Automated Teller Machine (ATM) is 50 years old. SULAIMON OLANREWAJU traces the history, impact and challenges of the machine, positing that as cashless transactions gain ascendancy, ATM may be nearing the end of its usefulness. Â Â
Although the Automatic Teller Machine (ATM) got into Nigeria in 1989 when the National Cash Registers (NCR) installed it for the defunct Societe Generale Bank of Nigeria (SGBN), ATM deployment actually started in Europe in 1967. SGBN’s ATM was christened ‘Cash Point 24’ and it was a point of amazement as the bank’s customers were able to make withdrawal long after the bank had closed for the day. The amazement spurred other banks to toe the line as Firstbank followed suit in 1990 with other banks in the tow almost immediately after. Unlike now that ATMs are everywhere and in various forms, way back in the beginning, there were just two types, the drive-in type of SGBN and Firstbank’s through-the-wall ATM. Again, in the beginning, the machine was restricted to certain elite areas as well as the banks’ head offices. But not anymore, now ATMs are ubiquitous. Bank customers have become so used to ATMs that life, especially in the urban areas, is unimaginable without it, especially in this era of cashless economy. So pervasive is the use of ATM in Nigeria that, according to the Nigeria Interbank Settlement System (NIBSS), N4.7trillion cash withdrawal was made through ATMs in 2016 which was a 22.5 per cent increase over the N3.97 trillion withdrew through the machine in 2015.
ATMs are money dispensing machines that enable bank customers carry out financial transactions without making recourse to their banks. They are interconnected to allow anyone with a bank card have access to their accounts from any part of the world.
The phenomenon was birthed in 1967. It was the first tangible evidence that retail banking was changing. The introduction of the ATM marked the dawn of contemporary digital banking. Several lay claim to the invention of the cashpoint, including John Shepherd-Barron and James Goodfellow in the UK, Don Wetzel and Luther Simjian in the US and even engineering companies like De La Rue, Speytec-Burroughs, Asea-Metior, and Omron Tateisi. But the ATM is a complex technology. There was no single eureka moment that marked its arrival.
The ATM finds its origins in the 1950s and 1960s, when self-service gas stations, supermarkets, automated public-transportation ticketing, and candy dispensers were popularised. Japan lays claim to the deployment of the first cash machine in the mid 1960s, according to a Pacific Stars and Stripes account at the time, but little has been published about it since then. The most successful early deployments took place in Europe, where bankers responded to increasing unionisation and rising labor costs by soliciting engineers to develop a solution for after-hours cash distribution. This resulted in three independent efforts, each of which became effective in 1967: the Bankomat in Sweden, as well as the Barclaycash and Chubb MD2 in the UK.
Cashpoints materialized as a result of a long chain of innovations. Some were of a general nature, such as steel, video display units, plastic, magnetic tape, or (more recently) the Windows operating system. Others were purpose-made, such as the cash output mechanism and, in the 1960s, the previously non-existent algorithm that associated an encrypted PIN with a customer account. These components were developed through active collaboration between groups of bankers and engineers, each of which attempted to solve different aspects of the complex challenges inherent in the development of the ATM.
The necessity of human intervention in early systems invited further automation. For instance, they could easily jam or run out of product. They could erroneously dispense several bank notes instead of just one—all without the owner’s knowledge. They were activated by plastic or paper tokens that would only activate for the operating bank and, in some cases, only that particular bank location. Some banks would keep the token in the machine and return it to the customer (by post) once the account had been debited. As a result, early ATMs were standalone, clunky, unfriendly, and inflexible. They could only dispense cash when activated by a token.
Given these constraints, it’s not surprising that it took more than a decade for banks to deploy cashpoints beyond a handful of experiments. In its early days, few believed that the cashpoint would make a difference to the average consumer. In context, this prediction might have seemed sure; cashpoints appeared before credit or debit cards were a popular alternative to notes and coins, at a moment in time when most of the world’s citizens worked in a cash economy. With the exception of the US and France, even personal cheques were largely limited to the wealthy.
Updating central records from the point of a transaction is easy in today’s world of mobile banking and e-commerce, but the cashpoint was one of the first devices to use real-time networking. Early in the ATM’s development, creating a way to communicate with a central computer (and therefore inform customers of their account balances) became an overriding design concern. In cooperation with IBM, Swedish savings banks began testing a networked cashpoint in 1968. A collaboration between IBM and Lloyd’s Bank followed, and that bank deployed several networked devices in the United Kingdom in 1973. But widespread online authorisation still had a long way to go. Throughout the 1970s, IBM engineers developed the rails, pipes, and standards on which other elements of the payments ecosystem (such as credit cards and point-of-sale terminals) would eventually depend.
In 1971, a few years after the first machines appeared in England and Sweden, manufacturers were operating in Britain (Speytec-Burroughs), the U.S. (Docutel and Diebold), and Japan (Omrom Tateisi). Together, they deployed cash machines in their home countries and across Europe, Canada, Israel, Cyprus, and Latin America. However, by the early 1980s, pioneers such as Chubb, De La Rue, Docutel, and Asea-Metior had left the industry as each failed to keep up with developments in computing and electronics. Other manufacturers, such as Burroughs, hadn’t achieved their deployment targets. Citibank abandoned plans to commercialise its proprietary CAT-1 and CAT-2 devices and, instead, continued to use them in its global, proprietary network until the 1990s.
Not so with IBM, which had the marketing muscle, engineering expertise, and business contacts to dominate the market. The company seemed poised to overwhelm its competitors until executives decided to deploy a new model, the IBM 4732 family, which were incompatible with previous models, including the already-successful and widely deployed IBM 3624. Many banks evaluated the machine and refused to buy it because, in a stroke, IBM had made the banks’ significant capital investments in the older computer infrastructure obsolete.
Around this time, two Ohio-based companies, NCR and Diebold, were working on technology that would enable them to dominate the supply of cashpoints for the next two decades. As a result of the IBM 4732 fiasco, NCR built its business on software that emulated the IBM 3624. Meanwhile, IBM and Diebold formed a joint venture in 1984, called InterBold. Its aim was to unite Diebold’s self-service technology with IBM’s global distribution system. Seven years later, and in spite of growing sales, the joint venture ended: Diebold hadn’t achieved the international market breakthrough it had hoped for and IBM’s returns fell short of its expectations, in part due to the growth in local processing architectures, which had invalidated IBM’s strategy to link ATMs to its expensive mainframes.
NCR and Diebold were instrumental in turning the cash-dispenser dinosaur into today’s sleek, multi-function ATM. The companies’ innovations included customer-friendly video display units, programmable buttons alongside the screen, a shift toward dispensing cash horizontally (which reduced jams), and expanded functionality, including money transfers and balance inquiries.
Despite innovations in modular manufacturing, speedier ways to identify delinquent accounts, and the associated reduction in service costs, however, ATMs remained a significant capital investment. The use of dedicated telephone lines limited them to bank branches or high volume non-bank locations. This limitation finally lifted with the advent of digital telephony and the industry’s adoption of the Windows operating system. These two seemingly simple modifications transformed the ATM, enabling remote diagnostics and integration with credit card clearance networks. They also enabled the advent of the Independent ATM Deployer (IAD)—ATM vendors unaffiliated with a major financial institution and renewed growth in the machine’s deployment in the late 1990s.
Still, not everything is rosy for the ATM industry. In a cost-reduction move in 2014, for instance, Chilean banks reduced the size of their ATM fleets (as well as the frequency of cash resupplies for existing machines) while encouraging the use of government-sponsored cash remittance networks in mom-and-pop retail stores. This move led to public outcry and anti-bank campaigns on social media.
But in spite of the ease that ATM has facilitated for banks and their customers, the advent of mobile telephony, which has enabled mobile banking and instant remittances has been its major challenge. So has the ascendancy of internet banking.
According to the NIBSS, bank customers made 154 million instant transfers valued at N38 trillion using the NIBSS Instant Payment platform in 2016. Similarly, bank customers made 63.7 million transactions worth N759 billion through point of sale (PoS) devices, while 47 million mobile payment transactions worth N756 billion were conducted through the 21 licensed mobile payment operators in the year. All of these were made possible through the instrumentality of the internet. Thus, as cashless transaction improves the need for ATMs is sure to wane.
So, as we celebrate ATM’s 50 years of facilitating borderless banking across the globe, the question is will there be a need for ATM 50 years from now?
Additional information sourced from www.theatlantic.com/technology
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