The Strategy of the ATM

The ATM and Strategy

Happy B-day ATM! Today marks the 50th anniversary of the automated teller machine (ATM). This first banking robot was rolled out on this day in 1967 by Barclays in their central London branch. The ATM revolutionized both the operations of banking and the banking psychology of the public. Prior to the ATM, it was common practice to both wait in line to deposit your paycheck and also go to the branch every Friday to withdrawal enough cash for the weekend. Since most branches closed at 3 pm in the 60’s, waiting in a 25+ person line during your lunch hour was common.


One day, John Shepherd-Baron, an engineer by trade, thought about this problem while waiting in a teller line and figured if a chocolate candy bar could be dispensed from a vending machine, so could cash. John developed our current PIN authentication protocols and introduced the contraption to Barclays who immediately purchased it (interesting side note -  John never patented the concept).  This first ATM had limited functionality, took no deposits, validated an account (not the balances) from an “approved list” and dispensed a single currency note. Regardless, the ATM took off and the Barclays machines were often out of currency by Friday night.


The next year, at a banking conference in Miami, John Shepherd-Baron spoke and the First Bank of Pennsylvania placed an order for six immediately after hearing his speech.  After several iterations, Chemical Bank introduced the first networked U.S. ATM on September 2, 1969, at their Rockville Center branch in New York. Their full page announcement was one of the greatest pieces of bank advertising ever – “We will open today at 9:00 am and never close again.” Below is an advertisement that came out afterward and was equally potent. 


ATM Strategy

The ATM Today


There are over 425,000 ATMs in the U.S. (4mm globally) about half of which are owned by financial institutions. The average person visits their ATM over seven times per month and withdrawals an average of $60. The average ATM in the U.S. handles 800 transactions per month. On average, those 800 transactions would have cost banks an incremental $1,616 to process each of those transactions by hand. With an ATM, those same transactions cost $24 to process.


On a more direct basis, the strategic use of ATMs has saved the average bank from building two branches per $700mm of total assets. More commonly, the ATM has also been moved inside the lobby to do more than just extend hours. Over the last five years, banks have gotten better at using ATMs to augment branch staff and handle customer overflow at peak times. For banks that deploy this strategy, staffing costs have been reduced approximately 15%. 


ATM Strategy 


The Future & ATM Strategy


Right now, the major trends in ATMs are the conversion to the EMV standard, moving to contactless, smartphone-enabled machines, the employment of anti-skimming/malware defenses and becoming interactive complete with video. ATMs are being not only miniaturized but also expanded to handle additional products such as loans. The use of the ATM to supplement both the branch and branch staff will continue to increase over the next three years as the ATM’s capabilities increase.

Over the next five years, however, banks are seriously reconsidering their investment in ATMs as society moves cashless and more and more functionality is moved to mobile. While virtual ATMs embedded in augmented and virtual reality will become common, it will not be a game-changer as the power of mobile will remain equally capable.  The same is true for virtual ATMs that handle cryptocurrencies. While some ATMs can already handle Bitcoin, most of this functionality will be the exception rather than the rule due to demand.


As banks curtail their ATM use they will be more strategic with their use going forward. Augmenting loan production offices are one example of where banks can mimic a full branch at a fraction of the cost. The same is true for the shrinking branch footprint. Since new branches are shrinking from 5,000 square feet to less than 1,500 sq. feet, the interactive ATM is now playing a more significant role at handling in-branch traffic.  


More partnerships are also in the works as banks are looking for cheaper ATM access and retail centers now that a presence of an ATM increases sales by 10% to 20%.  While banks have partnered with retail outlets such as grocery and department stores, banks will place more of an emphasis on traffic and tend more to Starbuck-type co-locations.


In the same vein, banks have found success in the “hub and spoke” structure of ATM deployment— reducing their branch network and augmenting suburban branches with more capable interactive ATMs located around 15 miles of a flagship branch. While this strategy has not only served to reduce branch costs, the largest single functional cost within a bank but has increased both traffic and profitability of the flagship branch making the whole system more efficient.


When it comes to ATM deployment banks have traditionally used the “Heuristic Approach”, which is a calculation methodology that allows banks to cover the greatest number of households with the fewest deployments. Now, with the rise of machine learning, new approaches are being developed such as the “Rank File” and “Simulated Annealing” methodology which can increase ATM coverage by some 20% and make the whole network more efficient. 




The ATM presents the classic innovation problem for banks and has been a fantastic case study at banking schools to teach the pros, cons, and strategies of innovation. It took about ten years for the ATM to achieve enough traffic that it became the “must have innovation” for every bank.


Given rapidly changing mobile technology, it is widely agreed that the ATM, as we know it, has a place in banking’s future, the question, however, is for how long and in what form.  On this birthday of the ATM, bankers should take a moment to appreciate what it took to bring together video displays, magnetic tape readers, communication networks, operating systems and cash counters into a single machine that was reliable, could withstand the elements and could thwart human thievery.


Regardless of the ATM’s future, the machine has been transformative and one of the best cases for bank innovation.