The ATM is a major consumer technology. ATMs can only reach the masses close to where they live, work and shop if national payment systems and ATM networks allow the independent convenience ATM model to flourish alongside the bank and branch ATM. Systems that do not allow the co-existence of bank ATMs and independent ATMs breed monopolies that restrict free market competition in order to protect established market share, invariably at the expense of greater consumer choice and convenience.
When I visited Warsaw in 2002, I withdrew cash from an ATM operated by the pioneer independent European operator Euronet Worldwide. I was moved when I suddenly realised I was standing in an area that used to be part of the Warsaw Ghetto of World War 2. Anyone who has seen the harrowing Polanksi film The Pianist, based on a true story, cannot ever forget what a nightmare the Ghetto became of human degradation under unimaginably severe oppression. At that moment in 2002, clutching the ATM receipt in my hand, which happened to have a McDonald’s promotion on the back, it struck me like a bolt of lightning that ATMs, like the one I had just used, were not allowed to be deployed during the post-war communist occupation of Poland, which lasted until the fall of Russian communism in 1989. It was the first time I had ever experienced an ATM cash withdrawal as an act of freedom. ATMs, I realised then, had become part of economic freedom and the mobility of citizens in a free Warsaw.
I dislike monopolies that restrict free competition in the ATM industry. Indirectly, they take away a chunk of economic freedom for citizens, however small, restricting the free flow of in-demand technology through society. Freedom can be eroded in small bits and we need to guard against power monopolies that shrink economic freedom. A free 21st Century society should offer its citizens convenient 24 x 7 access to their banked cash in multiple locations including a variety of off-branch sites.
According to the inventor of the ATM, John Shepherd-Barron, whom I first interviewed in 2001, the technology was designed to dispense cash outside banking hours. The ATM thus originally overcame a time barrier. Then what the independents did on a massive scale from the mid-1990s was to extend geographically this access to cash, building a unique business model enabling ATMs to be located away from branches and even the high street. With no cardholders of their own, independents could levy a small convenience fee for every transaction, getting by with lower cost structures than in the bank model, including the deployment of less expensive machines.
The independent model allowed ATM technology to overcome barriers in space as well as in time. A technology that can help people overcome limits of both time and space is likely to prove popular with the masses and gain a prominent position in the economic mainstream. This is exactly what happened to ATMs. Today, ATMs save cardholders transport costs and time by bringing self-service banking into convenient, non-branch locations such as shopping malls, supermarkets, convenience stores, railway stations, hotels, airports, petrol/gas stations, post offices, university campuses, restaurants and bars, etc, creating time-saving convenience for the pressurized man-in-the-street.
The 2010 ATM Industry White Paper by Tremont Capital Group estimates that 202,500 ATMs in the US are operated by Independent ATM Deployers, of which approximately 19% are full service, turn-key “placements” (equipment owned, serviced, vaulted, and operated by the IAD). This means about 50% of the nation’s massive installed base is independently operated.
As a consequence of a greatly expanded capacity to penetrate society on a wide scale, driven in no small measure by IADs, ATMs have become the principal carrier of cash for modern economies. Given this critical role in consumer societies, both banks and ISOs have an economic responsibility to maintain high standards of ATM service and cash provision to consumers.
Tremont Capital’s white paper concludes: “Consumers have repeatedly and decisively voted — with both their feet and wallets — for convenience. They have demonstrated their willingness to pay a small premium in some circumstances for access to their bank accounts at ATMs other than those owned by their financial institution. However, this will only be possible as long as the economics support it. Interchange rate reductions by networks or any legislation restricting deployer profitability will severely constrict convenient consumer access to cash.”
ATMIA, the world’s only non-profit trade association for the whole ATM industry, has embarked on an important campaign this year to support the rebranding of ISOs as IADs whose economic model should be properly understood by all stakeholders in the industry as well as by both regulators and consumers in the public domain. In addition, the time is overdue to recognize their significant entrepreneurial achievements in providing citizens with more extensive time-saving access to their cash. In so doing, IADs have added to the economic freedom and mobility of cardholders I first fully understood in the area once part of the infamous Warsaw Ghetto.
Mike Lee is CEO of the ATM Industry Association, reprinted with permission from ATM Marketplace 8/25/10
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