Cardless ATMs: What to Consider Before Investing

Cardless ATMs may seem like the latest fad in the ATM business – out there with terminals that feature holograms, cryptocurrency, facial recognition, targeted marketing and other newfangled ideas. But experts said cardless ATMs are more than just talk. They’re going mainstream, they warned, and credit unions that don’t keep up with the times could soon find themselves struggling in an already tough ATM environment. Here’s why experts believe cardless ATMs will soon be everywhere and what credit unions should think about before investing in them.

A New Era: Mobile-Operated ATMs

Many credit unions may be too tired from dealing with Windows 10 and EMV upgrades to even think about also making their ATMs cardless. But in a year or two, cardless ATMs could be commonplace, Doug Falcone, CEO of the Jupiter, Fla.-based ATM Consultants, said.

The surge in mobile banking adoption is likely fueling much of the momentum that is gathering behind cardless ATMs. According to a recent survey by Harris Poll and fintech software development company Entersekt, 59% of people now use banking apps at least once a week, and 20% use them daily. Many appear to be in the app exploration phase, with more than two-thirds (68%) saying they had more than one app for banking and payments; 37% had three or more.

Some credit union industry players have made serious investments in cardless ATMs. Many involve mobile apps that allow members to use QR codes or near-field communications (NFC) to stage withdrawals from ATMs.

Almost a year ago, for example, CO-OP Financial Services announced a new “Cardless Cash Access” feature for its ATM terminal driving services, which allows members to stage withdrawals via a mobile app. CO-OP manages a network of about 30,000 surcharge-free ATMs.

Earlier this year, the Houston, Texas-based ATM operator Cardtronics announced it completed an integration with FIS Cardless Cash on 11,000 ATMs and had plans to convert another 8,000 ATMs. That integration allows members to withdraw cash using the FIS Mobile Banking app. Cardtronics operates approximately 225,000 ATMS across 10 countries and runs the Allpoint Network.

The Costs

Much of the cost of going cardless revolves around deciding whether the ATM will talk to members’ smartphones via QR codes or NFC, FIS Debit Processing Solutions General Manager Jay Weber said.

Both get the job done, but the QR method is often cheaper because it typically doesn’t require many hardware changes, he said.

“There isn’t an area on there, typically on an ATM machine, that you can tap or wave your card at. So to make NFC work, that’s an incremental component of the hardware that you have to buy and put on the device. QR just presents the QR code on the screen that’s already there today,” Weber explained.

It’s a way to get into the market quickly and at a relatively lower cost, he said.

“Typically what we find is that this software component can be bundled right into Diebold and NCR technologies, so you don’t need to buy incremental hardware,” Weber said.

But cost isn’t the only reason some credit unions may hesitate to spend more on their ATMs. Compared to Windows 10 or EMV upgrades, cardless ATM upgrades generally feel more optional, for one thing. And for many credit unions, an ATM fleet can be more like a cost center than a revenue generator.

“That’s the million dollar question: What’s the cost savings? No one really knows yet,” Falcone said.

The Benefits

Cardless ATMs may mean lower card issuance costs and fewer repairs due to card jams, Falcone said, but there are bigger rewards.

The first is member satisfaction. Cardless ATMs can be a step toward a smoother authentication experience.

“One of the things that we hear constantly in terms of what frustrates consumer banking … is this very disjointed way of dealing with the bank,” Entrust Data Card Senior Product Manager Mike Byrnes said. “What I mean by that is if I log in through my computer through online banking, I authenticate with a username and password. If I go to the ATM, I need my card. If I go into the branch, I may need a card or a driver’s license. If I phone the call center … they ask all these challenge questions.”

The second is security.

“We tend to read time and again of things like skimmers put on an ATM machine that read the card and the data off of the card when the card is inserted at the ATM,” Weber said. “This channel here completely negates the need for putting a card in or typing a PIN on the device. It is purely using the authentication methods of the phone and the mobile app that the credit union would have. So we’re still authenticating a consumer. We’re authenticating them through the digital channel, and therefore then we’re mitigating skimming-type fraud or shoulder surfing and all those things.”

Knowing When to Strike

Credit unions have to know their members before sinking money into cardless ATMs. Don’t assume every credit union member wants to use them, Byrnes warned.

“One of the biggest challenges is understanding the impact on the consumer. Is that what they want? And will the new technology give them confidence and delight them? Or will it scare them and push them away? Then it becomes a failed investment,” he said.

Credit unions should also plan far ahead, because the rollout could take longer than expected.

“Every financial institution wants to be looked at as having state-of-the-art technology,” Falcone said. “You say to yourself, why do B of A and Wells Fargo already have this? Well, they’ve got their own switch, their own platform. They’re very proprietary on everything that they do, where a lot of the other – we’ll call them tier two, three and four financial institutions – are piggybacking on the Fiservs of the world and the Jack Henrys and different processing platforms. They’re really at the mercy of when they’re ready for the upgrades.”

He added, “You’ve got to watch the Wells Fargos and the B of As. They’ll introduce it, and if it gets traction, then it will take off. But the consumer has to want to use it.”

The biggest thing, though, is to think about cardless cash as more than just an ATM strategy, Byrnes added.

“Look at how your customer deals with you across channels and across different products,” he said. “Try to look at that holistically and say, ‘Well, where do we want to go? And what is our architecture for customer interactions?’ Allow that vision to drive your various investments. Because if you go down a path and say, banging the table, ‘Well, we need to do something on the ATM because others are doing it,’ you may be right, but you’re only looking at one isolated part of your customer’s experience. Taking that step back and looking broader is a very important first step.”