The Money Machines The humble ATM revolutionized the way we deal with money and turned global commerce into a 24/7 affair. You can thank a Texan named Don Wetzel--and the blizzard of 1978.
(FORTUNE Magazine) – Chemical Bank's ad campaign announced the start of the revolution in 1969: "On Sept. 2, our bank will open at 9:00 and never close again!" On that day at the Rockville Centre branch at 10 North Village Avenue on Long Island, customers who possessed plastic cards with magnetic stripes no longer had to wait in line for a teller to cash their checks. They could access their money 24 hours a day, seven days a week, through a machine built into a wall on the street.
Three hundred seventy-one thousand automated teller machines later, it's fair to say the revolution has been won. These days you can find ATMs not only in malls and airports but also in McDonald's and tiny bodegas. There's one on the South Rim of the Grand Canyon. There are some above the Arctic Circle. If Queen Elizabeth needs some pocket change to tip the royal ushers, there's an ATM at Buckingham Palace. There is even one, for some reason, at the McMurdo Station on Antarctica. Apparently, says Robert Mahoney, chairman of the Federal Reserve Bank of Cleveland and former CEO of Diebold, one of the largest American firms that make the machines, "even the penguins use ATMs." In short, there's one ATM for every 284 American households.
Cheapskates beware: You no longer have an excuse for not having cash in your pocket. For spendthrifts, likewise, ATMs have become a ubiquitous temptation--and one we give in to all the time, if you believe the numbers. Nearly 11 billion transactions are conducted via ATM each year, dispensing some $670 billion. That's up from $165 billion in 1985, according to Tremont Capital Group.
For all the talk about soaring credit card debt, clearly we love the feel of cold hard cash in our hands as much as plastic. So much so that we're willing to pay for those quickie stops at the ATM with often usurious fees--usually about $1.50 each time we grudgingly press the "I Accept" button on a cash machine outside our bank's network. Such surcharges and other fees add up to a $4-billion-a-year business, according to Dove Consulting, which has kept tabs on the industry for the past 20 years. That's a nice chunk of change to pay for the privilege of accessing our own money.
What you might find truly surprising, however, is that as a rule, large banks actually lose money on these moneymakers--at a rate of about $250 a month per machine. They are, ironically, loss leaders, since banks don't generally charge their own customers if they use the banks' machines. At Bank of America, for example, whose collection of some 16,000 machines is the largest among the nation's financial institutions, 85% of all ATM transactions are conducted by BofA's customers--about half of whom keep their business with the bank, they say, for just that reason. Wells Fargo has come to much the same conclusion. "If you're looking at it from a pure accounting perspective, it looks like you're losing money," says Jonathan Velline, who heads up ATM banking for the San Francisco--based bank. "But the truth is, if I didn't have ATMs, I wouldn't have customers."
That's essentially what a Visa survey last fall concluded when it showed that 92% of respondents considered convenient ATM access a critical factor in choosing a bank. Or take the Harris Interactive survey, which found that a healthy majority of respondents considered ATM access more essential than e-mail access. U.S. Bancorp is so convinced of the "come hither" lure of the cash machine that it drives its mobile ATMs in parades and dresses up employees as cash dispensers to mingle at local fairs.
It is easy, in the modern era of easy money, to forget just how strange it was three-plus decades ago for Americans to interact this way with machines. People were used to asking for their hard-earned bucks from a human being behind a bank window. They wanted to see, with their very own eyes, each bill counted out by the teller. They required a receipt, hand-stamped by an employee of the bank, indicating that their paycheck had indeed been deposited. When the ATM arrived, it came along like an insult--not just as progress, but as preemption, a ploy to get customers to stop using expensive human tellers. (Some, of course, still hate the machines, but we'll leave that for another story.)
After the technology had earned the trust of once highly skeptical customers, an amazing transformation began to take place: Face-to-face business became face-to-interface, and it changed the way people consumed. Now that they had access to their cash whenever and wherever they wanted, they bought on impulse instead of planning every purchase ahead of time. The ATM also placed consumers firmly on the path of demanding ever more convenience and self-service (and industry, in turn, of pushing more automated service). Perhaps most important, it introduced ordinary consumers to technology in a direct manner for the first time, presaging PCs, cellular phones, and other conveniences we now can't live without.
The success of the ATM inspired similar innovations (some more frustrating than others) in a number of nonfinancial industries as well. Full-service gas stations have all but given way to credit card--primed gas pumps. Delta Air Lines has 846 do-it-yourself check-in terminals in 83 U.S. cities. Kroger has self-check-out lanes in more than 1,400 supermarkets. And you can find similar aisles in 850 Home Depot stores. Coming soon to Hiltons near you: 45 hotels that allow you to check in without seeing a clerk. Even McDonald's is testing to see if consumers like ordering Big Macs and fries on a touchscreen. One might even make the case that the ATM made Internet commerce possible: Certainly Amazon.com could not exist without consumers feeling comfortable shopping on a computer. Look at almost any company on the FORTUNE 500--in fact, pick up the phone and call one just to see who answers--and it is clear how important it is to business that customers are willing to automate in one form or another. "The ATM is the mother of this," says Bob Tramontano, who heads up self-service engineering in the financial-solutions division of NCR, one of the largest ATM manufacturers. "People looked at the lines in the bank and said, 'We'll use the machines outside.'"
While the ATM deserves an enormous amount of credit--or blame--for the way we live today, it's hard to know who to bestow it upon. ATM circles (yes, there are circles, apparently) are rife with division about who exactly the father of this invention is. (The joke is: Whoever it is ought to be put on the $20 bill.) One saga traces the ATM's roots back to a fellow named Luther Simjian, who concocted a machine that allowed customers to deposit checks and cash. He persuaded New York's First National City Bank (now Citibank) to give it a try back in the early 1960s, but customers had little use for it. "It seems the only people using the machines were a small number of prostitutes and gamblers who didn't want to deal with tellers face to face," he later wrote.
Another tale gives credit to John Shepherd-Barron. As the story goes, on June 27, 1967, a branch of Barclays Bank in Enfield, near London, drew crowds to the unveiling of Shepherd-Barron's marvelous cash-dispensing machine. Ten-pound vouchers purchased from a teller in the bank could be redeemed at an electronic box outside. A year later several British banks installed similar devices using prepurchased cards instead of vouchers. One drawback: The machines kept the card after each use. After some delay, the bank sent it back to the customer.
Then, at noon one day in 1968, yet another chapter in the story opened. That's when a Dallas man by the name of Don Wetzel, head of product planning for an automated baggage-handling company called Docutel (and erstwhile minor leaguer for the then--New York Giants), was standing in line at the bank to cash a check. The line was long and slow, and he became increasingly irritated as his lunch hour dribbled away. All at once, he had a flash of inspiration. "Golly, all the teller does is cash checks, take deposits, answer questions like 'What's my balance?' and transfer money between accounts," recalls Wetzel, now 75 and still living in Dallas with his wife, Eleanor, who, tellingly, has never used an ATM. "Wow, I think we could build a machine that could do that!"
And with a $4 million go-ahead from Docutel's parent company, that's exactly what he and his engineers did. The machine itself was relatively simple, Wetzel says, put together from existing technologies that they modified for their purposes. The big difference, huge really, was that a customer could activate the machine with a card, which was equipped with a magnetic stripe--and then reuse it after the transaction was finished! The earliest machines, though, were offline, so banks issued cards by invitation only to their most reliable customers. In the early '70s, Docutel sold its first true ATM--that is, an ATM hooked into the bank's host computer. The machines were not only dispensing cash but also accepting deposits and transferring balances. About the same time, so the story goes, Diebold and Fujitsu were developing ATMs, but Docutel was the first to patent them. In 1995 the Smithsonian's National Museum of American History recognized Docutel and Wetzel as the inventors of the ATM. Wetzel, however, did not hit pay dirt on his now omnipresent invention. His name was on the patent (along with two others), but Docutel owned it. "I never got any royalties," he says. "But I was treated very well by my company."
As with any new technology, the early days of ATMs were fraught with obstacles. The first hurdle was the bankers: Selling them on a machine that cost two to three times what a teller was paid for a year, plus convincing them that customers would use it, wasn't easy. (In the decade before ATMs, bankers were just beginning to number their customers' accounts instead of listing them alphabetically by name.)
By the mid-'70s, though, these electronic oddities were gaining acceptance. Citibank, the second-largest bank at the time and arguably the most technologically advanced (it built its own ATMs from scratch), offered customers a card with what it called the "magic middle." Instead of the magnetic stripe used by every other bank, Citi embedded a chip in its cards that only its machines could read. According to the account in Wriston: Walter Wriston, Citibank, and the Rise and Fall of American Financial Supremacy, then-chairman Wriston bet the huge sum of $100 million to fund consumer-banking head John Reed's vision of a massive ATM deployment in New York City. The bill eventually came to about $160 million--at the time, one of the largest capital expenditures in the company's history. In 1977, Citibank announced that it would blanket New York with ATMs.
"We got a lot of flak," says Wriston today, a recipient last month of the nation's highest civilian honor, the Presidential Medal of Freedom, for his banking innovations. "A lot of ads were run saying 'Our tellers are smiling young ladies who remember your name. Why go to a soulless machine?' And the answer to that was at 7:30 at night when you're going to go to the movies and you don't have any money, you like the soulless machine."
Wriston and Reed's gamble, though, might not have succeeded without help from the heavens. In January 1978, New York City was blanketed with something else: 17 inches of snow. Within days, a commercial ran showing New Yorkers plodding through the wintery mess to Citibank ATMs. And a new catch-phrase was launched: "The Citi Never Sleeps." During the storm, use of the machines increased 20%. By 1981, Citi's market share of New York deposits had doubled.
Citi's rivals had to catch up. In 1985, Chemical Bank, Manufacturers Hanover, and six others founded a network called New York Cash Exchange (NYCE) to link the 800 ATMs they had among them. Understand that when ATMs first started showing their electronic faces, you could use only the ones associated with your bank. During this time, banks in the same neck of the woods were putting their heads together and thinking "Gee, wouldn't it be convenient to use a lot of ATMs that we don't own," says David Gosnell, an editor at ATM & Debit News. To compensate one another for noncustomers using machines, banks would pay interchange fees for each transaction. The New York area was one of the last holdouts; by this time a few hundred such regional networks existed around the country. Still the eight-way marriage was a breakthrough. With networks gaining power, Citi yielded to the industry standard in 1985; a magnetic stripe, in addition to the magic middle, appeared on the Citicard. "The world went the other way," says Wriston.
Throughout the '80s and '90s, the ATM industry continued its transformation. April 1996 brought a watershed moment. The two national networks, Visa Plus and MasterCard Cirrus, dropped their longstanding ban on customer surcharges. The gold rush was on. Suddenly ATMs were no longer a mere convenience offered by banks. It could be a real business with actual revenue. Independent operators stampeded into the arena, throwing ATMs into every mom-and-pop store coast-to-coast. Over the next four years the number of ATMs around the country nearly doubled. Today almost half of the nation's cash machines are independently operated.
With the merging of regional networks, ATM cards now offer nearly universal access. You can get instant euros in Grenoble with the same card you use to get greenbacks in Greenwich. And innovations are ever in the offing. Many ATMs sell stamps or concert tickets. Diebold and NCR have technology in the works that will allow ATM transactions to be initiated via mobile phone or PDA. The only thing that stands in the ATM cards' way, it seems, is another piece of plastic. Nowadays, both cash and credit have met a rival in the debit card, which takes the money right from your account without letting you feel the hunter-gatherer power of a fat wad of cash.
The ATM clearly fell short of expectations in one area, though. It never reduced the number of tellers or filled the demand for bank branches--something the machine's pioneers had promised. According to the FDIC's count, there are close to 75,000 branches today, up from under 58,000 in 1985. Tellers number 539,000, vs. the 484,000 in 1985--though many of them now also function as retailers, cross-selling IRAs and mortgages to customers who come in with a big deposit. And that is something human beings still do better than any machine. For now.