ATM management outsourcing: a viable option for struggling US banks

30 April 2009

With a widespread lack of capital for costly upfront investments, renting ATM hardware and associated services becomes an attractive, and in some cases the only feasible, option to struggling banks, says Jaroslaw Knapik*, financial analyst, Datamonitor

In the current economic environment, banks in the US should carefully analyse the current and future total cost of ownership of their technology assets, and evaluate the outsourcing alternative. With a widespread lack of capital for costly upfront investments, renting ATM hardware and associated services becomes an attractive, and in some cases the only feasible, option to struggling banks.

IT outsourcing services are already prevalent within many business functions. For example, areas such as core systems are already widely outsourced to service bureaus among lower tier US banking institutions, and banks are becoming more and more interested in outsourcing overall IT management and further development of their technology stack.

It is also nothing new within the US banking industry to lease equipment such as ATMs or self-service kiosks. Overall ATM management goes well beyond the simple purchase or renting of hardware and the maintenance involved. It also includes management of hardware installation, cash handling, communication, occupancy, and processing.

While many innovations are appealing to technology buyers, new products are also typically relatively expensive at the early stage of the product lifecycle. Many banks are suffering extensively during the current financial crisis, and have been forced to adopt increasingly aggressive cost-cutting strategies.

A survey of 200 IT decision makers in North America, Europe and Australasia from within retail banks, conducted by Datamonitor in the fourth quarter of 2008, shows that cost-cutting is the most important objective driving banks' IT strategy in 2009.

While banks in the US are under strong budget scrutiny, many find that they have additionally increased operational expenditures caused by increases in insurance premiums payable to institutions such as The Federal Deposit Insurance Corporation or the National Credit Union Association. These institutions are under considerable pressure to quickly build up the necessary capital base that would cushion against possible additional financial turbulence.
That said, many US banks still need to compete for new clients or improve service levels within distribution channels. While navigating the stormy seas of the crisis, banks are increasingly looking at reducing their upfront capital expenditure on new investments and shrinking current IT budgets.