A Brief History of ATMs: How Automation Has Changed the Retail Banking Sector

At first, when I talk about my interest in ATMs, my interlocutor’s eyes turn black. But then, when I explain why I consider their role important, many begin to recall their stories related to them. An accidental meeting in the queue, or a fear of being robbed in an unfamiliar place, or a feeling that arises when you see the line “not enough money”.

Most citizens met with the ubiquitous ATMs. Fed Walker of 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.

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.

A cash machine appeared almost 50 years ago, in 1967. Its appearance marked the dawn of digital banking. Several people attribute themselves to the inventor’s fame. 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 an ATM is a technology team. There was not one such moment of insight that would become the moment of its appearance.

In the 1950s and 1960s, the popularity of self-service gas stations, supermarkets, vending machines for tickets 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 rising wages, instructed engineers to solve the problem of cash withdrawals outside working hours. In 1967, three such attempts were made at once: Bankomat in Sweden, Barclaycash and Chubb MD2 in the UK.

They were born thanks to a long chain of innovation. Starting from more general inventions such as steel, video screens, plastic, magnetic tape and (not so long ago) Windows. And ending with special things - a mechanism for issuing money and an algorithm that associates a PIN with a user account. These components were invented in the process of interaction between 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. Something might get stuck in them, bills could run out in them. Or they could issue several bills instead of one, and the bank would not know about it. A specific ATM was activated with plastic or paper tokens, which were issued only by one bank, and sometimes even only by a specific branch. Some ATMs did not give out a token - they were then returned to customers by mail. As a result, early ATMs were a thing in themselves, clumsy, unfriendly and not flexible. They could only give out cash in exchange for tokens.

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

Nowadays, it is easy to update the record on the central server after each transaction, we have mobile banks and electronic commerce. And then ATMs became one of the first devices using real-time network technologies. Then creating a system for communicating with a central computer was a very difficult task. Swedish banks, together with IBM, launched such a system in 1968. Then IBM collaborated with Lloyd's Bank, and network devices appeared in the United Kingdom in 1973. In the 70s, IBM engineers developed standards for the payment ecosystem on which future systems will be based.

The ATM freed consumers from long lines at banks that worked only at certain times of the day. As the devices spread, they changed consumption patterns, made possible weekend purchases and sudden trips to the restaurant. And they allowed banks to grow their customer base at the expense of customers who previously could not use a credit account or card. Bank employees have become less involved in cash issuance and more in sales. Highly profitable businesses such as car insurance, credit cards, investment funds, and mortgages are thriving due to the fact that part of the banking services has been transferred to ATMs.

Banking regulators constantly monitored the operation of ATMs and indicated who they could own, monitored the cost of cash withdrawals 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 - requests, 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 machines in their countries and throughout Europe, in Canada, Israel, Cyprus and Latin America. In the early 80s, pioneers such as Chubb, De La Rue, Docutel and Asea-Metior left the industry, unable to cope with the development of computers and electronics. Others, like the Burroughs, did not achieve their intended goals. Citibank was unable to commercialize its CAT-1 and CAT-2 devices, but instead continued to use them on its worldwide proprietary network until the 90s.



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, 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 altogether refused to work in this industry.

Around this time, two companies from Ohio, NCR and Diebold, worked on technology that would allow them to dominate the ATM supply market over the next two decades. Due to the failure of IBM 4732, NCR relied on 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 Diebold’s self-service technology with IBM’s worldwide distribution network. 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 architectures for local query processing, which buried IBM's desire to connect ATMs to its expensive mainframes.

NCR and Diebold turned the first cash-dinosaurs into modern, elegant and multi-functional ATMs. Among their innovations were a friendly video display, programmable buttons next to the screen, cash out in 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 developed proprietary networks of hundreds of ATMs, while American preferred to use shared networks.

Despite all the innovations, the ATM remained a costly device. The use of dedicated telephone lines limited their use by bank branches or very popular places in cities - stations, airports. With the advancement of digital telephony and the Windows operating system, 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 machines and integrate with credit card processing networks. Independent ATM installers also appeared - manufacturers not affiliated with banks.

And yet, in this industry, not everything is chocolate. For example, in the course of cost reduction 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 state-owned cash withdrawal 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 establishment of bank branches in rural areas.

Starting with a modest start 50 years ago, ATMs penetrated almost everywhere. But their success became clear no earlier than 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 tool. 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 like online kiosks, others show ads or allow you to replenish the balance of your mobile account. But among the many new ATM features, the most important thing is to quickly receive cash.