ATM Processing and Location Strategy


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ATM Processing and Location Strategy

  1. 1. 2010 ATM Operations, Location Strategy & Effect of Consolidation Production & Operation Management Rohan Kumar Sinha 5/7/2010
  2. 2. Content 1. Acknowledgement 2. Introduction to the ATM 3. ATM History 4. My Work 5. ATM Operations 6. Location Strategy of ATM 7. Effect of Consolidation 8. 21st Century ATM 9. Conclusion 11. References
  3. 3. Acknowledgement The satisfaction and delight that accompanies the completion of any task would be incomplete without mentioning the people who made it possible with their constant guidance and encouragement which put the finishing touch to all the efforts with success. I Rohan Kumar Sinha extend my intense gratitude and respect to Mr. Sumit Goyal, (my course instructor) for providing a learning platform. I express my deep sense of gratitude and sincere thanks to her for her valuable guidance. I would like to thanks my seniors, who helped me thoroughly for shaping out things well in order. Rohan Kumar Sinha
  4. 4. Introduction to the ATM Automated Teller Machine An automated teller machine (ATM) or automatic banking machine (ABM) is a computerised telecommunications device that provides the clients of a financial institution with access to financial transactions in a public space without the need for a cashier, human clerk or bank teller. On most modern ATMs, the customer is identified by inserting a plastic ATM card with a magnetic stripe or a plastic smart card with a chip that contains a unique card number and some security information such as an expiration date or CVVC (CVV). Authentication is provided by the customer entering a personal identification number (PIN). 16 Digits PIN CVV Number Using an ATM, customers can access their bank accounts in order to make cash withdrawals (or credit card cash advances) and check their account balances as well as purchase cell phone prepaid credit. If the currency being withdrawn from the ATM is different from that which the bank account is denominated in (e.g.: Withdrawing Japanese Yen from a bank account containing US Dollars), the money will be converted at a wholesale exchange rate. Thus, ATMs often provide the best possible exchange rate for foreign travellers and are heavily used for this purpose as well. Types of ATM i. On-Site ATM- If the ATM is within 100 metres of bank premises then it referred as on-site ATM. ii. Off-Site ATM- If the ATM is far than 100 metres from bank premises then it is referred as off-site ATM.
  5. 5. History An automatic teller machine or ATM allows a bank customer to conduct their banking transactions from almost every other ATM machine in the world. As is often the case with inventions, many inventors contribute to the history of an invention, as is the case with the ATM. Read each page of this article to learn about the many inventors behind the automatic teller machine or ATM. Luther Simjian vs. John Shepherd-Barron vs. Don Wetzel In 1939, Luther Simjian patented an early and not-so-successful prototype of an ATM. However, some experts have the opinion that James Good fellow of Scotland holds the earliest patent date of 1966 for a modern ATM, and John D White (also of Docutel) in the US is often credited with inventing the first free-standing ATM design. In 1967, John Shepherd- Barron invented and installed an ATM in a Barclays Bank in London. Don Wetzel invented an American made ATM in 1968. However, it wasn't until the mid to late 1980s that ATMs became part of mainstream banking. Luther Simjian's ATM Luther Simjian came up with the idea of creating a "hole-in-the-wall machine" that would allow customers to make financial transactions. In 1939, Luther Simjian applied for 20 patents related to his ATM invention and field tested his ATM machine in what is now Citicorp. After six months, the bank reported that there was little demand for the new invention and discontinued its use. John Shepherd Barron According to BBC News, the world's first ATM was installed in a branch of Barclays in Enfield, North London. John Shepherd Barron, who worked for the printing firm De La Rue, was the chief inventor.
  6. 6. In a Barclays press release, the bank stated that comedy actor Reg Varney, star of TV sitcom "On the Buses", became the first person in the country to use a cash machine at Barclays Enfield on June 27th 1967 (see photo). The ATMS were at that time called DACS for De La Rue Automatic Cash System. John Shepherd Barron was the managing director of De La Rue Instruments, the company which made the first ATMS. John Shepherd Barron - Slightly Radioactive At that time plastic ATM cards did not exist. John Shepherd Barron's ATM machine took checks that were impregnated with carbon 14, a slightly radioactive substance. The ATM machine would detect the carbon 14 mark and match it against a pin number. John Shepherd Barron - PIN Numbers The idea of a personal identification number or PIN was thought up by John Shepherd Barron and refined by his wife Caroline, who changed John’s six digit number to four as it was easier to remember. Never Patented John Shepherd Barron never patented his ATM invention instead he decided to try to keep his technology a trade secret. John Shepherd Barron stated that after consulting with Barclay's lawyers, "we were advised that applying for a patent would have involved disclosing the coding system, which in turn would have enabled criminals to work the code out." Introduction to the United States In 1967, a bankers' conference was held in Miami with 2,000 members in attendance. John Shepherd Barron had just installed the first ATMs in England, and was invited to talk at the conference. As a result, the first American order for a John Shepherd Barron ATM was placed. Six ATMs were installed at the First Pennsylvania Bank in Philadelphia.
  7. 7. As is often the case with inventions, many inventors contribute to the history of an invention, as is the case with the ATM. Read each page of this article to learn about the many inventors behind the automatic teller machine or ATM. Don Wetzel - Waiting In Line Don Wetzel was the co-patentee and chief conceptualist of an automated teller machine, an idea he said he thought of while waiting in line at a Dallas bank. At the time (1968) Don Wetzel was the Vice President of Product Planning at Docutel, the company that developed automated baggage-handling equipment. The other two inventors listed on the Don Wetzel patent were Tom Barnes, the chief mechanical engineer and George Chastain, the electrical engineer. It took five million dollars to develop the ATM. The concept first began in 1968, a working prototype came about in 1969 and Docutel was issued a patent in 1973. The first Don Wetzel ATM was installed in a New York based Chemical Bank. Editor's note: There are different claims to which bank had the first Don Wetzel ATM, I have used Don Wetzel's own reference. Don Wetzel Discusses His ATM Machine Don Wetzel on the first ATM installed at the Rockville Centre, New York Chemical Bank from a NMAH interview. "No, it wasn't in a lobby; it was actually in the wall of the bank, out on the street. They put a canopy over it to protect it from the rain and the weather of all sorts. Unfortunately they put the canopy too high and the rain came under it. One time we had water in the machine and we had to do some extensive repairs. It was a walk up on the outside of the bank. That was the first one. And it was a cash dispenser only, not a full ATM. We had a cash dispenser, and then the next version was going to be the total teller (created in 1971), which is the ATM we all know today -- takes deposits, transfers money from checking to savings, savings to checking, cash advances to your credit card, takes payments; things like that. So they didn't want just a cash dispenser alone."
  8. 8. ATM Cards The first ATMs were off-line machines, meaning money was not automatically withdrawn from an account. The bank accounts were not (at that time) connected by a computer network to the ATM. Banks were at first very exclusive about who they gave ATM privileges to. Giving them only to credit card holders (credit cards were used before ATM cards) with good banking records. Don Wetzel, Tom Barnes and George Chastain developed the ATM cards, cards with a magnetic strip and a personal ID number to get cash. ATM cards had to be different from credit cards (then without magnetic strips) so account information could be included. My Work “In my term paper of Production & Operation Management, I am going to analyse the ATM operations, its location strategy and effect of its consolidation. I am also going to depict some view points on these topics.”
  9. 9. ATM Operations ATM cards use processors to connect to there various ATM networks. If you take your ATM card out of your wallet now, you will see network logos (also known as bugs) on the back: Here are 4 examples of network bugs. We might notice that the Cirrus bug looks similar to the Master Card logo. That is because it’s the ATM processing network of Master Card. The Plus network is the ATM side of Visa. Plus and Cirrus are the National ATM networks. All other logos and bugs are regional networks. Financial Institutions commonly referred to as Banks issue both credit cards and debit cards. Debit cards can be ATM cards and/or Check Cards. When someone swipes or inserts a debit or credit card into an ATM, it asks for a PIN (personal identification number). When you process ATM transactions with your ATM machine will dial a toll free number to begin the authorization process. Your ATM will be re-programmed with a TID (terminal ID number) that will identify it on our processor so the networks will allow the transaction to complete. This TID along with other identifying information lets the cardholder's bank know that the transaction is taking place on your ATM. Your ATM will connect to the networks through our processing center and then to the cardholder’s bank. If there are sufficient funds in the ATM cardholders account for the withdrawal request, the transaction will be completed. The ATM receives the authorization and dispenses the cash requested. Your ATM can also be used if someone just wants to check their account balance or transfer funds before or after withdrawing cash. There would be no convenience fee charged by your ATM for non-cash withdrawal transactions. Operational Aspects  Daily EOD reports from outsourced agencies
  10. 10.  Collection and processing of ATM Deposit Envelopes everyday at 6.00 pm at OPEC  Disposing Captured Cards  Checking and proper storing of journal rolls  MIS to corporate office  Electronic Data Capture (EDC) storing  Informing respective agency any time if any problem with the ATM ATM Departments in BANKS  AOC (ATM Operation Centre)  Taking care of all the ATMs in India 24 hrs.  Co-ordination of respective Delivery Channel Coordinator  Checking of ATM transactions & Reconciliation  CMC (Card Management Centre)  Preparing ATM cards as per the application from the respective branches (FATM) PMC (Pin Management Centre)  Preparing PIN (personal identification Number) for all the ATM cards prepared by CMC COC (Card Operation Centre)  Taking care of all the VISA Transaction all over India in GLOBAL BANK ATMs.  Co-ordination with VISA – Bangalore and Singapore.  Maintenance and proper care of VISA server at corporate office.
  11. 11. Location Strategy of ATM For establishing a new ATM at any location bank generally consider following things: 1. Cost Banks seeking sites for location for ATM, also need information from localities, land costs, building availability and suitability, construction costs, local and state taxes, local and state development incentives, availability and cost of energy, transportation costs to customers and from suppliers, as well as such factors the location and market areas of competitors, the availability of other infrastructure such as telecommunications, sewer, and water, as well as factors related to quality of life. 2. Geographical locations The geographical location of the branches and the ATMs are of vital importance to ensure either responsiveness of efficiency of the supply chain. While analyzing the cash dispensed figures, for the various ATM locations for Global Bank, certain location shows significant amount of variability in the amount of cash dispensed. Depending on high volume of transaction or high value of transaction, this could be attributed to the change in withdrawal pattern of the customers in the catchment area. The ATMs around shopping complex and malls have enormously large withdrawals in weekends and festival times. 3. Status of accounts The asymmetry in the nature of accounts is one main factor leading to wide fluctuations in the demand for / or supply of cash. The catchment area can necessarily have resident individuals, shopping malls, or a large chunk salaried people (in a typical downtown location). In such a scenario, the withdrawal of cash recurs on a fixed slot every month. Naturally banks should take cognizance of this fact and accordingly plan the replenishment at these counters so as to avoid any excess cash holding situation. 4. The ATMs are categorized by some of the banks depending on the volume of transaction that takes place from the outlets. The following table shows the method of categorization used by Global Bank to grade its ATMs.
  12. 12. Once the ATMs are categorized, a maximum cash retention limit is set on the basis of the following calculation shown in the table: The average volume of transaction is taken into consideration in each of the categories. This value is multiplied by a factor of 3. This factor three has been derived through the following process:  Taking the data of the maximum withdrawals that has taken place from each of the ATMs in the last 3 months and measuring the deviations.  Applying judgment to factor in any unexpected swings in demand and other external variables.
  13. 13. Effect of consolidation For the smooth operation of ATM in India various banks collaborated to each other under different norms and conditions. The group is: Cash Tree Banks-
  14. 14. The Lakshmi Vilas Bank Limited was founded seven decades ago ( in 1926) by seven people of karur under the leadership of Shri V.S.N. Ramalinga Chettiar.... In these banks, there are two types of transaction charges.
  15. 15. 1. Customers charge- On every transaction bank is deducting certain amount from customers’ account, if he/she takes the service of other banks’ ATM. In this process the charge varies from Rs. 5 to 10 respective of agreement between related banks as well as between bank and customer. 2. Bank Charge- On the other hand, the bank related to the customers account holder is liable to pay certain amount to the service provider bank. This amount varies from banks to bank i.e. domestic to domestic or domestic to foreign have different charges payable. It varies from Rs 10 to 20 respective of their agreement. 21st Century ATM in India 1. Euronet Launches National ATM Switch in India Euronet Worldwide, Inc., a leader in electronic payment solutions, announced that it has received approval from the Reserve Bank of India (RBI) to operate a national shared ATM switch with Industrial Development Bank of India (IDBI) Bank as the settlement bank. The network, which will operate under the bank-independent brand Cashnet, is expected to commence operations next month. Cashnet, India's first nationwide shared ATM switch will support ATMs for the existing founding member banks: Citbank, IDBI Bank, Standard Chartered Bank (SCB) and Unit Trust of India (UTI) Bank. IDBI Bank will act as the settlement bank for the network. Based on the member banks' existing ATMs, Cashnet will provide access to more than 1,300 ATMs for the more than 6 million debit and credit cardholders of the member banks across more than 100 cities in India. Customers from the member banks can use any ATM in the network. These transactions will be supported by online connections between each bank and the Euronet processing center in Mumbai, thus establishing the first shared ATM network in India to offer end-to-end online transaction processing across the entire network. The network will be implemented using Euronet's software, which has powered Euronet's European Operations Center for the past eight years, processing more than 7 million transactions a month. The Cashnet switch will process ATM transactions and provide daily settlement between member banks.
  16. 16. Cashnet enables customers to enjoy additional access through an expanded transaction set, allowing for easy access to their financial accounts. The transaction set includes cash withdrawals, fast cash withdrawals, balance inquiries, mini-statements, PIN changes, checkbook requests and ATM recharges, which enable consumers to purchase prepaid airtime for their mobile phone accounts from the ATM. 2. State Bank of India signs for 300 solar-powered ATMs State Bank of India (SBI) is rolling out over 300 solar-powered ATMs from local vendor Vortex Engineering at rural and semi-urban sites across the country. SBI has signed for 545 machines, of which over 300 will solar-powered Gramateller Duo ATMs - developed in collaboration with IIT Madras - in the first large-scale deployment of its kind in the country. The vendor says a conventional cash machine consumes about 1000 watts of power and requires an air-conditioned environment, adding another 1500 watts. This means a normal ATM consumes about 1800 units of power every month. In contrast, Vortex claims that its machines consume less than 100 watts of power and do not require air conditioning, thus using up less than 72 units per month. The saving of 1728 units per month represents a cash benefit of Rs 1, 20,000 a year. In addition, compared to conventional ATM installations, Vortex's machines reduce CO2 emissions by at least 18,500 kg per year. V Vijay Babu, CEO, Vortex Engineering, says: "With an ATM penetration of about 0.04 per 1000 people in India, there is a huge need for Rural ATMs. With this solar innovation becoming a viable option, Vortex looks forward to revolutionising the Rural ATM market." Conclusion
  17. 17. In recent years, the banking industry has been undergoing drastic changes, reflecting a number of underlying developments. Speed of information transmission has led to commoditization of banks’ products and services—thus reducing the profits from product and service differentiation. The rate of advancement in ATM processing leads India to a new height as well as provides the customers with a wide range of services and benefits. Thanking You References