The first bank to introduce ATM was Barclays in UK some five decades back. In last 50 years, the Retail Banking industry across the globe embraced it as must to have cash dispensing outlet with more than 3 million ATMs operating as of date.  Because cash remains a crucial part of most people’s day-to-day lives even today, ATMs are considered to be the most convenient form of Retail banking where the banks allow customers to withdraw cash 24x7 from their account by just swiping a plastic card. There is literally no down time except for the time when the cash is loaded in those ATMs. The next level of transformation came where the operability restrictions were removed thereby allowing customers to use any ATM as per their convenience (albeit with a small fee in some cases).

With the ongoing digital disruptions in Retail Banking, ATMs or Automated Teller Machines will become obsolete in few years from now. Let’s look at some facts. So, what do we do with ATMs? Withdraw cash or check account balance or may be do some funds transfer, do some basic servicing like changing card pin or placing a check book request etc. Well, not all ATMs support such wide variety but for the sake of understanding the ATM functionality, let's assume all ATMs provide these services.

So let's just analyze a little more detail to understand why we need ATMs.

Cash Withdrawal - ATMs are widely used for this purpose - a currency dispensing machine. 95% of the people using ATMs use it only for this purpose. Our senses are so tuned that whenever we run out of cash, we start looking around for ATMs. Why can't the money be withdrawn from any available point of sale. Just walk to a POS operating vendor (it could be a Walmart or a small mom and pop store) and swipe your card. The merchant can give that required cash in a much shorter duration than the ATM at no cost. For the time being let’s discount the service charges or commission factor. Is it not possible? It is very much possible so far as the merchant operating POS has required amount of cash. And we are not talking about a huge amount of cash here. As per a recent survey in US, more than 90% of people withdraw less than or equal to $100 on every card swipe in ATMs. So, the value of cash withdrawn from the ATMs are not necessarily high and manageable.

Other services – Less than 5% of the people using ATMs use it for other purposes. It could be either for funds transfer or changing card pin or checking account balance. With the mobile banking gaining popularity and the onset of social media channels, this numbers are further likely to come down. Why would someone go to ATM to change the card pin or do a fund transfer if he can do it conveniently from his mobile or by just sending a WhatsApp message.

 Now, let’s compare the investment that is required to setup and maintain the ATM versus the potential revenue that the Bank may earn on levying commission for cash withdrawals at a point of sale. The capex for setting up the ATM and maintaining it is a huge infra cost for a Bank specially in Metros where the real estate is expensive.  If all the cash withdrawals are made commission free added with some incentive for the merchant, ATMs will become an obsolete piece of machine. Coverage of POS will be far more than ATMs and the investment required by Bank will be nil.  The cash transacting merchant will be happy to offer this service as he doesn’t have to worry about carrying over his cash

So what do we do with all the ATMs – Well, one thought could be to convert the ATMs into full-fledged Banking Kiosks thereby eliminating or reducing number of branches. But that’s another topic of discussion and will touch upon that in my next post.