Cashing in on your ATM network. (automatic teller machine)

Automatic teller machines [ATMs) have met with mixed success since their introduction in the early 1970s. Some 165,000 are now installed in the United States, handling 900 million transactions a month. Yet few of them earn their keep.

An average-sized bank might spend $20 to $25 million a year on a network of 1,000 ATMs - a net cost of $20,000 to $25,000 for each one after revenue from fees charged to banks and customers has been deducted [ILLUSTRATION FOR EXHIBIT 1 OMITTED]. This sum has, on the whole, proved to be an extra expense, since ATMs have not produced the personnel savings or branch closures that were expected. On the contrary, the total number of transactions has continued to rise, while the number of branches has increased over the past decade by a compound annual growth rate of 2 percent.

Alarmingly for the banks, the economics of ATMs could deteriorate still further as cash payments are replaced by point-of-sale debit (with and without cash-back), smart cards, and credit cards. A fall in the volume of cash withdrawals would mean a fall in ATM revenue.

There is, nevertheless, scope to raise the profitability of ATM networks. Experience shows that by reducing operating costs, improving pricing, and broadening the functions of ATMs to stimulate customer demand, banks with large networks can boost the incremental profit from each machine by $15,000 to $35,000.

Fine-tuning the network

Operating costs

A network's operating costs can be cut by 10 to 20 percent, or $4,000 to $8,000 per ATM, if close attention is paid to the following:

Function. The more complex an ATM is, the more it costs a bank. Function should therefore be tailored to the needs …