Yes, Your ATMs Can Drive Competitive Advantage

The humble ATM is evolving from simple cash dispenser into a sophisticated banking hub that bridges physical and digital worlds. With cash management still accounting for up to 10% of banks' operating costs and new security challenges emerging, institutions are leveraging AI, cloud technologies, and ATM-as-a-Service models to balance innovation, accessibility, and efficiency.

By Garret Reich, Senior Project Manager at The Financial Brand

Published on March 3rd, 2025 in Branch Strategies

The report: ATM & Self-Service Software Trends

Source: ATM Marketplace

Why we picked the report: ATMs have been a staple of the banking industry for nearly six decades, but they’re a quiet — and often underdiscussed — facet of the traditional banking experience. As digital and branch experiences improve, however, so must the ATM experience as the hinge between the two. This report dove into what all bankers need to know about building a healthy ATM network that supports customers where they need it.

Executive Summary

Banks are discovering that the 56-year-old ATM still has some surprises up its sleeve. While global ATM numbers declined 2% for the third straight year, a surprising 88% of financial institutions say they are maintaining or increasing their reliance on these hardy machines. The reason? ATMs are evolving from simple cash dispensers into sophisticated bridges between the physical and digital banking worlds, offering everything from contactless transactions to video banking services.

This transformation comes at a critical time for banks trying to serve an increasingly diverse customer base. While younger consumers primarily use banking apps, many still want access to physical cash — as evidenced by Gen Z’s recent "cash stuffing" trend on TikTok. Meanwhile, banks are finding that advanced ATMs can help them optimize their branch networks and cut operational costs without sacrificing personal service.

Key Takeaways:

Card fraud is now banks’ biggest ATM security concern, with 42% naming card theft and data compromise as their top threat, ahead of physical attacks (23%) and jackpotting (19%)
Nearly half (44%) of banks plan to make their ATM interfaces consistent with their mobile/online banking experience in the near future
Artificial intelligence is gaining traction, with 38% of institutions planning to use it for enhanced security and 28% for advanced personalization of the ATM experience
Cash management remains a significant cost center, accounting for up to 10% of banks’ operating expenses

What we liked about the report: Reports from the ATM Marketplace are always very thorough, very detailed and expansive. We don’t cover them often, but when we do, there are always a plethora of insights useful to the payments and branch experience dialogues in banking.

What we didn’t: Although this isn’t necessarily a hit on the publication, we find that the global focus of ATM Marketplace’s reports are not of use to us — and can sometimes be to a detriment of U.S. bankers, who are trying to identify the key characteristics behind their American customer base. The insights are still valuable, nonetheless, but important to note that the majority of the findings do have a global lens through which they’re being written about.

A Tale of Two ATM Strategies

The ATM industry is experiencing a clear divergence in how banks view and utilize these machines. Some institutions now treat ATMs as pure commodities, partnering with other banks to share networks and reduce costs.

Other banks see ATMs as key differentiators and are investing heavily in new capabilities. About 39% of survey respondents say supporting diverse self-service banking transactions is their primary goal for ATMs beyond cash dispensing. Another 29% focus on maintaining a physical presence in local communities.

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Major banks including JPMorgan Chase, PNC and Bank of America are now putting advanced ATMs at the center of their branch strategies. PNC is deploying interactive teller machines (ITMs) that connect customers with remote video tellers who can handle transactions beyond traditional ATM capabilities. These machines operate with extended hours and offer services in multiple languages.

The strategy appears to be working. According to survey data, 75% of PNC customers who used ITMs gave them top satisfaction scores. For smaller institutions — like Wings Credit Union, based in Apple Valley, Minn. — ITMs have enabled branch expansion while reducing costs. For context, ITM transactions cost an average of $0.50 to $0.70 versus $4.50 for traditional teller interactions.

Banks are working to make ATMs feel less like technological relics and more like extensions of their digital channels — particularly on a global scale. Česká spořitelna, the Czech Republic’s largest bank, now offers completely contactless ATM transactions through integration with its mobile banking app. Customers pre-stage withdrawals on their phones, then scan QR codes at ATMs to receive cash without inserting cards or entering PINs.

This push toward digital consistency makes sense given customer preferences. BAI research shows that 60% of Gen Z consumers would switch banks for better digital capabilities. However, ATM owners must balance innovation with maintaining fast, simple access to cash for customers who prefer basic services.

Dig deeper:

The AI Revolution in ATM Banking

While artificial intelligence is often associated with digital banking, it’s increasingly finding applications in the ATM world. The survey reveals varying timelines for AI adoption: 8% of institutions have already implemented AI solutions, 9% plan to do so within 12 months and 18% are looking at implementation within the next few years. Another 25% are waiting to assess AI’s impact before making decisions.

Beyond security applications, AI shows promise in several areas:

Personalizing the user experience based on individual transaction histories
Optimizing cash management through predictive analytics
Improving ATM placement decisions using footfall and transaction pattern analysis
Enabling natural language processing for enhanced customer service

However, industry experts caution against viewing AI as a cure-all. "Some may be tempted to think that AI is the answer to everything – letting it decide and define ATM network management, user experiences, and more. AI is a tool that needs to be used carefully, not a fix-all solution," notes KAL’s Baadoud.

The Regulatory Punch

The ATM industry faces what many are calling a "double whammy" of regulatory requirements heading into 2025. The Payment Card Industry Security Standards Council (PCI SSC) is mandating that ATMs must have both the latest version of encrypting PIN pads (EPP) and current firmware and software using TR31 Phase 3 key blocks. These changes were required to be completed by January 1, 2025, after which host processors will not accept transactions from non-compliant ATMs.

This is just the latest in a steady stream of regulatory requirements that have reshaped the industry over the past decade. ATM owners have already navigated new ADA standards (2010), EMV requirements (2017), and the shift from Windows 7 to Windows 10. While necessary for security and accessibility, these changes often require significant investment without generating additional revenue.

"The bigger picture for navigating regulations and cycles with efficiency involves planning and proactivity," says payments industry consultant Eric de Putter. "When there is a long window of time between the initial announcement of a regulatory change and its effective date, all affected organizations should use that time strategically."

Managing the Cash and Security Conundrums

Despite declining cash usage, managing physical currency remains a significant challenge for banks. According to McKinsey & Company, cash operations account for up to 10% of banks’ operating costs. Nearly half of institutions still use spreadsheets to forecast their cash needs, leading to inefficiencies in their ATM networks.

To address this, banks are increasingly turning to cash recycling ATMs and advanced forecasting technologies. About 37% of survey respondents plan to implement cash recycling, while 16% are focusing on cash forecasting solutions. Cash recycling ATMs — which reuse deposited cash for withdrawals — can significantly reduce cash-in-transit visits and associated costs. They’re particularly effective in locations with high deposit volumes, such as business districts or areas with many small businesses.

While ATMs face persistent physical security threats, the bigger concern is now digital fraud. About 42% of survey respondents ranked card theft and data compromise as their top security challenge. New attack methods like "shimming" – where criminals insert devices inside chip readers – are creating fresh worries.

The industry is fighting back with enhanced security standards and artificial intelligence. The upcoming XFS4IoT standard will provide end-to-end security for cloud-connected ATMs, while AI helps detect fraud patterns in real-time. All major card issuers now use AI to spot suspicious transactions while reducing false positives that frustrate legitimate customers.

The Outsourcing Option

As ATM management grows more complex, many banks are turning to outsourcing. About 31% of survey respondents have outsourced operational monitoring and management, while 23% each have outsourced host processing and software development. Fifteen percent have fully outsourced all ATM-related responsibilities.

The emerging "ATM-as-a-Service" model is gaining particular interest. Under this approach, banks provide only the ATM location while specialist firms handle everything else – from hardware and software to maintenance and cash management. This model can significantly reduce operational complexity while ensuring access to the latest technology and security features.

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ATM testing and availability have become critical concerns as transactions grow more sophisticated. Traditional manual testing approaches are giving way to automated solutions that can verify software changes overnight. This is particularly important for banks implementing frequent updates to maintain consistency with their digital channels.

The Future is Hybrid

Looking ahead, ATMs seem poised to play a hybrid role — providing basic cash access while also serving as sophisticated self-service banking hubs when needed. Cloud technology and AI will enable more advanced features, but banks must be strategic about where and when to deploy them.

"We are now in a new era led by Web and mobile-oriented design," says KAL’s deputy CEO Kader Baadoud. "Making ATM screens interactive, responsive and user-friendly is a way of delivering great customer experiences that are smooth, easy, accessible and fast."

The ATM’s longevity and continued evolution suggest that, like the equally venerable telephone, this device still has plenty of life left. The key will be finding the right balance between innovation and simplicity to serve an increasingly diverse banking public while managing costs and security in an ever-more-complex operating environment.

The survey captured numerous insights from banking professionals worldwide. A Sri Lankan ATM professional noted, "The need for advanced technology, improved security and effective management for large ATM networks drives this trend toward managed services." Meanwhile, a banking professional from Georgia observed that "monitoring and maintenance are being delegated to third-party organizations, and this relationship scheme is being implemented by more and more new banks."

Wwhile the ATM’s basic function of dispensing cash remains important, its role is evolving far beyond this traditional purpose. As banks continue to navigate the complex intersection of physical and digital banking, the ATM’s adaptability may prove to be its greatest strength.

Editor’s note: This article was prepared with AI language software and edited for clarity and accuracy by The Financial Brand editorial team.