ATMs at the head of their class.

Not an awful lot - as banks and competing financial service providers are finding out. The next generation of ATMs are upon us; get braced for their transformation into multimedia convenience kiosks.

Once it seemed so simple: ATMs meant banks and money - they dispensed cash and collected

The Comptroller of the Currency has authorized banks to offer theater and bus tickets, gift certificates, prepaid phone cards and similar products through ATMs. Some banks are sticking with augmented banking services, such as printing miniature bank statements, while others are selling U.S. postage stamps and other easily dispensed products. Most important, however, other financial institutions and organizations outside the industry are pushing the envelope; seeking new ways to use ATMs, and new ways to generate revenue. In short, bank machines are no longer just for banks.

As the market for ATMs burgeons, and their capabilities expand, it is critical that banks keep up with nonbank financial institutions, and other previously unrecognized competitors, by providing customers access to the new generation of "smart" bank machines.

And to describe it as boom market, hardly does it justice. The Mentis Corporation, a research firm, has estimated that in 1997, one-third of all retail banking transactions will be processed through ATMs, double the 1996 level of 15 percent. The Durham, N.C., company has further predicted that in three more years, the number will increase by half again, to as high as 50 percent.

The more ATMs there are to use, the more consumers seem to use them. While the number of terminals has increased, ATM transaction volume has maintained a monthly average of about 6,500 per terminal.

Three factors have fueled the ATM expansion: revenue-generation through surcharges and foreign fees; a competitive scramble for choice off-premise sites, and the desire to move consumers to lower-cost self-service for routine transactions.

Seattle's Seafirst Bank ATMs print bank statements and also sell postage stamps, prepaid long distance telephone cards, metro bus passes, and store coupons. With $16.5 billion in assets, Seafirst is the largest deployer of ATMs in Washington state, with nearly 900 ATMs placed in high-traffic locations, including retail outlets, grocery stores, self-service banking centers and branch banks.

On the East Coast, cardholders can buy stamps at BankBoston ATMs and soon they will be able to get bank statements.

Elsewhere, banks are moving beyond the concept of ATM-as-dispenser. Huntington Bancshares in Columbus, Ohio, now operates 15 fully automated branches called Huntington Access Branches. These 24-hour, full-service banking centers dispense cash and offer two-way videoconferencing kiosks that are linked by an ISDN line to a Huntington main office. Customers use the kiosks to see and speak with a bank officer while completing a credit-card or loan application on a touch screen keyboard.

On the commercial banking side, First Union Corp., the sixth largest bank in the country, has set up ATMs strictly to capture deposits from small businesses.

Music to your ears

Network service providers are getting into the act, too. TYME EFT network, Milwaukee, and MUZAK, Seattle, are working together to bring music and audio messages to ATMs. James Martin, TYME Corporation president, reports they have signed contracts with a couple of banks to equip terminals in early 1997.

"The banks are choosing the locations. For instance, a bank with a couple hundred ATMs may look at equipping 50 machines: some may be on-premise, some may be off-premise. These designated ATMs fit the demographics for what they are trying to achieve - attracting new depositors, informing current depositors of new services, or providing the community with a bulletin-board type service," Martin says.

Technology is drastically changing what can be placed in ATMs, he adds. For example, a digital playback unit is triggered by a person walking up to the machine and inserting the card, which breaks a beam of light. Messages can include information about products offered by the financial institution, public service announcements, or anything else.

Since this implementation is not in use yet, it's impossible to accurately judge consumer response. However, early indications are somewhat favorable.

"We had considerable media attention here in Milwaukee, and the television stations presented the concept to cardholders," Martin reports. "The cardholders said as long as the message is informative, it won't bother them. A few saw it as a ploy by banks to make more money."

He reports that there are no maintenance costs, but there is a monthly fee of $20 to $25 per ATM. The messages themselves cost $25 per recorded spot and up to eight messages and be placed on the digital repeater chip. An upfront cost for a typical bank is $500 to $600 per ATM. This includes installing the digital repeater, motion detector to activate play, and the first series of spots.

Mark Hill, group sales manager for national accounts for MUZAK, reports that MUZAK is currently negotiating with three other major U.S. companies that collectively represent 1,500 to 2,000 ATMs. "This is a low-cost-per-million . . . vehicle that gets your message out. Because so many people use the machines, it is bound to be influential and successful because [it is alternate] delivery."

Anchors away

Banking hardware vendors themselves are looking at alternate delivery: New venues and new applications for ATMs. NCR Corporation, Dayton, has forged ahead without financial institutions, creating ATMs that can renew car registrations for the state of Maryland. Users can pay by cash, check or credit cards; an optical character reader confirms check payment amount and a bar code scanner reads the documents.

No network or bank partners are included in this $3.4 million contract - NCR collects $5.43 or $6.10 per transaction respectively from the use of two kinds of ATMs. One machine can accept the registration renewals, while the other goes one step further and actually dispenses license plate registration stickers. Approximately 7,000 transactions occur annually at each of the 11 ATMs.

The State of Maryland is now considering using these ATMs to allow consumers to buy hunting and fishing licenses, and to pay taxes.

Pushing at the concept of "convenient location," NCR has also put 500 ATMs, plus servers and debit terminals, aboard U.S. Navy ships. The company reports the machines have made it much easter and cost-effective to deliver paychecks to sailors. In addition, it is safer for the ship's personnel since they can withdraw cash for their immediate needs rather than cashing their entire checks.

A vending machine?

Nonbank financial institutions, too, are finding new ways to use ATMs, and generate extra revenues. Nationwide Money Services Inc., founded in 1993, and based in Calabasas, Calif., has a different perspective on what ATMs do.

"We view what banks call an ATM as a vending machine. It dispenses a product every person in the U.S. wants - money," says Bob Peisner, chief operating officer and president. "[Therefore] we also [dispense] prepaid telephone cards, U.S. postage stamps, event ticketing . . . advertising coupons." And advertisers can buy six 10-second spots on the screens to promote their products.

"When a person swipes the card [during a] transaction, there is a period of time from when the funds are requested to [when] the cash and receipt is issued. That time is six to 10 seconds and [the user] is captive. National advertisers may want to buy that time," Peisner says. The ATM commercials can include full-motion video and sound, and can be activated by voice or motion.

"You could use a motion detector to activate the machine to say, 'Excuse me, would you like cash today?'" quips Peisner. Apparently the machines are smart enough to use salesmanship, too.

Right now messages are put on disk and installed manually in each machine. By the end of March, those ad messages will be changed remotely from Nationwide's computer center, downloaded through the telecommunications line connected to the machine.

Peisner says the company has 1,200 units in the field and plans to deploy a minimum of 2,500 in 1997. The goal is to have 7,500 stations in place by the end of 1999.

Nationwide is using a niche strategy. Peisner identifies the company's main market as those locations with monthly transaction levels below the 5,000 to 6,000 threshold that banks require for profitability, and multiple unit retailers with locations across state lines.

"Many banks don't want to get involved outside their regional area. We enter into joint ventures with banks that don't want to make the hardware outlay but will provide the cash and replenishment services. We contribute the hardware, and once [the transactions] get above a certain volume, then we share the profits," Peisner says. The company also is looking at joint ventures with credit unions.

Taking a gamble

Banks themselves are putting computer and communication technology to work and experimenting with the location of ATMs and the range of their services. In Alton, Ill., the Bank of Alton has placed a wireless ATM on the Alton Belle Casino to deliver cash to gamblers. (Gaming laws prohibit players from leaving the boat and returning again.) Transactions are processed via cellular communications. "This was an alternative to check cashing or credit card charges or cash advances," says bank President Bart Solon. "It works very well; the technology is dependable."

The Farmers & Mechanics National Bank, Frederick Md., uses a mobile branch to offer all banking services except safety deposit boxes. Begun in June 1995, the mobile bank spent the first year appearing at events and gaining visibility in the community. Now in its second year, the mobile unit is used more to build relationships with customers. The branch-on-wheels has one ATM and a two-desk office, and travels daily, including weekends, bringing bank-at-home convenience to retirement communities and bank services to businesses and even commuter parking lots. It also continues to travel to large special events, and is used with the bank's trust and investment group to deliver seminars.

"We are generating loans, and we have developed trust relationships," says Deborah Culler, director of marketing. "It has outpaced its projected loan growth."

She also says customers now recognize the bank as the one with the mobile unit. "It was very forward-thinking. The older market loves it because it allows them to remain in control of their finances, versus having to get a ride to the bank or having someone else do their banking."

Culler notes that the bank is considering adding a premium fee for transactions at the mobile unit.

A ticket to ride

At Giant Food stores in the Baltimore area, cardholders can retrieve previously ordered tickets for airlines, sporting events, concerts and plays from ATM-like machines made by Docunet, Inc., of San Francisco. Users order tickets from agents in the usual way, then come to the Docunet Delivery Machine kiosk, where the order is confirmed before the tickets are printed and dispensed. If the order is incorrect, a telephone within the kiosk will connect the user to the ticket agent.

Attendees of BMA's annual conference in Orlando last September saw several technological innovations that can turn basic ATM stations into sophisticated banking kiosks.

At a recent industry trade show, NCR displayed a new line of self-service terminals, called personaS, available in 1,400 colors and six levels of capabilities, from full-function, in-lobby ATM to cash-through-the wall ATMs. NCR recently completed installation of 900 personaS ATMs for Wells Fargo & Company. The terminals can feature full-motion video for high quality advertising messages, and also allow merchandisers to guide users through complex tasks, such as selecting seats for the symphony.

Olivetti North America Inc. exhibited its new multimedia kiosk at the BMA annual conference. It is available as standalone hardware, a hardware unit integrated with the company's Mosaic kiosk software, and as a kiosk with Mosaic software integrated to the branch operation. The kiosk offers form and receipt printing, a touch-screen interface, PIN pad and videoconferencing.

With this unit, banks can use the kiosk for mortgage origination - a direct audio and video connection links customers to the mortgage lending officer. Once the form is completed, it can be printed on the spot for personal signature. Other features include a branch locator with directions and a map printed on demand, personal account management, loan and retirement planning calculations, and current rates for deposit and loan products.

Fujitsu ICL Systems Inc. has recently introduced a suite of products that provide graphics and software management so bankers or other advertisers can remotely download information to individual smart ATMs and cash dispensers. With this capability, coupons and advertising messages can include logos and other graphics. The company also introduced a software program that makes it easier for bankers to add other software to an ATM system, such as event or travel ticket printing programs, without making changes to the network.

Fujitsu also introduced Precision Delivery, a program that will provide automatic balance information for customers who routinely make such inquiries before withdrawing money, deliver personalized on-screen messages for high-value customers, and show customers advertising and marketing information during ATM transactions that are based on their relationships with the bank.

And now a word . . .

Before banks start investing in new ATMs with thermal printers for sophisticated coupon printing, or ones that accept advertising messages electronically without using the network, they should prudently consider the level of advertising consumers will accept.

The danger for banks that move quickly to capitalize on this new revenue stream is that customers may reject ATM advertising and move back to more traditional service channels - or down the street to a bank with less aggressive marketing.

Prior to the merger of Meredian Bank and CoreStates, Meredian received mixed reviews for its experiment with ATM advertising. "Some thought it made for a more fun experience. Others said, 'I don't want to listen to your pitch, I want to get my money and get out,'" says Joseph S. Pendleton III, senior vice president of alternative delivery planning for CoreStates Financial Group.

"You have to react to what the customer is willing to accept. Some things are fairly innocuous, like using the dead time."

As banks and others compete with both cash dispensers and smart ATMs, bankers must not only answer where to put the next ATM, but answer what features and products are needed. Further, they must find ways to distinguish themselves from competitors if their ATM product line is to survive and thrive.

Pendleton sums up the factors bankers must weigh: "The appropriate functions for an ATM are the basic things that are already there. They present ease, convenience and reliability. It is that activity that will help bank change the delivery paradigm from traditional to self-service. These other things are ancillary.

"On the other hand, we need more flexibility in how ATMs are used and deployed. At a heavily used ATM, [there] needs to be limited [and] very straightforward transactions to keep people flowing through. Customers don't want to spend a couple of minutes while the bank gives its pitch about mutual funds when there are 16 people standing behind them. But they might like to have a machine right next to the one delivering cash that gives more information, delivers coupons, lets them pay bills and get stock quotes."

One thing is clear - the ATM market is ready to spring into a new era of uses and revenue opportunities.