A brief history of ATMs: how automation has changed the retail banking sector

At first, when I tell that I am interested in ATMs, the other person’s eyes glaze over. But then, when I explain why I consider their role important, many begin to recall their stories related to them. A chance meeting in a queue, or the fear of being robbed in an unfamiliar place, or a feeling that occurs when you see the line “not enough money”.

Most of the townspeople met with the ubiquitous ATMs. Fed Volker from the Fed called them "the only useful innovation in banking." They are often mentioned on television and in the news, because it is they who connect people with the usually ephemeral world of financial services.
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Despite their cultural significance, ATMs are lost in a series of daily events. Few people think about how they became the basis of modern retail payments.

The cash dispenser appeared almost 50 years ago, in 1967. Its appearance marked the dawn of digital banking. The glory of the inventor is attributed to himself several people. John Shepherd-Barron and James Goodfellow from the UK, Don Wetzel and Luther Simiyan from the USA, engineering companies like De La Rue, Speytec-Burroughs, Asea-Metior and Omron Tateisi. But ATM is a technology team. There was not one such moment of illumination, which would be the moment of its appearance.

In the 50s and 60s, the popularity of self-service gas stations, supermarkets, ticket machines and sweets began to grow. Apparently, the first ATM appeared in Japan in the mid-1960s, but almost nothing is known about it. The most successful start was in Europe, where bankers in response to the strengthening of trade unions and the growth of wages punished engineers to solve the problem of cash withdrawal during non-working hours. In 1967, three such attempts were made at once: Bankomat in Sweden, Barclaycash and Chubb MD2 in the UK.

They came into being thanks to a long chain of innovations. Starting from more common inventions such as steel, video screens, plastic, magnetic tape and (not so long ago) Windows. And ending with special things - the mechanism of issuing money and the algorithm that connects the PIN with the user account. These components were invented in the process of interaction of groups of bankers and engineers who tried to solve various problems in the complex problem of creating an ATM.

It was a good test for automation and electronics. They could get stuck in something, they could run out of bills. Or they could have issued several bills instead of one, and the bank would not have known about it. A specific ATM was activated with plastic or paper tokens issued by only one bank, and sometimes even by a specific branch. Some ATMs did not give the token - they were then returned to customers by mail. As a result, early ATMs were a thing in themselves, awkward, unfriendly, and not flexible. They could only give out cash in exchange for tokens.

Therefore, the exit from the stage of experimental checks took more than 10 years from banks. Then very few people believed that ATMs would change the banking world. Of course, they appeared before the popularization of credit and debit cards, when most people worked with cash. With the exception of the United States and France, only the rich used checkbooks.

Nowadays, it is easy to update the record on the central server after each transaction, we have mobile banks and e-commerce. And then ATMs became one of the first devices using real-time network technology. Then creating a system to communicate with the central computer was a very difficult task. Swedish banks together with IBM launched such a system in 1968. IBM then collaborated with Lloyd's Bank, and networking devices appeared in the United Kingdom in 1973. In the 1970s, IBM engineers developed payment system standards on which future systems would be based.

The ATM freed consumers from long lines at banks that operated only at certain times of the day. As devices spread, they changed patterns of consumption, made it possible to buy on weekends and sudden trips to a restaurant. And allowed banks to grow their customer base at the expense of customers who previously could not use a credit account or card. Employees of banks have become less involved in the issuance of cash and more - sales. Highly profitable businesses such as auto insurance, credit cards, investment funds and mortgages thrive due to the fact that some banking services went to ATMs.

Bank regulators constantly monitored the operation of ATMs and indicated who could own them, tracked the cost of withdrawing cash and their location. Ordinary people also influenced this market - how they look, how they work, and their role as a platform for many modern operations - inquiries, deposits, transfers and payment for services.

In 1971, shortly after the appearance of the first machines in England and Sweden, manufacturers worked in Britain, the USA and Japan. Together they developed cars in their countries and across all of Europe, in Canada, Israel, Cyprus, and Latin America. In the early 80s, pioneers like Chubb, De La Rue, Docutel and Asea-Metior left the industry, unable to cope with the development of computers and electronics. Others, like Burroughs, have not achieved their intended goals. Citibank was unable to commercialize its CAT-1 and CAT-2 devices, and instead continued to use them in its worldwide proprietary network until the 1990s.



But IBM, with their marketing capabilities, experienced engineers and connections, could dominate the market. The company, apparently, was going to crush all competitors until they decided to develop a new model, the IBM 4732, which was not backward compatible with the previous ones, including the very successful IBM 3624. Many banks refused to buy the new model because it canceled all investments in previous models. As a result, IBM encouraged banks to turn to other ATM manufacturers. Subsequently, IBM refused to work in this industry at all.

Around this time, two companies from Ohio, NCR and Diebold, were working on technology that would allow them to dominate the ATM market in the next two decades. Due to the failure of the IBM 4732, NCR made a bid for software that emulated the popular IBM 3624. Meanwhile, IBM and Diebold formed a joint venture in 1984 under the name InterBold. It was planned to combine the technology of self-service from Diebold with a worldwide distribution network from IBM. After 7 years, despite the growth in sales, the company stopped working. Diebold did not achieve the desired goals, and IBM’s revenues were small — partly due to the growth of local query processing architectures that buried IBM’s desire to connect ATMs to its expensive mainframes.

NCR and Diebold turned the first cash dinosaurs into modern, elegant and feature-rich ATMs. Among their innovations were a friendly video display, programmable buttons next to the screen, cash out in the horizontal position, money transfers and balance requests.

The growing popularity of ATMs has led to an increase in the number of their manufacturers: Honeywell in the US; Phillips, Olivetti and Siemens-Nixdorf (now Wincor) in Europe; Fujitsu, GRG, Hyosung and Hitachi in Asia. Large European banks have developed proprietary networks of hundreds of ATMs, and the US have preferred to use common networks.

Despite all the innovations, the ATM remained a costly device. The use of dedicated telephone lines limited their use by bank branches or by very popular places of cities - train stations, airports. With the advancement of digital telephony and Windows operating systems, these restrictions have become a thing of the past. These two seemingly simple changes led to major changes, and made it possible to remotely diagnose automata and integrate with credit card processing networks. Also appeared independent installers of ATMs - manufacturers not affiliated with banks.

And still, in this industry is not all chocolate. For example, in the course of reducing costs in 2014, Chilean banks reduced the number of their ATMs (and the frequency of replenishment of money stocks), and began to promote the use of public cash networks. This led to public outrage and media campaigns against banks. The development of mobile banking in Africa has called into question the need to deploy ATM networks there. Mobile banking reduces the need for cash and the deployment of bank branches in rural areas.

Starting from a modest start 50 years ago, ATMs have penetrated almost everywhere. But their success was not understood before the 80s. Today we are asked for PIN codes in libraries, on the Internet and in every retail store, where debit cards have become the default payment means. The almost complete worldwide integration of ATM networks means that almost anywhere in the world you can travel with a piece of plastic in your pocket, and have access to cash in the most remote corners of the planet. Some machines work as Internet kiosks, others show advertisements or allow you to top up your mobile account balance. But among the many new features of ATMs, the most important is the rapid receipt of cash.