ATM outsourcing: A growing trend that takes the pressure off banks

As banks grapple with branch closures and improving customer experience, increasingly, many are outsourcing their ATM operations — handing over tasks, such cash management, system updates, compliance issues and, in some cases, even ownership to someone else.

The trend started catching on around the mid to late 1990s, Neil Scott, VP of sales at ATM Solutions told ATM Marketplace. It started with banks outsourcing ATM management at off-site locations that were difficult for them to maintain. Many banks proceeded to outsource ATMs at their island branch units, on the drive-through lane or in the parking lot. At this point, many banks now outsource their wall drive-up and walk-up units, too.

“Banks enjoy being able to, basically, get out of the ATM business,” Scott said. “Outsourcing first-line maintenance and cash replenishment relieves bank employees of an enormous amount of stress.”

In the last year or so, a factor contributing to the outsourcing trend has been Windows 10 migration. Financial institutions have to upgrade their ATMs to the new operating system by January 14, 2020 — that’s when support for Windows 7 ends — or they risk being noncompliant.

“It’s a headache for the banks,” Donna Embry, SVP of global payments strategy at Evolve Bank & Trust, told ATM Marketplace in explaining the cost and hassle of a major OS upgrade. “The banks just got through absorbing all the costs for the EMV migration, and now this gets thrown on top of them.”

EMV (short for Europay, MasterCard and Visa, the three companies that founded the standard) refers to the new smart chip cards that have replaced the old magnetic strip ones. When the credit cards made the change, ATM operators had to update their hardware at substantial costs to read the chips.

Now financial institutions have to upgrade their ATM hardware again to accommodate Windows 10 software. All this is happening at a time when banks are mulling over branch consolidation, as consumers shift to online banking.

“Basically, the banks have said, ‘I’m not getting any more revenue if I do it, because it is a cost. I’m not sure I want to keep my branch open, but I still need to service my customers,'” Embry said. “It is an ideal situation for banks now to partner with independent ATM deployers, who make their livelihood out of fleet management and taking care of machines.”

As far as saving money, outsourcing could actually reduce the cost of a Windows 10 upgrade or servicing the machine, she said. The bank may still have to pay an interchange fee for “on-us” transactions — meaning, transactions carried out at an ATM of the card issuing bank — but that’s minimal compared to machine upkeep and fleet management costs, she added.

Still, outsourcing is not without challenges. Due to how ATMs communicate and integrate with the bank’s own systems and customer databases, outsourced ATMs could lose functions, like the ability to take deposits from customers, initiate a loan or do bill payment for their in-house customers.

Sometimes the bank is okay with losing those functions, as they are minimal to the total transactions. But if the ATM typically has heavy deposits, the bank needs to make sure that either the remote machine or the platform that the independent deployer uses also has the ability to accept deposits. “That has not been historically the case, but it is moving in that direction,” Embry said.

Embry and Scott will be speaking on the panel “Outsourcing: When, Why & How Much?” at the Bank Customer Experience Summit Sept. 23-25 in Chicago. Register here.