THE ATM: VALUE OR MONEY?

The Automated Teller Machine has a social value far beyond that of the cash it dispenses, especially in times of crisis.

The US Automated Teller Machine – or ‘ATM’ as it is better known – celebrated its fiftieth birthday in September 2019. Its British forerunner, the cash dispenser, held its own party two years earlier, in June 2017.

Celebrations of these ‘fintech’ milestones on both sides of the Atlantic were surprisingly muted, even in the banking industry. Having been there when the ATM was ‘born’ – my father is credited as being the ‘inventor’ of the world’s first automated cash dispenser by the ATM Industry Association – I find this bashfulness rather self-defeating. After all, this iconic machine not only represents the original ‘fintech’ but, in having a social value far beyond that of the cash it dispenses, it remains as relevant today as it did when it was first unveiled. This is the machine which transformed society back in the 1960’s by permanently changing our relationship with money and which asked us to trust and interface with machines for the first time. For the 718 million people around the world affected by disasters each year and the 1.6 billion whose access to formal financial services is limited – at least 12 million of whom live in the US – it continues to do so.

Yet, with bank branches and ATMs closing across America, the ‘cash machine’ is clearly under-valued. This may be because the banking and ‘fintech’ industries would profit hugely from a cashless world and therefore have little interest in promoting its benefits. But it’s also no doubt connected with our evolving attitudes to cash in an increasingly digital world. Preferring mobile and contact-less payments, we allow ourselves to see the ATM as a fountain pen in a touchscreen world, the quaint legacy of a bygone era. In high-income societies, where the point-of-sale infrastructure is robust, the electricity supply reliable, and security more or less guaranteed, this is understandable. In such circumstances, there is a convenience and cost case to be made for going digital which makes it easy to conclude that cash is redundant and deserves to lose its place in the payments mix.

Except that it’s not.

In fact, not only does the World Bank estimate that nearly one quarter of global GDP (24%) involves cash, but a recent study by the security firm G4S concluded that cash use in Europe is rising, not falling. The facts are even more startling from the other side of the world. While ATMs and bank branches might be disappearing from Main Street, figures from Retail Banking Research, an analytics firm, show that ATM growth in the Asia-Pacific region is growing by nearly 10% per year.

Meanwhile, what seems to get lost in the ‘app-based’ scramble for our digital dollar is that the ATM is itself a core part of the digital revolution, and that cash and digital channels necessarily co-exist. For debit-card holders and mobile phone users from Kentucky to Kenya it’s not a case of cash or digital but of cash and digital. This is because large sections of society in high-income and low-income countries alike either prefer, or have little option but to convert their digital cash transfers to physical currency; a necessity which applies just as much to the tens of millions of un-banked and financially under-served across the US as it does in Bangladesh or Burundi.

The social utility of an ATM in such places is based on a simple fundamental truth: Cash is trusted. It comes free of political and commercial ‘interference’; it always works; and is not reliant on mobile phone networks or algorithms.

The ATM also plays a little-known but central role in reducing disaster risk. It does this by fostering resilience among at-risk populations; accelerating economic recovery in the wake of disaster; enabling social cohesion; and combating poverty by promoting financial inclusion. That such an apparently simple machine can do all this without anyone seeming to notice or care also goes a long way to explaining why it is so under-appreciated.

The ATM builds resilience among populations facing imminent disaster in three main ways: In the case of Hurricane Katrina, for example, or the floods following Super-Storm Sandy in New York, ATMs allowed people to stock up on low-denomination banknotes prior to the hazard’s arrival. This is not just useful, but essential when the power is out for weeks and electronic payments terminals have been rendered inoperable. Covering the surge in demand for cash – a demand that lasts for six months or more in many disaster-affected countries, and much longer in times of conflict – is now an important disaster risk mitigation strategy. Where identity documents have been lost, ATMs allow humanitarian cash transfers from aid agencies and remittances from abroad to be cashed out using biometric authentication and without having to pay extortionate foreign exchange fees and intermediary commissions or run the risk of fraud. In California, it’s even possible to buy a short-term earthquake insurance policy from certain ATMs.

The ATM also accelerates economic recovery following a disaster. Cash recycling, deposit-accepting ATMs do this by maintaining liquidity of the money supply; providing assurance to merchants that their money is secure and can therefore be used to extend credit; and by stimulating local multiplier effects that, according to the Overseas Development Institute, a British think-tank, provide up to 2.7 times the purchasing power of other forms of aid disbursement.

In terms of social inclusion and cohesion, access to an ATM provides freedom of choice, a sense of dignity, autonomy and self-worth that distribution of in-kind donations cannot; using pre-paid debit cards – the preferred channel for humanitarian assistance nowadays – offers the opportunity to seamlessly integrate short-term cash handouts with longer-term social protection mechanisms targeted at the most vulnerable; and having the option to use cash protects beneficiaries from political interference and provides a measure of confidence that their identity will not be compromised. These political constraints are very real if you are a Syrian refugee in Turkey or a Rohingya Muslim in Myanmar right now. Furthermore, the ability to access cash via an ATM empowers women by allowing them to take on a role hitherto undertaken only by men in some cultures.

Finally, the ATM plays a pivotal role in the global effort to combat poverty. Across the world, including remoter parts of the US, the ATM is becoming an ever-more important channel for promoting financial inclusion. This brings the un-banked and financially under-served into the formal financial ecosystem, thereby allowing them to play an active role in reducing their vulnerability and exposure to external shocks like a natural disaster or unforeseen illness. In the case of micro-credit and loans, the ATM acts as a bulwark against the tsunami of indebtedness incurred by gambling and loan apps which make credit easily available over mobile channels.

Where ATMs are linked to remote video-tellers or have second screens they can also be used as educational tools. In Kathmandu following Nepal’s devastating earthquake in 2015, ATMs were used by the government to explain how to rebuild safely. In India, video-linked ATMs promote financial literacy by explaining the costs and benefits of relevant financial products and services.

Given the ATM’s social utility in areas such as these, excluding them from the payments mix will only serve to increase disaster risk and decelerate efforts to expand financial inclusion.

James Shepherd-Barron, is an independent disaster management consultant and author of Hole in the Wall – Memoirs of a Cash Machine,the untold true story of the ATM’s invention.