The Resurgence of the ATM Channel: Leading Banks’ ATM Strategies in 2012

Navigator Edition: March 2013
By: Melissa Fox

People are talking about ATMs again. And not just as a cost center to be managed or a mature asset to be maintained, but as an investment priority, and increasingly, as a competitive imperative.

ATMs are not the profit centers they once were, nor are there expectations that they will be. But leading banks’ behind-the-scenes investments in advancing their ATM technology platforms (as well as their broader technology infrastructure) over the past several years have laid the foundation for new features and functionality—most notably image-enabled deposits—that are now coming to market and changing consumers’ ATM experience in meaningful ways.

With significant benefits to be gained from the mass-market roll-out of deposit imaging and further challenges and opportunities looming on the horizon with the rise of mobile banking and payments, banks are re-thinking the role of the ATM within their distribution strategy.

ATMs have become exciting again, and with the renewed focus on the channel, we may be entering a fourth “phase” in the evolution of the ATM industry in the U.S.: channel resurgence.

To understand banks’ evolving ATM strategies, First Annapolis spoke with a number of leading banks earlier this year regarding their channel focus, deployment and placement strategies, technology investments, and priorities for ATM functionality. This study is the latest in a series of informal studies that we have conducted over the past several years based on primary and secondary research, allowing us to monitor the ongoing changes in banks’ strategies and areas of focus.

Figure 1: U.S. ATM Industry Evolution
Source: First Annapolis Consulting, Leading Banks ATM Strategies 2012.

Channel Focus

For the past several years, leading banks have been slowly returning to the customer-service roots of the ATM channel, with their primary strategic focus now shifting from expanding access to enhancing the user experience. In recent years, banks have focused on increasing customers’ fee-free ATM access through direct deployment and alternative arrangements (e.g., ISO ATM branding), and many of them have now achieved their optimal network size. As deposit imaging gains traction and initial roll-outs demonstrate early returns in terms of transaction migration and increased customer satisfaction, a renewed focus on the user experience is reflected in their channel strategies.

“We were focused on aggressively expanding deployments, but in the past year or so, we feel we have finally achieved the right density. The goal now is to improve the experience at the machine. Our priorities are focused on imaging, marketing, and increasingly migrating teller functions to the ATM.”  –Large Regional Bank Channel Manager

Direct profitability, while still an important factor in managing the business, is no longer a strategic driver for most banks.

Figure 2: Technology Investment Stratification
Source: First Annapolis Consulting research and analysis.

Consumer-Centric Deployment Strategies

Leading banks’ deployment strategies tend to be retail-centric, in line with their customer service focus, and center on on-premise deployments and in-footprint off-premise deployments intended to serve their existing customer bases.

Leading banks currently have an average of 2.8 ATMs per branch (including both bank-owned ATMs and bank-branded ATMs owned by ISOs). The average bank fleet is 60% on-premise/ 40% off-premise, with many banks supplementing their own direct off-premise placements with branded ISO-owned locations.

Looking forward, most deployers believe they are at or close to the “right” number of ATMs for their customer base. As such, they are more focused on rationalizing current placements and filling distribution gaps than on wholesale expansion of their ATM networks. Future growth is expected to be in-line with banks’ branch network expansion, with most of the growth being on-premise, with limited off-premise expansion in select markets to fill service gaps or support new branches.

Figure 3: Q1 2012 ATM Functionality
Source: First Annapolis Consulting, Leading Banks ATM Strategies 2012.

Investing in the Customer Experience

With their network footprints more or less stabilized, banks appear to be shifting their focus more towards the customer experience they deliver—or want to deliver—via the ATM. In some cases this means more intuitive screen designs or an updated look-and-feel that better reflects their brand; in others, it means increased speed and convenience with personalized transaction preferences or better positioning the ATM as a full service delivery channel with image-enabled deposits and extended cut-off times.

The experience that banks are able to deliver via the ATM is very much tied to the technology foundation that underpins their network. Historical investment in ATM technology has varied significantly among leading banks. For some banks, maintaining and upgrading their ATM technology is part of their strategy; for others, competing demands for resources or a strategy of leveraging depreciation run-off have constrained investment in ATM technology.

The result is a stratification of ATM functionality and capabilities: those that have invested in upgrading their technology infrastructure are realizing functional and operational benefits (in the form of development cost savings, lower hardware costs, and improved consistency), and are positioned to introduce additional functionality. For others, significant investments in completing the migration to Windows and/or the bank’s end-state software destination are core foundational items required before they can move forward.

With the four largest deployers (Bank of America, Chase, Wells, and Citi) having completed their conversions to image-enabled ATMs, the bar for ATM functionality has been raised. Most deployers are currently in some stage of roll-out of deposit-imaging capabilities, and with early positive returns, the business case for deposit imaging has driven/ is driving many deployers’ fleet upgrades.

The case for deposit imaging is compelling both in terms of the significant cost savings opportunity associated with the elimination of daily deposit pick up and transportation expense, as well as the renewed opportunity migrate transactions to a self-service environment by improving the customer experience. One early mover saw their ATM deposit volume increase by 75% in the first 12 months after rolling out deposit imaging, and many other deployers have experienced similar lifts and shifts in volume. Earlier this year, Bank of America announced a milestone: half of their branch deposits now come through the ATM channel.

In addition to benefiting from the operational efficiencies that come from transaction migration and increased customer confidence/ satisfaction, increasing competitive pressure to meet customer expectations and extend deposit cut-off times is causing many banks to accelerate their roll-out schedules.

Backed by a compelling business case for a fleet upgrade, deployers indicate that they are now actively investing in their ATM technology and functionality—but existing platforms will drive their investment priorities, capabilities, and timelines. Deployers’ current priorities are focused on completing their roll-outs of image-enabled deposits, and their sights are set on leveraging their upgraded networks to enable product offers, preferences and targeted marketing capabilities down the road.

The ATM user experience, which until recently has been largely undifferentiated, is starting to become a competitive factor. Deposit imaging is poised to become standard, and the changes it enables in terms of extending deposit cut-off times and improving the overall user experience are resetting consumer expectations for banks’ ATM capabilities and how they interact with their bank through this channel.

* * *

The business case for deposit imaging has driven and is driving many banks to upgrade their ATM technology, and has redefined the functionality baseline for “competitive parity.” The divide between the “haves” and the “have nots” is becoming more pronounced, and a number of banks are now in the position of playing catch-up. This dynamic is driving a broad-based reinvigoration of investment in the ATM channel that extends beyond just the short-term conversion to image-enabled ATMs and is laying the foundation for banks to redefine the role of the ATM within their broader distribution strategies.  Channel discussions are no longer focused exclusively on the more mundane and tactical aspects of managing a fleet of ATMs, but are centering on bigger strategic questions:

  • How ATMs (and other networked devices) can be leveraged to deliver additional services and enhance customer relationships
  • How ATMs and other self-service channels will work together to increasingly replace the traditional branch as consumers’ primary point of interaction with their bank
  • How ATMs can be used to complement or enhance innovations in mobile technology

As one bank executive observed, “ATMs are bringing sexy back!”, and banks are rethinking their investment strategies and the overall importance of the channel accordingly.

This article previously appeared in the February 2013 issue of the ABA Banking Journal.

For more information, please contact Melissa Fox, Manager specializing in Deposit Access and Prepaid Strategy,

To read the rest of this article, please subscribe to

The Navigator Newsletter