Teller-machine outsourcing may solve banks' dilemma

Outsourcing could soon deliver banks from the problem of escalating expenses they face in offering automatic teller machine (ATM) services.

Australia's financial institutions will soon be given the choice to either wholly own their cash-dispensing machines or outsource the operation entirely, a move Kevin Reager, eFunds ATM services vice president claims could allow banks to further reduce their running costs and pass on savings to customers.

Whether or not they choose to do so would be entirely up to the institution but it would certainly remove the expense of costly upgrades, Reager said. While there are no laws in Australia regarding the outsourcing of ATM services and no institutions outsourcing their machines the practice is common in Europe, Canada and the US.

Financial institutions not only want to maximise profit margins through technology but to crack down on electronic fraud, Reager said when speaking in Sydney last week at the annual ATM industry association world conference.

He said outsourcing addresses both these issues and allows institutions to focus on their core business.

The changing trend in ATM usage is also having an impact on costs. ATMs are no longer located exclusively at bank sites and, of the 21,000 in operation, 25 percent are located in service stations, shopping malls, clubs and convenience stores. Reager said off-premise machines (those not located outside a bank) are not economical, with banks looking for methods to cut overall running costs by between 15 and 25 percent.

In 1995, Reager said withdrawals from ATMs were around 6000 per machine. In 2003 that figure had dropped to 3000 transactions as Eftpos and credit card became easier payment options.

The next step in eliminating ATM fraud would be the introduction of smartcards, he said.

Unlike traditional magnetic stripe cards, smartcards can carry all necessary functions and information and are embedded with either a microprocessor and a memory chip or only a memory chip with non-programmable logic.

The typical magnetic card costs between $US0.20 and 0.75 to make, with the reader and connection costing around $US750 per application.

NCR's ANZ solutions deployment manager Anne Henry said smartcards will reduce fraud but not eliminate it.

"The minute one solution is offered to contain fraudsters, someone cracks it. The challenge is for institutions to keep one step ahead," she said.

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