A Vision of a Smart Future for UK ATMs

Which? has issued a report that claims the Big 5 Banks in the UK are closing their branches at the rate of 60 a month.

If this is true, it will not be the run-rate of closures for long.

Barclays,HSBC, Lloyds Banking Group, RBS Group and Santander have only around 5000 branches left between them. A 60 per month closure rate implies they will all be gone in around 8 years.

Of course, all bank branches are not going to close. Many people who should know about such things believe the number of branches will bottom out at around 2500 to 3000. So not extinct, but definitely an endangered species. 

In essence, when there are only 3000 bank branches left, you will have to be in a decent sized city to live or work near one.

Right or wrong, that is the way it is going to be. The banks will argue that their customers are all on-line and that they cannot afford to operate empty branches; those of us who don't want to simply exist online will have to find a new route for avoiding that fate. In short, we will have to branch out, if you forgive the pun.

Many believe ATMs can be the local replacements for bank branches. Though it is not obvious from what you currently see at such machines in the UK, ATMs elsewhere offer all the services available at bank branches- and sometimes more.

These "Smart ATMs" can be our Community Financial Services Hubs in the UK - but they have to be affordable for all participants in the chain, including our often maligned banks.

The economics of ATMs have changed over the years. 

Back in the 1990's, when there were very few ATMs away from bank branches, retailers often had to make payments to the banks to get a machine on their premises. I have seen a contract from those days which committed the retailer to paying for every cash delivery the ATM received.

From the dawn of the new Millennium, increased competition, both among the banks themselves and from the newly-minted independent ATM operators, led to substantial rental payments to retailers and other site owners for the right to locate an ATM on their premises.

In this new world of heightened competition, It soon became commonplace for retailers to receive £5000 or more a year if they agreed to accommodate an ATM. Contracts with major multiple retailers often guaranteed them more; I have seen rents of well over £10,000 per annum per ATM paid. 

Specialist sites earned even higher rents. For example,  at one time ATM operators had to bid in excess of £25,000 per annum per ATM to have any hope of locating machines at London Underground Stations.

Lets be honest. The whole situation has simply become too expensive, especially since much of the funding is provided by banks. Those banks are not the profit-engines they were pre-2008. They have to reduce costs in every segment of their businesses. ATM costs are now being subjected to microscopic analysis - and the banks want to save money.

So, if we are to have our Smart ATMs, delivering Community Financial Services around our entire nation, we need some new solutions.

There will still need to be significant and properly structured funding contributions from the banks. The Smart ATMs will be providing services to their customers, so it is right that they pay a share of the costs. However, retailers will also have to adjust their expectations and forgo the rental levels they enjoyed in the heady days from 2000 to 2007. They can still enjoy massive benefits from having an ATM at their premises, but they will derive some of them from effective cross-marketing of services and merchandise, rather than relying on ATM site rentals. Finally, the public - you & me - and businesses, may need to pay reasonable fees for some of the services offered at the ATMs. Lets face it, we already do pay fees for some banking services, so it is only fair to expect to be charged for a number of the services delivered to our Communities by Smart ATMs. 

What is crucial for all this to work is for the banks to cooperate with the LINK ATM Network to ensure innovations are available through LINK that can see Smart ATMs become workable substitutes for the lost bank branches. The banks do not necessarily have to operate the ATMs, but the functionality must be available through LINK, so that other ATM operators can step-in to run ATMs around the UK. Barriers to entry to the LINK Network must be low, to encourage new market entrants, fostering renewed competition and further innovation.

Two innovations I have recently highlighted as being necessary are 1) the Universal Cash Deposit Transaction, allowing cash to be deposited at any hardware-enabled ATM in the country and 2) Contactless ATM Transactions, which, if implemented as a LINK transaction, would both make using ATMs a more user-friendly experience and reduce transaction times.

These are just two of the innovative transactions we need to see at Smart ATMs, connected through the LINK ATM Network. There are many more.

Apart from the need to ensure that LINK increases the number of services available via the network, cash itself needs to see further innovation -and not just in terms of using new materials to produce banknotes.

The whole cash supply chain needs to be reviewed to ensure it is fit for purpose. Cash is going to be a payment choice for the UK public for the foreseeable future and infrastructure needs to be in place that allows cash to be delivered conveniently and cost-effectively to end users.

So much needs to be done. 

To achieve what is necessary needs all industry participants to work together, in a spirit of compromise and with the collective intent of ensuring that the needs of the public and businesses are met in every respect, including their need for convenient local access to automated cash deposit and withdrawal facilities.