The Battle at the Electronic Funds Transfer Corral; Point-of-Sale Systems Taking on Automated Teller Machines in a Showdown for Efficiency and Profit in the Financial Services

Article excerpt

A battle is brewing over emerging technology for the delivery of banking services to the consumer. On one side is the automated teller machine and on the other is the point-of-sale terminal.

Huge investments, of course, have been made in ATMs, and machines still are being installed at a rapid pace. But the question is being asked whether the nation already is "over-ATMed," and whether the value of the expensive ATMs will be reduced by competition from POS technology.

In other words, is the ATM already the new equivalent of the underutilized brick-and-mortar branch? According to the American Bankers Association, at the end of 1983 there were about 48,000 ATMs installed, up from about 2,000 a decade earlier. And the ABA estimates that during the past year the number has risen by 35%, to almost 65,000.

With individual banks installing their own ATMs and with the spread of local, regional, national, and even international shared networkds, some payments-systems analyst are predicting there will be a shakeout.

"There'll definitely be some consolidation, especially of local networks," said Paul G. Tongue, senior vice president of the Chase Manhattan Bank.

The question of whether there are too many ATMs is heightened by the prospect that there will be an onslaught of point-of-sale terminals -- still another expensive technology and one that has not yet proved itself as a service wanted by consumers. Success in ATMs is gauged by the volume of transactions put through them, and the danger exists that the bulk of transactions will shift to POS terminals.

These are devices that allow customers to have the amount of a purchase moved from their bank account to that of the retailer.

Many analyst believe that ATMs merely represent a stepping stone toward a more efficient delivery system. Their main usefulness, according to this theory, is that the ATMs will get people more accustomed to using debit cards for everyday transactions, paving the way to greater use of POS terminals.

Despite their popularity, ATMs still account for a tiny portion of the value of financial transactions. Last year, according to the ABA, the machines handled only $3.75 billion in transactions, up from $3.1 billion in 1982.

Of course, dollar volume of transactions is not a particularly good measure for evaluating the effectiveness of ATMs. Considering that the average ATM transaction was about $40, these machines conducted almost 100 million transactions last year.

But that is still small compared with the payments that are conducted through retail outlets. About 20% of the nation's retail transactions take place at supermarkets and another 9% at gas stations. Considering how POS could increase the efficiency of the payments system and reduce the cost of check processing for the banks, that technology seems highly attractive, even more so than ATMs.

Once again, however, the danger exists that bank strategy will be based on what is most cost-effective for the banks, with the needs or demands of the customers forgotten. That happened in the case of ATMs, when many banks held off installing the machines because of the high costs involved. It seemed the ATMs would never pay for themselves. But the popularity of the machines, and their making banking facilities available 24 hours a day, was great enough to influence market share and most banks eventually were forced to install them.

"It was a major marketing disaster," said Robert B. Kaplan, vice president of the Boston Consulting Group. "The banks looked at ATMs solely from a cost point of view, and not from the perspective of what their customers wanted or needed."

But now, if POS terminals are installed at most retail sales outlets, such as supermarkets and gas stations, will POS reduce the volume of transactions at the expensive-to-install-and-maintain ATMs, reducing the value of those investments? …