The many roles of ATMs for banks, credit unions, fintechs and communities

Q&A with Steve Nogalo, General Manager, Global Sales, North America

This article was originally featured in the BAI Special Report, "New opportunities for branch and ATM integration," click here to learn more.

Steve Nogalo has responsibility for the company's ATM business in North America, supporting key financial institutions, fintechs and retail partners. With more than 25 years of experience across banking and retail, he has expertise in software engineering, sales, professional services and product development. He has played a key role in the company's transformation into a software- and services-focused company.

What does "utility" banking mean to you and why does it matter to the industry?

Utility banking is all about providing expanded access to financial services for everyday banking transactions and offering greater convenience to consumers. That is primary. But also important is delivering that convenience in an economic model that's cost-effective for industry stakeholders, whether that's a credit union, a bank or a fintech.

Economies of scale are key, and that's where utility banking really has an opportunity to drive down the cost to serve, while also providing expanded access and greater convenience to consumers. Access to everyday banking services is like access to everyday health. It is critical for people's financial health and well-being.

Another focus is providing access to those services without asking customers to go great distances and avoiding banking deserts, particularly in low-to-moderate-income or underserved communities. It's important for our society as a whole.

I also think it's pivotal for financial institutions. To maintain competitiveness and provide those services in a cost-effective way, they can leverage utility banking networks. As they automate those low value, high frequency transactions they can concentrate on their branch infrastructure and focus their human capital on higher value services that build financial literacy.

The ATM Security Association reports that ATM crime and vandalism show a year-over-year increase of 165%. How would you advise banks and credit unions to safeguard their equipment and their customers?

The answer lies in staying one step ahead of the bad guys. They are very innovative. They are very well organized, and we need to be constantly vigilant. The focus needs to be on security in two areas, physical security and logical security. It's best to segregate those interests because they are quite different.

The attack vectors are quite different, so we advise financial institutions to look holistically at the ATM environment. What are you doing from a lighting perspective? That actually is a very low cost but important element of reducing the attractiveness of a target to a bad guy. What kind of thought have you put into line of sight? If you have a large row of hedges obstructing lines of sight from traffic in a building, it's a really safe place for a bad guy to do bad things. Have clear lines of sight to that ATM. Obviously security cameras are important. It's really focusing on how do we harden the target to make it less attractive to the bad guys.

On logical security, that's all about cybersecurity. And again, banks and credit unions should think about hardening that environment from a software and a networking perspective. Looking at preventing things like black box attacks, BIOS manipulation, ransomware, wiretapping, man-in-the-middle, etc. To thwart these types of attacks, financial institutions should use up-to-date ATM software that is hardened against intrusion; enable multi-factor authentication for all ATM software/system/network administrators; review audit logs regularly; segregate the ATM channel from their environment as much as possible; undertake periodic vulnerability tests; modify software/hardware configurations as required; and finally, maintain awareness of updated threat intelligence against the ATM channel.

The last one, and I think a really important one, is we view security as an industry problem so it's important to stay engaged in the industry and to share information. Participating and sharing information in security-focused peer and trade groups, monitoring warnings and updates from organizations like the Secret Service, the FBI, and card networks help to keep ATM security managers informed of potential schemes found "in the wild" before an institution may become a target. This gives an institution the opportunity to protect its fleet against potential intrusions.

From a consumer perspective it's back to the basics: Telling customers to protect their PIN. That probably remains the biggest area of vulnerability - people either sharing their PIN or not being aware enough when they enter it into an ATM. The bad guys have developed tiny pinhole cameras that they attach somewhere around the ATM and they record the PIN as it is entered. A really simple thing a consumer can do is to put a hand over their PIN while entering it.

What should banks and credit unions know about the cost of maintaining an ATM network?

It is a common misconception in the industry that the purchase price of the ATM and the maintenance costs of the ATM make up the majority of the cost. It's actually not. It is a portion of the cost, but the broader costs associated with operating an ATM go well beyond that. These include the costs associated with the cost of the cash, the cost of delivering the cash, the cost of ensuring that the ATM environment is secure at all times, and the cost of compliance through technology and other upgrades. There is a cost associated with reconciling ATMs and dealing with claims and adjustments. Another cost to consider is the opportunity costs of employees who are maintaining ATMs but who could be adding higher value in consultative areas of the financial institution.

It's important to understand and measure your costs to ensure you are driving efficiency and driving the maximum optimized cost to deliver the highest possible service.

How do you see innovation and AI impacting the ATM of the future?

One good example is cash forecasting. If an ATM doesn't have cash in it, it's not very good for anybody. But anticipating what cash demand will be is incredibly complex. In other words, how much cash should you load in that ATM? How do you load enough cash to ensure that you can meet the needs of the consumers, but not so much cash that it's costing unsustainable cash vault fees? So that's an area where AI can be leveraged today and that drives improvements in availability.

Another area is around predictive maintenance, anticipating when a device will fail and being able to take some remediating actions prior to the module actually failing. That means when a customer wants access to their financial services, they have access to their financial services.

How do you see the role of cash in financial inclusion?

Cash is critical in underserved or low-to-moderate income communities especially and it's not likely to change within my lifetime. Whether these customers are young and starting to grow into a more affluent consumer or are looking to build wealth, having access to cash in a convenient way is key.

Cash is also the on-ramp into the formal financial system, allowing those customers to generate credit scores and start to accumulate wealth so that they can start to build financial stability in their lives.