Automated teller machines (ATMs) are mechanical devices that can provide a variety of routine banking services without the aid of a human teller. While the specific services that ATMs can provide are determined by the institutions that own them and any applicable legal restrictions, ATMs typically allow customers to withdraw cash from their checking or savings accounts and to deposit cash or checks into those same accounts. Some banks have experimented with multifunction ATMs that allow users to pay bills and purchase such items as stamps, bus passes, tickets to concerts and sporting events, and phone cards.

The first ATM was installed in 1969 by Chemical Bank at a branch in Rockville Centre, New York. At first ATMs had to overcome the initial reluctance of consumers to make full use of them. Banks mounted advertising campaigns to promote ATM usage, stressing their convenience, reliability, and security. ATMs offered bank customers the convenience of conducting routine banking transactions at any hour of the day. With the growth of ATMs and ATM networks, customers were given additional locations beside their local branch at which to make withdrawals from and deposits into their bank accounts.

In the decade from 1982 to 1992 ATMs became widely accepted by consumers, and ATM usage has continued to grow thereafter. Annual ATM transactions rose from approximately 2.1 billion in 1982 to 7.2 billion in 1992, and from 9.7 billion in mid-1995 to more than 12 billion at the end of 1997. By the end of 1997 there were more than 175,000 ATMs installed across the United States. According to various surveys, one-half to two-thirds of all U.S. households use ATMs.

Consumer acceptance of ATMs was undoubtedly helped by the passage of the Electronic Funds Transfer Act (EFTA). Among its provisions, the EFrA limits consumer liability for all bank accounts linked to ATMs. In the case of unauthorized transfers, consumer liability is limited to $50 as long as the consumer reports the unauthorized transfer within 60 days from the date his or her bank statement is postmarked. In some cases the 60-day limit may be extended. In the case of a lost or stolen ATM card, consumers must inform their bank within two days of discovering the loss (not two days from when it was actually stolen or lost) in order to limit their liability to $50. If more than two days elapses, then the ATM cardholder may be subject to a maximum liability of $500.

Local, regional, national, and international ATM networks allow cardholders to use their ATM cards virtually anywhere in the world. Individual banks that issue ATM cards to their customers generally belong to one or more of these networks. The bank's ATM customers can then use their cards at any ATM that is part of a network to which their bank belongs. The two largest international networks are Cirrus, which is owned by MasterCard, and Plus, which is owned by Visa. As of 1994, the United States accounted for approximately 25 percent of all ATM installations; Europe, 31 percent; Japan, 31 percent; Canada, 4 percent; and other countries, 9 percent.

Just when it seemed the United States had reached a saturation point with respect to ATMs, Cirrus and Plus lifted their ban on ATM surcharges in April 1996. Surcharges are levied by banks on ATM transactions made by people who are not customers of the bank—so-called foreign transactions. Historically, Cirrus and Plus had fought for surcharge-free ATM transactions, while banks sought to impose them on noncustomer transactions. Restrictions on ATM surcharges, however, could be seen as a form of price-fixing, since ATM networks were joint ventures. The reaction to surcharges included intense public debate, hardened opposition, and the threat of federal and state legislation. According to a General Accounting Office study, 64 percent of banks were charging ATM fees in February 1998, up from only 39 percent the previous year, while other studies put the figure at more than 70 percent. For all financial institutions, the average surcharge rose from 69 cents to $1, while for banks only the average surcharge rose from $1 to $1.50. And that was in addition to the interchange fee paid by card-issuing banks to ATM owners on foreign transactions. A Public Interest Research Group study estimated that consumers paid between $2.5 and $3 billion in surcharges, on top of almost $1 billion in interchange fees, in 1997.

Surcharges have had an effect on how banks and other financial institutions deploy their ATMs. For example, surcharges have enabled some institutions to set up ATMs in less desirable locations where there would be fewer transactions. Surcharges make the machines profitable on a lower transaction volume, and customers enjoy greater convenience. Surcharges have also contributed to the growth of ATMs at nonbank locations, including convenience stores, supermarkets, shopping malls, gas stations, airport terminals, casinos, and bowling alleys. These remote-location ATMs are typically limited-function machines that only dispense cash.

ATMs have become a potent marketing tool for financial institutions. With the advent of surcharges on foreign transactions, banks having a widespread network of ATMs can offer their own customers surcharge-free ATMs at more locations. This creates an incentive for customers who use ATMs frequently to switch their deposits to the financial institution with the largest ATM network. Ironically, the higher a bank's surcharge, the greater the incentive for ATM users to become a customer of that bank and thereby avoid the surcharge.

Megamergers involving very large banks have created integrated ATM networks much larger than previous regional networks. For example, the 1998 merger between Bank America Corporation, which had the largest number of ATMs in the United States, and NationsBank Corporation, which ranked second in ATMs, created an ATM network of more than 15,000 machines. Similarly, the merger of Banc One Corporation and First Chicago NBD Corporation, also in 1998, created a network of 8,200 ATMs.

With new identification technologies, ATMs may eventually develop into fully automated bank branches offering a greater range of services. Users currently identify themselves using a personal identification number (PIN). Studies show, however, that 30 percent of ATM customers incorrectly enter their PIN or forget their number. New identification technologies include iris imaging, which was tested in England in 1998, and biometric face recognition, which was being used in 42 check-cashing ATMs in the Southwest as of 1998. New services offered by multifunction ATMs might include stock purchases, wiring money, applying for large loans, bill paying, ticket purchases, stamp purchases, and insurance policy purchases.

[ David P. Bianco ]


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