280,000 of which were owned by an IAD, playing a vital role in distributing cash to the most vulnerable.
The study found that IADs typically deploy their ATMs where there is no other bank-owned machine, such as in rural or disadvantaged areas with lower population density, higher unemployment rates, less educated populations or lower average income.
Although IADs charge a fee for their services, the study concludes that the surcharge fees outweigh the costs of travelling to the closest bank-owned ATM or bank branch.
In addition, as IADs typically operate in lower-income neighbourhoods, they serve areas with higher populations of government benefit cardholders and are required by state laws to give discounts or waive fees altogether for ATM transactions.
Initially, similar to the UK, American IADs generated revenue from interchange fees only. But in time, as profits began to shrink as a result of falling usage, they started to charge surcharge fees to their customers.
Despite their critical role, IADs are often struggling to overcome challenges arising from the prejudice against cash and against businesses that service it.
“There is still a feeling out there in certain circles that any kind of business that is very cash-intensive is bad,” according to David Tente, executive director of USA, Canada & Americas at the ATMIA.
“There is still a little bit of war on cash in many segments,” he added.
For instance, last year, Texas lawmakers said that ATMs are often used for human trafficking and introduced a bill that would have required non-bank ATM operators to register with the state.
IADs are also sometimes associated with servicing cannabis businesses, which is prohibited at the federal level.
Meanwhile, ATM crimes, such as physical attacks or stealing ATMs, have grown significantly by 165 percent over the past year, which is also a challenge for the industry, Tente said.
As a result, many banks have adopted policies that prohibit business relationships with independent ATM operators or are charging much higher fees for maintaining their accounts.
“It’s been a problem for nine years or so,” Tente said, adding that IADs are getting better in dealing with this.
The widespread de-risking of ATM operators started after Operation Choke Point, whereby regulators and enforcers looked at the activities of banks and payment processors, so-called bottlenecks or choke-points, that financed merchants from high-risk industries.
Although regulators did not specifically flag IADs as high risk, banks tended to close their accounts because they met some of the warning signs included in regulatory guidance, such as the significant fluctuation in the volume of the funds transferred or chargebacks.
“What’s happened is the ATM operators have got better in dealing with it by now because they have been facing this issue for such a long time,” Tente said.
“I cannot say that it’s got particularly any better or any worse over the last nine years but we have gotten better in dealing with it.”
Recent regulatory actions, however, may bring some positive impact in the long run, he noted.
Last December, the Federal Financial Institutions Examination Council (FFIEC) revised its manual on IADs, explicitly stating that financial institutions are "neither prohibited nor discouraged from providing banking services to independent ATM owner or operator customers".
It also states that “independent ATM owners or operators that fund their ATM replenishment solely with cash withdrawn from their account at a bank pose a relatively lower [money laundering/terrorist financing] risk”.
In support of this effort, last month (June 22), the Treasury’s Financial Crimes Enforcement Network (FinCEN) made a statement underscoring that “not all independent ATM owner or operator customers are automatically higher risk”.
These are still new developments and it will take some time until IADs can really see the change from the banks’ side, but both statements have been “very helpful” for the IAD industry, according to Tente.
Next gen ATMs
Five years ago, ATMIA launched a new initiative with a plan to set up the next generation of ATMs.
The project, which now involves more than 400 companies in 56 countries, aims to change the architecture of ATMs by adopting an interoperable API app model for ATMs that would be hardware-agnostic.
“The project is all about changing the architecture of the ATM to make it easier to adapt to a new application,” Tente explained.
“Right now it is very difficult,” Tente said. “When [the operation system] changes you’ve got hundreds of thousands of ATMs out there that have to get touched by a technician to make those changes.
“The objective here is to end up with an environment that is more like a tablet.”
“Right now if you want to deploy a new functionality at an ATM it is very expensive and takes a long time to do all the certifications."
By contrast, “if you have an app on your tablet or on your phone, you download it and five minutes later your app is working on your phone”.
Next gen ATM owners will have the flexibility and choice when migrating to new operating systems, while, at the same time, reducing the risk of costly hardware upgrades associated with OS migrations in the past, ATMIA says on its website.
The API app model will enable mobile phones to replace cards as the main medium for transacting ATMs through apps.
“Imagine a cardless/contactless ATM wallet that can directly access your bank account, interact with the ATM, and dispense your cash, using the rails of a new fintech Faster Payments service,” the association says.
Next gen ATMs could also provide functionality for cryptocurrency buying and selling.
The initiative reached a milestone last May when ATMIA granted KLEAR Technologies a certification for the world’s first next gen ATM product.
