Are ATMs a Profitable Asset or Dead Weight?

Many financial institutions provide ATMs at each branch location because “that’s the way it’s always been done.” However, banking has rapidly evolved since the 1960s when ATMs first appeared to give cardholders access to cash when the financial institution was closed. Has your institution recently analyzed whether ATMs are a profitable endeavor or more of a burden that could be streamlined, outsourced, or simplified?

As of 2024, there are approximately 450,000 ATMs in the US, according to a CapitalOne Shopping Research report. The number of ATMs in the U.S. declined 3.83% between 2019 and 2022, and the usage of cash itself is also on the decline. While most financial institutions offer ATMs at every branch and assume it’s just part of doing business, PRI consultant Candace DeBarger says that the assumption doesn’t hold up and running an ATM network could be costing the FI’s bottom line.

In fact, financial institutions earn net income when their debit cards are used for purchases, and that includes when a cardholder requests cash-back with a transaction. Reminding cardholders on a regular basis that they can receive cash-back during a card purchase is a good way to deter “on us” ATM use and improve profitability.

Is the Use of Cash Declining?

In a word, yes. The share of American consumers using only cash declined 30% from 2022 to 2024, and 58% from 2016 to 2022, according to CapitalOne. And in general, promoting the use of cash doesn’t increase an FI’s profitability, particularly from ATMs, DeBarger said.

Using cash has both declined as a form of consumer payment and is more expensive and less profitable for banks to handle. In PRI’s article Is Cash Dead?, Tim Holt, PRI founder, points out that for FIs, handling cash is costly, but debit cards bring in revenue.

More specifically, the function of basic ATMs is to support cardholders who want to operate in cash, but generally these cash-only cardholders are not the FI’s most profitable customers. Cash is expensive, and ATMs are expensive. DeBarger says spending money to ensure the FI’s least profitable cardholders always have access to cash does not typically make sense. 

Additionally, as more and more so-called “digital natives” enter the banking system who are comfortable with person-to-person payment systems like Zelle or Venmo, the need for ATMs for cash payments will be further reduced.

Do Banks Need Surcharge-free Networks?

In the article Do Banks Need Surcharge-free Networks?, PRI noted that 20 years ago, when cash was still a primary payment method, surcharge-free ATM access was an important competitive tool for smaller FIs including community banks and credit unions. Consumers were generally using cash for most small ticket purchases, sensitive to ATM-related fees and often chose their banking relationship based upon this kind of access. But times have changed!  

With the rise of off-premises ATMs several years ago, consumers have become accustomed to paying surcharges to take out cash. In addition, as consumers have reduced the need and desire to pay with cash, the surcharge-free offering may no longer be strictly necessary to attract and retain them. And financial impacts to the FI of surcharge-free ATM networks must be considered, including:

• Lost revenue opportunities when a surcharge-free, non-customer transaction is performed at one of the bank’s ATMs.
• Lost revenue opportunities when the FI’s customers use their cards at another bank’s surcharge-free network.
•  Incurring additional expenses at other banks’ ATMs in the surcharge-free network, and some networks charge a monthly royalty for every card issued by the FI, whether they transact or not.

Banks should understand the full financial impact of participating in a surcharge-free network to make an informed decision about what is right for their institutions.

ATMs/ITMs Have Their Place

While ATMs have many expenses associated with them, including maintenance, telecommunications, security, cash replenishment, supplies and actual investment in the ATM purchase, functions like loan payments and cash deposits can contribute to enhanced profitability by taking customers out of the lobby, if that is a strategic goal for the institution. Small businesses often make use of the cash deposit features at their FI, and it becomes a competitive selling point to be able to do so at the ATM after hours.

In addition, one way to multiply the efficient use of bank resources is by installing Interactive Teller Machines (ITMs), which recently made closing branches easier during the pandemic of 2020. One employee can man multiple machines across several locations . With the right strategy in place, ITMs can be an effective way to offer full customer service at a lower FTE cost. 

If your multi-function ATMs/ITMs replace cardholder time spent with valuable branch personnel completing basic functions, these branch personnel are available to focus on more profitable functions. To know if your ATMs are making a difference to branch personnel, you must analyze how your ATMs are used by your cardholders, including how many of your debit cardholders are using their cards mainly for ATM cash withdrawals.

Outsourcing the ATM Program

PRI helped a client with eight branch ATMs analyze its profitability and found they were losing $100,000 per year on their ATM program overall, which was an avoidable loss. It’s typically much more profitable for an institution to invest in 1) promoting using debit cards to make purchases or 2) investigate an ATM outsourcing vendor relationship.

There are companies that provide managed services by taking over the ownership and operation of an FI’s ATMs and charge a fee to do it. For a bank with more than 10 ATMs, outsourcing the ownership and management of them can be a great way to offload some of the expenses and personnel needs required to run the network, DeBarger said. 

Assessing the profitability of an institution’s ATMs can lead to significant savings and a reduction in the headaches that can accompany maintaining ATMs for a declining and typically less profitable customer base that desires to operate in cash-only.

“Now is a good time to analyze your ATM program and determine whether it is making you money – or costing you,” DeBarger said.

Resources

Do Banks Need Surcharge-free Networks? – PRI

Is Cash Dead? – PRI

U.S. Cashless Statistics (2024): Is America Going Cashless? – capitaloneshopping.com 

Profit Resources specializes in identifying profitability improvement areas for financial institutions through revenue growth, cost control, streamlining processes, and effective use of technology. Contact us to learn more about our personalized approach to strategic planning to propel growth and improve profitability.