Why big banks are in an arms race to upgrade the 50-year-old ATM

On the eve of its 50^th birthday, the ATM is getting a face-lift.

Big banks are investing heavily to reinvent a boxy machine that has gracefully reached middle age even as the industry turns its attention to young, hip technologies such as APIs, blockchains and artificial intelligence.

JPMorgan Chase and Bank of America — which operate the industry’s largest fleets, each with more than 15,000 ATMs — recently began rolling out sleek machines with screens that look and operate like giant iPads. Several big banks in recent years have also launched a slew of features, such as the ability to withdraw large sums of cash, request multiple denominations, and conduct transactions using mobile phones instead of debit cards. Other options that integrate mobile banking are also in the works.

That ATMs have such staying power in the rapidly changing world of retail banking is somewhat surprising, especially considering that cash withdrawals have stagnated in recent years. But the latest upgrades show how big banks are using the trusty teller machines — once standard-issue gray boxes — to distinguish their brands and acquire new customers as traffic at brick-and-mortar branches continues to wane.

“It’s almost like a phoenix rising,” said Suzanne Galvin, a senior vice president at U.S. Bancorp in charge of ATM and debit services.

To understand the appeal of a machine that predates Watergate, consider this: Convenience has always been the name of the game in retail banking. For decades, blanketing a neighborhood with branches and ATMs was a surefire way for banks to attract new customers.

But times are changing. Young customers, in particular, view convenience as simply having access to digital banking, according to Andrew Hovet, a director of retail marketing and distribution at Novantas. Placing high-tech — and modern-looking — ATMs in high-traffic areas is one way for banks to market their digital prowess.

Additionally, offering cutting-edge features — such as the ability to take out cash from an ATM by using a code from a smartphone app, instead of inserting a debit card — carries a lot of weight these days with prospective customers.

“We use a phrase called ‘perceived convenience,’ ” Hovet said. “Big banks have done a great job of creating the perception that they have the best digital capabilities out there,” even if some smaller banks can match them “feature to feature.”

Banks contacted for this story declined to offer details about the size of their recent investments. But it is worth noting that they are making large-scale upgrades at a time when cash withdrawals are flat. According to a 2016 study from the Federal Reserve, ATM withdrawals have held steady at 5.8 billion per year since 2012.

Still, the machines are “surging in importance” when it comes to customer acquisition, as traffic in brick-and-mortar branches declines, according to a survey of more than 10,000 consumers conducted by Novantas.

The 2016 survey showed that consumers ranked the availability of fee-free ATMs as the second-most convenient offering at retail banks, behind “leading online/mobile” capabilities. A year earlier, ATMs ranked third.

“We do know that, over time — and it takes a while — as customers perceive what we do as making it easier to do their business with us, then that’s how you start to attract new clients,” said Charles Liu, head of branch transformation, ATM innovation and market strategy at Bank of America.

Joel Plotkin

A driving factor behind the recent wave of ATM upgrades is that big banks are preparing to integrate their machines more closely with their mobile apps, according to industry experts. Some view the recent launch of cardless transactions over the past year — at B of A, Wells Fargo, JPMorgan and others — as the first big step in that direction.

At Bank of America, for instance, ATM screen displays are currently being redesigned so that they have the same look and feel as the company’s app, according to Liu.

B of A soon plans to give its customers the ability to “pre-stage” a transaction on a mobile phone, so that they can quickly grab cash by tapping their phone to an ATM, without having to go through the somewhat cumbersome process of typing in a verification code. The function will be available to employees at the Charlotte, N.C.-based company in two weeks, and it will launch on a larger scale in late August.

Further down the road, B of A’s chatbot, erica, will also likely be integrated into its machines.

“You’re going to see the evolution of the financial center,” said Liu, describing the ATM as “one component of the ecosystem.”

Notably, B of A has also recently begun testing automated branches, which include a combination of ATMs and videoconferencing rooms, where customers can have private meetings with bankers.

JPMorgan is also looking into giving its customers “pre-staging” capabilities, according to Ryan Crowley, head of branch systems and innovation.

Earlier this year, the company launched a large-scale software upgrade, giving its machines a more modern-looking interface. Its newest ATMs also have high-tech features on the back end, including the ability to recycle cash between deposit and withdrawal bins, to reduce the frequency with which machines are out of service.

Other features are in the works, as well. “What I would say is we have a lab where we’re constantly introducing new and innovative technology,” Crowley said.

By giving consumers more ATM features, such as the ability withdraw large sums of cash, banks are aiming to create “teller-transaction parity,” according to Erin Hill, JPMorgan's head of consumer branch banking. In other words, visiting a branch for simple transactions is quickly becoming a choice for consumers, rather than a necessity.

JPMorgan, which operates the industry’s largest network, said its transactions increased 15% since 2014.

Between 2014 and 2016, the company purchased 5,000 enhanced ATMs, which include the new features. It replaces about 2,000 of its machines every year.

The push to upgrade ATMs is just the latest wave of innovation in the machine’s five-decade-long history.

Industry veterans say the pace of ATM innovation has moved in fits and starts. The machine made its debut in banking at Barclays in London, in June of 1967. Over time, ATMs slowly began to feature color displays, touch screens and privacy filters. Some even dispensed nonbanking items like stamps and prepaid calling cards.

ATM fleets have also expanded with the rise of computer networking, as well as with the introduction of surcharging in the 1990s. More recently, developments in imaging technology have allowed banks to improve the machines’ deposit-taking capabilities.

“It comes in chunks,” said Ken Justice, a senior vice president in charge of ATMs at PNC Financial Services Group in Pittsburgh.

ATMs currently in the market vary widely, from “cash-and-dash” terminals in convenience stores to more full-service teller machines at the flagship branches of many large banks.

Regional banks are also getting in on the latest wave of ATM innovation, though on a much smaller scale.

In its core markets, Fifth Third Bancorp in Cincinnati operates 60 so-called smart ATMs, which offer features such as the ability to withdraw cash in more denominations than the standard $20 bill and also to cash checks, according to Jim Sutton, senior vice president of ATM networks and distribution.

Meanwhile, PNC, which recently expanded its ATM fleet by 20%, is experimenting with cash recycling to reduce the cost and frequency of having its machines out of order. Offering card-free withdrawals is also on the drawing board.

“We’re sensitive to keeping it simple, making sure the transaction is pure,” Justice said.

As ATMs continue to become more high-tech, regional banks will likely face a challenge in trying to keep up with their megabank peers, according to Hovet.

Overhauling a fleet of ATMs with new hardware or software is expensive, and banks are less likely to get a boost from marketing new features unless they are among the first to do so.

That means regional bank executives need to choose wisely, Hovet said. For instance, if research shows that consumers are not interested in card-free transactions, it may not be worth the investment.

“Banks are looking for ways to create a marketing differentiation, even if it only has a short life,” Hovet said. “I think the problem for banks that are historically fast followers, the regionals, is that they get stuck in this arms race.”