Dispensing Value – The Social Utility of the ATM

In September 2019 the US Automated Teller Machine (ATM) enjoyed its 50th birthday. Two years earlier, its British forerunner, the cash dispenserElectronic device that, primarily dispenses cash after identification of the user, using a payment card or another device such as a mobile phone or biometric identification. See ATM. More, did the same. On both occasions celebrations were surprisingly muted, with the media on both sides of the Atlantic scarcely mentioning this milestone in financial technology.

This is strange given that the ATM was not just the original ‘fintech’ solution but has a social value far beyond that of the cashMoney in physical form such as banknotes and coins. More it dispenses. After all, the arrival of the world’s first automated cash dispenser in 1967 changed the way we bank, the way we consume, and our relationship with moneyFrom the Latin word moneta, nickname that was given by Romans to the goddess Juno because there was a minting workshop next to her temple. Money is any item that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular region, country or socio-economic context. Its onset dates back to the origins of humanity and its physical representation has taken on very varied forms until the appearance of metal coins. The banknote, a typical representati... More forever. It transformed our lives by ushering in a post-war world of self-service where we had to trust and interface with a machine for the first time. In its way, the ATM was just as disruptive as the advent of the i-phone.

So, why is such an iconic and transformative machine so under-valued?

Perhaps it’s because of the way it looks? Grey, metallic utilitarianism might ooze solid dependability but it doesn’t exactly inspire. I suspect a much larger part of the reason must be to do with our evolving attitudes to cash in an increasingly digital world. Preferring mobile and contactless payments, perhaps we see the ATM as a fountain-pen in a touchscreen world, the quaint legacy of a bygone era? In high-income societies this is understandable. Where the point-of-sale infrastructure is robust, the electricity supply reliable, and security guaranteed, there is a convenience and cost case to be made for going digital. From our rich-world perspective it’s easy to conclude that cash must be losing its place in the payments mix.

But 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 might be disappearing from our streets in the US and Europe, figures from Retail Banking Research , a London-based analytics company, show that ATM growth in the Asia-Pacific region is growing by nearly 10% per year.

What seems to get lost in the ‘fintech’ scramble for our digital dollarMonetary unit of the United States of America, and a number of other countries e.g. Australia, Canada and New Zealand. More is that significant sections of society wish to retain the option of paying for goods and services with cash. The ‘digiterati’ also seem to forget that the ATM is itself a core part of the digital revolution and that cash and digital channels are complementary and need to co-exist. In high and low-income societies alike, the ATM is a critical digital channel. For debit-card holders and mobile phone users from Kentucky to Kenya it is not a case of cash or digital, but of cash and digital.

But it’s about more than this: the ATM doesn’t just dispense cash, it dispenses value. It has a societal benefit way beyond the face valueThe figure or amount written on the banknote or coin which indicates the amount of its economic value. It is usually written in letters and numbers. More of the banknotes it disgorges. And nowhere is this more evident than in the poorer parts of the world or among societies coping with conflict or natural disaster.

The social utility of an ATM in such places is based on a simple fundamental truth: Cash is trusted. It always works and is not reliant on mobile phone networks, a complex payments infrastructure or algorithms.

Remarkably, the ATM also plays a central role in reducing disaster risk by fostering resilience among at-risk populations; accelerating economic recovery in the wake of disaster; promoting social inclusion; and alleviating poverty. That such a simple machine can do all this without anyone apparently noticing goes some 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 a hurricane or flood it allows people to stock up on low-denomination banknotes prior to the hazard arriving and, in certain cases, buy an insurance policy. Covering the surge in cash demand for three days prior to onset and for up to six months or more following a natural disaster – much longer in times of conflict – is now a key disaster risk mitigation responsibility of Central Banks. Where identity documents have been lost, ATMs allow humanitarian cash transfers from aid agencies and remittancesMoney sent home from emigrants working abroad. More from abroad to be cashed out using biometric authenticationThe process of proving that a banknote or security document is genuine. More and without having to pay extortionate foreign exchangeThe Eurosystem comprises the European Central Bank and the national central banks of those countries that have adopted the euro. More fees and intermediary commissions, or run the risk of fraud.

The ATM accelerates economic recovery following a disaster. Cash recyclingThe process of converting waste materials into new materials and objects. Banknotes are increasingly recycled after destruction, and the waste is often used for landfills, isolation material etc. Polymer notes are melted into pellets which are recycled into new products. Recycling is often incorrectly used instead of recirculation. See Recirculation. More, deposit-accepting ATMs do this by maintaining liquidityDescribes the extent to which assets or rights can be converted into cash without causing a significant decrease in the asset’s price. Accordingly, liquidity is often inversely proportional to the profitability of the asset and involves the trade-off between the selling price and the time needed to convert it to cash. In finance, cash is considered the most liquid asset and cash is sometimes used as a synonym for liquidity (e.g. cash reserves; cash pooling…). More 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 by men and can even provide early warning of disease outbreaks by using the movement of banknotes out of known hot-spots as a proxy for predicting the spread of potentially infected people.

Finally, the ATM is playing an ever-more pivotal role in the global effort to combat poverty. Across Africa, India, China and much of South-East Asia the ATM is the primary channel for promoting financial inclusionA process by which individuals and businesses can access appropriate, affordable, and timely financial products and services. These include banking, loan, equity, and insurance products. While it is recognised that not all individuals need or want financial services, the goal of financial inclusion is to remove all barriers, both supply side and demand side. Supply side barriers stem from financial institutions themselves. They often indicate poor financial infrastructure, and include lack of ne... More, a strategy for bringing 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 natural hazards through, for example, the purchase of insurance products and the taking out of micro-loans. In the case of loans, the ATM is increasingly acting 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 build back better after an earthquake. In India they are used to promote financial literacy by explaining the costs and benefits of a particular financial product or service.

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 deepen poverty.

Find the original article here and check out our Cash&Crises page for a closer look into the payments landscape and the importance of cash in times of disaster situations.

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

For further information, please contact: james@shepherd-barron.com

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