How the ATM got its Start

The Automated Teller Machine, or ATM, had several false starts and had overcome ingrained attitudes in the banking industry before taking and achieving the the universal acceptance that it enjoys today. It was commonly felt in that banking industry that customers “bonded” to individual tellers in a bank branch and that because of this factor customers would never accept server from a cold, impersonal machine. This notion was later exploded by the ATM revolution where customers eventually embraced the machine’s convenience and twenty four hour a day accessibility.

The ATM’s first false start occurred in the U.S. in 1939. Prolific inventor George Simjian put forward the concept of an Automated Teller Machine and applied for twenty patents for the technology surrounding his invention. Simjian convinced the National City Bank, forerunner of Citibank, to test a prototype of his ATM in Manhattan. The test marketing project did not go well. The only bank patrons that deigned to use his machine were gamblers and other disreputable types. Respectable customers could not seem to be convinced to try the new contraption. It is not clear whether this failure related to the design of the machine or poor marketing but, in any event, the project was abandoned. Another test of the concept was not tried in the U.S. for nearly thirty years.

The next phase in the evolution of the modern ATM is more controversial. The first modern ATM units were conceived, developed and deployed more or less concurrently in the U.S. and Britain int he mid-1960s. What is not controversial, however, is that the technological environment had changed radically between 1939 and 1967. What was different was the availability of high-speed, electronic computer networks that facilitated the creation of interbank transaction networks. This factor also helped with the rapid development and acceptance of credit cards. In was in this new, radically changed environment that the new generation of ATM designs made their appearance.

In Britain in 1966, Cambridge-educated inventor John Shepherd-Barron created a new ATM design on behalf of his employer De La Rue Instruments. Shepherd-Barron’s design was later licensed to Barclay’s Bank who installed the first unit near London in 1967. The machine created by De La Rue Instruments did not use a card with a magnetic strip and embedded Personal Identification Number. It used a magnetically embossed paper voucher. This particular design never achieved wide-spread acceptance in the market place. The paper voucher was deemed too clumsy to use by many customers.

The widespread adoption of the ATM in Britain was catalyzed by the creation the so-called CashPoint ATM by IBM Corporation on behalf of Lloyds Bank. IBM’s design used a card with an embedded personal identification number and thus dispensed with the clumsy paper voucher identification mechanism. The combination of convenience, ubiquitous access and twenty four hour availability led to rapid acceptance and wide-spread adoption of the CashPoint machine within Lloyds’ branch network.

In the U.S., Donald C. Wetzel developed the concept of the free-standing ATM while working for the Docutel Corporation. Wetzel’s design prototype was eventaully installed as a working ATM in a Chemical Bank branch in Manhattan in 1969. Wetzel’s design began to enjoy commercial acceptance in the early 1970s with 2,000 of Wetzel’s Docutel-manufactured machines being installed at various banks by 1973.

The adoption of ATMs by banks was slowed by concerns from bankers about their cost with each unit requiring an investment of around $8,000.00 per machine in 1979 dollars. This reluctance on the part of some hide-bound bankers was later overcome as lack of coverage by ATM machines for a given market area were shown to have adverse impacts on customer retention rates.

The present near universal availability of ATMs has been driven by competitive pressures within the banking industry and the emergence of Interbank Networks such as the Cirrus Network. Interbank Networks allow users of any bank’s ATM to perform financial transactions provided that their bank is also a member of the same Interbank Network. Since banks charge a transaction fee for performing interbank transaction ATMs suddenly turned from being a loss leader for banks into a source of fee income. The ATM arms race was on and the result has been the availability of ATMs in almost every public place.

Current estimates put the total number of ATM units in service as being close to 1.5 million worldwide. The number of deployed ATMs will continue to grow as the desire to retain customers and generate fee income is accelerating in the intensely competitive banking industry.