Thursday, January 8, 2009

Dinosaur Revival

Not too long ago, ATMs were predicted to suffer the same fate as dinosaurs.

With the invention of payment cards of all sorts, increasing usage of cards as a cash substitute, and the introduction of cash back at point of sale, ATMs were predicted to suffer a slow death. Those predictions, however, failed to consider two key aspects of ATMs.

First of all, the incredible utility of cash, which means that cash will never go out of fashion. Lots of people still prefer cash for certain purchases. Some because they do not have other alternative, but most because they have a cash preference. Cash is convenient, full stop. (Ever heard a retailer say “sorry, we don’t accept cash?” Me neither.)

And despite several decades of strong growth in cards, POS terminals and card usage, there are still quite a few purchasing situations where cash is king. Interestingly enough, cash withdrawals have continued to grow in parallel with card usage at point of sale, although growth is showing signs to slow down as markets mature.

Secondly, the predictions failed to appreciate that ATMs are part of an industry. A large number of stakeholders had lots to lose unless they manage to redefine ATMs. Which is exactly what has happened. Distributing prepaid cards through ATMs is a brilliant example of an industry’s survival strategy and ability to extend the life expectancy of ATMs.

Furthermore, given the reduction of bank branches in certain markets, I would argue that ATMs are still quite a cost effective way to provide basic banking services to clients, build brand presence and awareness on the high-street, and gain additional income from new products and services.

And serve those customers who still prefer to pay for many purchases in cash.

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