CGAP IT Innovation Series
Automated Teller MachinesSteve Whelan, with contributions from CGAP Staff and echange, LLC
Automated Teller Machines (ATMs) conduct many
transactions that would otherwise require staff
attention: they furnish account information,
accept deposits, draw down on pre-approved
loans, and transfer funds. The use of ATMs frees
loan officers to focus on personalized services,
and the machines can potentially deliver a broader
range of services. ATMs are most effective for
microfinance institutions (MFIs) that accept savings
and want to serve customers in multiple
locations and/or during non-business hours. But
since a single machine can cost as much as US$
35,000 and requires reliable electric and communications
connections, ATM technology may not
be the first choice for all MFIs.
Who Should Consider ATMs?MFIs generally consider ATMs when high transaction
volumes put pressure on staff, traditional
operating hours do not suit client needs, and regulations
permit MFIs to offer a range of financial
services. The technology only becomes attractive
if an institution accepts savings, since the up-front
investment in an ATM network is too high to justify
using it only for loan disbursements. Some
MFIs may want to consider ATMs or other simple
card-reading and balance-reporting networks to
reach rural customers or a dispersed population.
For these institutions, locating an ATM in a market
center may be more cost effective than opening
a branch there.
How Do ATMs Work?Typical ATMs have two input devices (a card reader
and keypad) and four output devices (display
screen, cash dispenser, receipt printer, and speaker).
Not visible to the client is a communications
mechanism that links the ATM directly to an ATM
host network. The ATM functions much like a PC;
it comes with an operating system (usually OS/2)
and specific application software for the user
interface and communications. Whereas most
ATMs use magnetic strip cards and personal identification
numbers (PINs) to identify account holders,
other systems may use smart cards with fingerprint
validation. (See the Biometrics
Technology and Smart Card articles in CGAP’s
IT Innovation Series for more information.)
The ATM forwards information read from the
client’s card and the client’s request to a host
processor, which routes the request to the client’s
financial institution. If the cardholder is requesting
cash, the host processor signals for an electronic
funds transfer (EFT) from the customer’s bank
account to the host processor’s account. Once
the funds have been transferred, the ATM
receives an approval code authorizing it to dispense
the cash. This communication, verification,
and authorization can be delivered several ways.
Leased line, dial-up, or wireless data links may be
used to connect to the host system, depending
on the cost and reliability of infrastructure. The
host systems can reside at the client’s institution
or be part of an EFT network. The EFT networkmay support debit card transactions using PINs,
or credit card transactions using a signature.
Point-of-sale services that use PINs are also possible.
EFTs often have a regional scope, such as A
Toda Hora (ATH) in Puerto Rico, which focuses on
the Caribbean and Central America.
Requirements for ATMsReliable electrical power and communications
infrastructure
• Affordable dial-up or leased line rates for the
ATM to send and receive data
• A central database where client data must be
stored for balance verification
• Reliable after-sales servicing and support from
the vendor or third-party
• Solid operational procedures and resources to
distribute cards and control PINs
• Supply of correctly denominated currency
• Systems to securely transfer cash to ATMs
• Adaptations for effective usage, such as building-
in verbal instructions to guide illiterate users
Benefits and Costs of ATMsBenefits
• Flexible account access allows clients to access
their accounts at their convenience.
• MFI personnel are not required to be present
for transactions and have more time to serve
clients.
• Increased hours of operation fit client schedules.
• More clients can be reached beyond the branch
network, such as in smaller population centers.
• More low-cost funds are available because ATMs
make it easier for clients to deposit savings.
Costs
Costs differ depending on the technology provider
and how the ATM network is operated. If an MFI
can partner with an existing ATM network and/or
network operating company, the MFI’s operating
expenses will be less.
• Up-front equipment acquisition cost or network
participation fee
• Set-up fee to install and network the ATMs
• Usage fee, either per transaction or on a
monthly basis
• Monthly or annual service fee for support
• Communications charges for dial-up, leased
lines, or wireless data links
Initial costs are high, particularly if the institution
is establishing a self-supported network. Individual
ATM purchase prices are US$ 20,000–$ 35,000.
Magnetic cards cost US$ 0.25 to US$ 0.50 each,
and smart cards usually run US$ 6–$ 10 each.
ATMs that use smart cards do not require a realtime
Internet connection, since the ATM can obtain
some client financial data from the microchip on
the smart card. The microchip or wireless internet
service may be required where communications
systems are expensive or unreliable.
