As ATM maintenance costs rise by about 7%
year-on-year, the good old cash machine has to be more than a money
dispenser. Banks are realising this and now a new
benchmarking report by Value Partners and Atmia profiles the global
ATM market place to provide and insight into the performance and
cost structure of ATM estates.
The paper, titled ATM Benchmarking Study 2012
and Industry Report, is intended to compare and analyse performance
to spur ATM management development and adoption.
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Such a study is especially crucial: One key
finding of the report is the lack of regional and national peer
comparison among ATM operators.
Value Partners and Atmia surveyed 29 ATM
management institutions, of which eight were from Europe, four from
Africa, seven from the Americas and ten from Asia. Another 11 ATM
operators completed a qualitative survey.
Asia Pacific in particular is a major growth
region for the ATM market.
There are about 2.2m ATMs worldwide, and this
figure may rise to above 3m within the next four years, a rise that
will be driven by Asia’s burgeoning economy and population. Bank
branches alone do not meet the growing demand for easy access to
financial information and cash, the report says.
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The key findings
Cost of cash: More efficient
cash recycling features are the key solution to reduce the cost of
cash handling, the report says.
Forecasting cash demand would lead to a
reduction of refilling costs “as well as the indirect opportunity
cost of unused cash in an ATM cash cassette” because ATMs would
only be filled with as much cash as is needed.
One thing Value Partners and Atmia highlight
is that ATM operators have “different approaches to cash
replenishment, with the frequency of replenishment inversely
proportional to the amount reloaded and the float stored within the
ATM.”
Despite economic and geographical differences,
the report found several common trends among ATM operators:
–
ATMs located within bank branches are typically loaded more
often,
–
Different ATM locations tend to be replenished to different levels
of float,
–
The wider the geographical dispersion of the ATMs, the less
frequent the replenishment,
–
Replenishment value and frequency can vary significantly according
to geographical dispersion of ATM locations, the ATM
operator’s risk management approach with regards to potential ATM
theft.
Value Partners and Atmia say that cash
recycling could lead to a decline in handling costs of 17%.
The report states:
“A large part of this cost arises from
operators’ approach to prevent the risk of ATMs running out of
cash, leading to an oversupply and hence an opportunity cost. Some
banks maintain a cash supply vs. demand surplus of as much as 40%
in their ATMs, despite many experts considering an excess of 15-20%
to be sufficient.
“With deposit-taking technologies being rolled
out across many in-branch ATM networks – indeed, the very first
ATMs existed for the sole purpose of receiving deposits– it seems
that initial fears of fake notes being accepted have been overcome
by technological developments.
“Dispensing that same cash does therefore not
face such a significant barrier as in the past. According
to industry research, it is in the
Asia-Pacific and European regions where cash recirculation is
expected to have the most significant impact, possibly because
other emerging markets are preoccupied with the reduction of more
fundamental operational costs and North America is focussed on the
issue of EMV compliance.”
Cost of hardware varies
significantly among operators, although a majority of them operate
on a multi-vendor policy, which usually would lead to more
competitiveness.
Based on a benchmarking sample the report
considered, it found that the “cost of hardware was found to have
little correlation with the type, size and location of the
organisation.”
Cost of processing:
There is “no significant correlation between unit cost and
volumes”, the report found.
The report states:
“There are 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 reduced other costs such
as machine downtime, excess cash, theft and insurance. Automated
fault-detection systems, integrated servicing and replenishment
schedules and centralised ATM software environments are potential
ways in which ATM operators may control their costs, although doing
so within the context of a growing ATM multifunctionality could be
a future challenge”
Fraud and dispute management: Fraud is not
absent from the world of ATMs and the report defines fraud as a
“serious challenge” – but one in which operators are investing
“significantly”.
Although there was a great variety in the
level of fraud among those surveyed for this report, “most ATM
operators experienced relatively low costs compared to other
factors such as ATM maintenance.”
The report further states:
“Several operators, however, appear to have
experienced anomalously high levels of criminal attack. While
disputes can originate from causes other than fraud (e.g.
cardholder errors, processing errors, etc.), the analysis has
outlined a correlation between the number of fraud cases and the
number of disputes and their respective unit cost.
“Within the sample there are three
organisations that have suffered serious fraud attacks during the
period under examination and in all three cases the high incidence
of fraud corresponded to a high cost per dispute as well as a
higher number of disputes. In can thus be inferred that fraud is
the key driver of dispute cases and their associated costs. “
Security enhancement is therefore considered
the biggest focus for the ATM market place over the next five
years, especially in light of ongoing migration to EMV
technology.
“This is not as much of a problem in the EU,
where chip and pin technology has now been successfully been
installed in over 96% of ATMs, although this increase in security
has not been homogenous across the continent,” the report says.
“The difference in industry standards – within
Europe and, more recently, globally – has also allowed cards to be
stolen and used to conduct fraudulent ATM withdrawals overseas.
Much of this fraud takes place in the USA, with many ATMs in the
Asia- Pacific and even parts of Africa increasingly EMV
compliant.
“There is a need for the standardisation of
security procedures, since, despite the gradual worldwide
conversion to EMV, the majority of ATM operators continue to accept
non-EMV cards across their networks. This finding was reflected
amongst the participants in the ATMIA Benchmarking Study 2012 of
whom less than 20% did not accept non-EMV cards.”
“Fraud thus remains a serious challenge to the
ATM industry. As the EMV roll-out proceeds, fraud shifts across
borders, taking advantage of where the industry appears easier to
exploit,” the report concludes.
However, ongoing innovation and developments
in technology “may prove a key tool to combat fraud,” Value
Partners and Atmia found.
Among such examples are biometric ATMs, which
have seen great deployment in Japan already and, to a lesser
extent, in some other countries.
