Across the largest markets – Brazil, Mexico, Argentina and Colombia – approximately 93 percent of the banked population is familiar with ATM use.
Kroll-InfoAmericas estimates the number of ATMs in Latin America at 250,000, of which three-fifths are in Brazil. The exact figure is a moving target because most countries in the region do not have central record keeping for ATMs. In addition, each country usually has at least two networks—and in some cases up to nine—with information kept by each in private silos. The size of the country is not necessarily a factor in determining the number of networks. Brazil has four large networks and El Salvador recently had six spread across less than 500 machines. Furthermore, sales of new machines are not always an indicator of growth, because of the need for replacement of older models.
Nearly 70 percent of the ATM networks in the region, including the 15 percent of ATMs owned by government banks, are open access. This means that end customers can access their account from machines owned by banks other than those who issued them the debit or credit card. Restricted access networks only allow transactions if both the ATM and the card are from the same bank. Most restricted access networks in Latin America do, however, allow access to international networks. The largest example of this type of network is Brazil’s Banco Itaú.
The tendency is for closed access networks to incorporate into open access ones. This allows maintenance costs to be outsourced or defrayed among various bank partners. In Latin America, this is important given that high crime rates and large geographies make servicing and accessing ATMs difficult. The cost to service an individual ATM can run upward of $24,000 per year. Not surprisingly, the number of ATMs within limited access networks shrank 7 percent in 2007, mainly resulting from banks adding their ATMs to open access networks.
In contrast, open access networks are growing by 10,000 to 15,000 machines per year. A significant part of this growth comes from previously restricted access ATMs, but sales of new machines are also brisk. Caixa Economica in Brazil ordered 9,600 ATMs from Diebold in April 2008, and the manufacturer expects delivery of new ATMs to Mexico to surpass 5,000. The latter will substitute older stock that is prone to security breaches and has limited service options for customers. Mexico has some of the oldest ATMs in Latin America, with an average six years beyond the regional average age of five years.
Dynamic service capacity is a core component to the new ATMs shipping to Latin America. They allow banks to create income from transaction-based services at a time when most in the industry anticipate a softening of income derived from fees and commissions on savings and checking accounts in the region. The fall in income is partially the result of legislative pressures capping fees and commissions. It is also a consequence of moving downstream into lower income segments where deposits are smaller, often migratory, and the ability to up-sell and cross-sell is hampered.
This is causing banks to explore ways to charge financial partners rather than end users for usage, thereby heralding the need for more service options. Examples include ATM network Redlink in Argentina. Its customers can pay utility bills and re-charge phone cards. Spain’s La Caixa (not to be confused with the Brazilian bank) is exploring remittance payout models with its correspondent banks in Ecuador and Colombia. In both cases the biller is charged while the end user reaps the benefit of convenience. Income from ATMs can be considerable; some Colombian banks report up to $5 a month per card related to ATM fees.
The new capabilities of ATMs also facilitate personalized customer service and marketing efforts. Banks can customize ATM screens based on the type of account the cardholder has (e.g. Gold or Platinum; or savings vs. checking etc.), thereby facilitating the service options for different customers. If desired, a customer can indicate what features they would like to have. A Kroll-InfoAmericas study in late 2006 revealed this to be particularly appealing to small merchants and companies. They regarded the ability to program ATMs for their individualized needs as a means to reducing the reliance on tellers, without having to resort to on-line banking.
Going a few steps further, advertising promotions may soon become mainstay items on ATM screens. ATM screens demand the customer’s complete attention for the duration of a transaction and are therefore very successful advertising tools. Kroll-InfoAmericas analysis of a leading Brazilian bank’s direct mail versus ATM promotion campaigns revealed that ATM advertising was recalled by over 90 percent of users as compared to 15 percent of direct mail recipients. Initially the tests were conducted using bank services and products. They were then expanded to advertise a consumer good product, concert tickets and restaurants within 400 meters of the ATM. The results were surprisingly successful.
The principal technological enabler for these service concepts is a move toward the IFX (Interactive Financial Exchange) as the standard for electronic communications in banking channels for both banks and suppliers. Celent consultancy estimates that the penetration of the IFX standard will reach 60 percent of financial institutions by 2009. Further enabling these developments is the adoption of Microsoft Windows XP as the operating system for centrally-administer programming and changes to individual ATMs. It remains uncertain whether banks will fully embrace proprietary software for administering ATMs, or if they will opt for open source such as Java that would allow them to switch from Windows to Linux. Either way, 83% of banks in the region are interested in strengthening their ATM networks with these customer service attributes.
THE CRIME RISK
With greater service, there is a correlating concern with crime and abuse of ATMs. The older generation of ATMs in Latin America is susceptible to card cloning, penetration of the vault and tampering with the cash dispenser. The Mexican Banking Association estimates that nearly one-third of the ATMs in the market are vulnerable to attack given their age. New ATMs will include biometric safety features. These types of ATMs are already present in Colombia and are part of Diebold’s shipment to Caixa Economica in Brazil. This plays well with consumers, as 53 percent note safety as a reason for not using ATMs more.
In some cases the technological adaptations needed to secure ATMs from crime are much more mundane. Mexico City registered 140 ATMs stolen, lock, stock and barrel in 2007. The solution will be to include reinforced steel bases that can be bolted to the floor.
This article is republished with permission from Tendencias, the magazine of Kroll InfoAmericas.