A real look at full turnkey ATM outsourcing

For many years, the ATM has been a back burner priority for many financial institutions. ATMs are considered to be required elements of a branch financial institution strategy but hardly a leading one.

To help a financial institution manage their ATM business, they have been relying on outsourcing various aspects of terminal support for years. According to a study conducted by Celent Communications, nearly 75% of the outsourcing dollars spent in the U.S. consists of transaction switching and terminal driving and currency management. Celent has also identified the main drivers that have traditionally caused institutions to consider outsourcing various aspects of their ATM business, namely:

• Reduction of operational costs and performance improvement. Activities not considered to be the “core” expertise of the institution are candidates for outsourcing and research has shown financial institutions may be able to save 15-25% savings on ATM management services
• Importance of the ATM as a self-service channel. ATMs have replaced branches as the main source for consumer cash, which allows the branch to focus on sales.
• Concentration on core services. Competition compels financial institutions to pay close attention to services that are strictly related to the institution. Such focus has encouraged institutions to look for outside help in managing the ATM.
• Meeting client expectations. To become and remain competitive, financial institutions must provide the best service possible by making sure the ATM fleet is functioning at all times and contains the appropriate levels of cash. These tasks are difficult to manage by the financial institution alone and advanced technology makes these functions more complex.
• Business expansion. As financial institutions merge or acquire smaller institutions, complex and mixed ATM environments require a trusted third party charged with handling its ATM operations

However, in today’s environment, a massive technology change is underway, driven by improvements in hardware and software available for purchase and accelerated by regulatory changes that mandate investment for compliance. ATM owners are actively looking to comply with the regulations, incorporate check image technology, and leverage the robust, customized experience the new environment can offer while containing cost. At the forefront, 3DES compliance requirements have caused many organizations to re-evaluate the role of the ATM.

Not only is the capital outlay required to comply with the mandated upgrades a high hurdle, but many financial institution ATM deployers do not have the technical know-how to manage the development protocols and security risk of the Windows based architecture that surrounds today’s new equipment. The Windows platform, unlike O/S2, requires ongoing maintenance, especially for virus protection and security management.

This once undemanding element of a retail financial institution suddenly has progressively become problematical in its demand of core resources to simply maintain the status quo of providing a customer with their money when they want it. It’s that need in the market that helped Elan Financial Services develop an ATM outsourcing solution that specifically addresses the issues presented by a technologically obsolete ATM fleet and what to do to remedy the situation. Complete end-to-end outsourcing has become a viable solution for many financial institutions that have struggled with these issues.

Good solutions don’t just happen
Several clients of Elan have found themselves in the same predicament as many other financial institutions that have an aging, non-compliant ATM fleet, an older telecommunications infrastructure to support their franchise, and yet still have a strong desire to leverage their ATMs for brand awareness, marketing and additional deployments for increased market penetration.

Additionally, along with changing technology comes changing customer expectations. A research study by Synergistics has shown that younger generations will have a greater expectation for advanced and new functionality functions at the ATM. To support this important customer base, the ATM may be a way to provide a competitive advantage.

Replacing the aging ATM fleet with state-of-the-art ATM equipment is only the beginning. Upgrading the telecom configuration to Internet Protocol (IP) with redundant components for disaster recovery is required so the solution supports both the individual ATM and the authorization platform.

As many financial institutions now view the ATM as a marketing channel, the demand for intense color graphics and motion has increased. These features can be used both for general advertising on the Welcome screens and for specific product offers to selected clients anywhere within the transaction sequence. This functionality requires utilization of software distribution to remotely send new software to the ATM and support the many marketing messages that can potentially include screen and receipt marketing and messaging as well as specific ATM terminal targeting. This same software distribution package also supports the distribution of Windows patches.

The hard decisions can become easier
Serving as the general manager, Elan is able to govern the total installation process including: hardware procurement, software development, telecom vendor management and installation, site design and construction, and management of all other sub-contractors required to implement the entire solution.

During the recent implementation of a circuit upgrade, Elan installed a telecommunication circuit to a client’s disaster recovery location in Houston TX. During the deployment, the system received a major test with the arrival of Hurricane Katrina. The disaster recovery capabilities provided by Elan allowed for the quick recovery of many ATMs. The client was able to continue meeting the needs of their customers while recognizing and retaining their interchange and surcharge revenues.

This client described the performance of the Implementation Project as “excellent”. From a financial perspective, the Elan solution allowed the business partner to avoid the large capital outlays required to acquire ATM equipment, upgrade their telecommunications structure and hire project managers to coordinate the upgrade or replacement of much of the ATM fleet. The business will also be able to recognize significant financial savings by eliminating or redeploying resources from the ATM department.

As a result of this project:

• The expense of capital upgrades, and infrastructure development was avoided
• All ATMs are compliant with 3DES
• All ATMs have a common “look and feel” across the franchise
• Additional machines can be added simply and cost effectively
• All ATMs have completely redundant disaster recovery capabilities
• The financial institution’s image in the eyes of their customers has been significantly enhanced with the deployment of the new devices
• All ATMs are positioned well for the future

Speer and Associates has identified several key questions that should be addressed when an institution is considering outsourcing:

• Does my ATM management team have a good “handle” on this business? Has the financial institution determined how the ATM is to be positioned as part of the overall retail and commercial business strategies?
• What is the financial institution’s ATM locational strategy? Is the ATM effectively integrated as a delivery channel supporting the consumer business, including segmentation initiatives and product/service plans?
• If the financial institution has deployed off-premise ATMs, is there an understanding of the operation, management, and financial requirements and profitability of this business? Are the off-premise ATMs viewed as a stand-alone venture or as part of the financial institutions’ overall delivery strategy, making measurement more complex?
• Do we have comprehensive and fully developed ATM program costing, enabling the financial institution to make rational business decisions regard ATM processing and support activities. If not, can internal or consulting resources be assigned to develop needed cost and revenue data before taking next steps?
• If an outsourcing evaluation is appropriate, can dedicated, knowledgeable resources be assigned to implement a cohesive outsource plan and potential partner evaluation process?

Instead of being overwhelmed by what to do with all the changes in the ATM industry, financial institutions can and should spend their time concentrating on their core business and find business partners like Elan who specialize in making hard decisions easier. Many financial institutions can realize similar benefits from outsourcing their ATM programs.

Contact Information:

Brian Koehler, Product Manager, Emerging Products
651.205.2825
brian.koehler@elanfs.com