ATM: Strategies for Lowering Total Cost of Ownership

Celent estimates that US financial institutions will spend over US$3.3 billion in 2005 in total operational costs (including asset depreciation) for their on-premise and off-premise ATM fleets, and that this number will reach US$3.9 billion by 2008.

The ATM market is undergoing a period of rapid change. After years of frenzied growth in transaction volumes and the number of ATMs deployed, the market is entering a period of maturity. The pace of change in the ATM industry has increased dramatically, driven by a number of industry issues including compliance and technology catalysts. They are forcing banks to consider new approaches to lowering the total cost of ownership (TCO) of a maturing channel. With ATM revenues declining, financial institutions are taking a more circumspect view of this critical retail channel. Faced with the competing pressures of lower revenues and the need for significant investment to upgrade aging infrastructure, banks are exploring alternative operational strategies for their ATM business.

In a new report, "ATM: Strategies for Lowering Total Cost of Ownership," Celent examines two frameworks that it believes to be key trends in ATM operations. The first is a trend of banks outsourcing significant portions of their ATM operations妖riven by a desire for cost savings, cost certainty, and service consistency. The ATM channel has become increasingly commoditized, with limited differentiation between financial institutions in terms of features used by customers (who remain largely focused on cash withdrawal). At the same time, the move toward more open, standards-based ATM technology continues and further facilitates the decoupling of ATM ownership from ATM operations. The trend to outsourcing is illustrated via an in-depth case study of TD Bank Financial Group痴 decision to outsource its ATM business process in an end-to-end manner.

The second framework reviewed is a trend toward branding of third-party ATMs by financial institutions. Banks want to enhance customer convenience by having a presence in high-quality retail locations, and branding existing machines allows them to do so quickly and cost-effectively. Celent predicts significant growth in bank branding of off-premise ATM machines by 2008.

According to Madhavi Mantha, senior analyst and author of the report, "As ATM outsourcing providers continue to increase their scale and hone their operations, the economic benefits of outsourcing and branding will become increasingly compelling for banks facing declining ATM revenues and increasing costs."

The 31-page report contains 9 figures and 5 tables.

of Celent's Retail Banking research service can download the report electronically by clicking on the icon to the left. Non-members should contact info@celent.com for more information.