Before the 1970s, it wasn’t unusual to see hordes of harried workers rushing to banks at the end of the day to deposit paychecks. Customers had to conduct their financial business during “bankers’ hours” or wait until Monday, since many banks were closed on weekends.
The automated teller machine, or ATM, changed all of that. It ushered in the era of 24x7 banking that’s taken for granted today. With the advent of ATMs, customers could perform financial transactions at their convenience. No more waiting in long lines at the teller window or running short of cash on Saturday night.
ATMs were good for banks too. The machines reduced congestion in branches, cut labor costs and attracted new customers who might also be in need of loans and credit cards. Today, there are more than 3.2 million ATMs installed worldwide.
The ATM traces its roots to a device called the Bankograph, created by Luther George Simjian and revealed to much fanfare. A New York Times story in April 1960 announced: “Robot Bank Teller Is Invented.” The Bankograph accepted cash and check deposits. It used a camera inside the machine to take snapshots of the deposits, copies of which were given to the customers as receipts. Bankographs were installed in several branches of the City Bank of New York, but the machines were removed after six months due to limited use. It seemed few customers were willing to trust their money to a robot.
IBM was an instrumental player in overcoming such objections through its development of key underlying technologies that have enabled the modern ATM. For example, the company pioneered the creation in the 1960s of the magnetic stripe affixed on the back of credit and debit cards. Developed with the input of the banking and airline industries, the mag stripe turned out to be an efficient way to store an account holder’s identifying information, enabling such details to be logged and transmitted immediately, securely and accurately. The mag stripe was adopted as a US standard in 1969 and internationally two years later. The ATM as we know it wouldn’t have been possible without it.
In 1972, Lloyds Bank collaborated with IBM to introduce a self-service kiosk that dispensed cash, the IBM 2984. It introduced customers to a novel notion — a bank that never closed. The IBM 2984 accepted bank credit cards and required customers to enter a personal identification number, a relatively new feature at the time. That information, along with account data encoded in the magnetic stripe, was transmitted to a bank computer that checked the validity of the transaction. Lloyds Bank named its cash-dispensing terminal Cashpoint, and the machines became so popular that the word cashpoint became a generic term in England to refer to any ATM.
Researchers at IBM’s Systems Communications Division modified a cipher algorithm devised by IBM cryptographer Horst Feistel for use in the IBM 2984. The encryption system varied the “Dispense cash” command and associated instructions unpredictably from one transaction to the next, foiling hackers’ attempts to easily record and replicate commands. The encryption standard became the foundation for IBM’s entry into the cryptographic product market in the 1970s.
In 1973, IBM introduced its second-generation bank machine, the 3614. The 3614 enabled truly automated banking — customers could check their balances and make deposits and payments in addition to cash withdrawals. Linked to a bank’s central mainframe computer by telephone lines, the 3614 found a home in many supermarkets, department stores and other high-traffic locations.
Systems like the 3614 enabled banks to extend their reach beyond branches without having to invest in expensive brick-and-mortar infrastructure, while stores benefited from having customers with ready cash to spend. A Virginia bank even managed to place an IBM 3614 in the main concourse of the Pentagon.
By the mid-1980s, automated banking had grown more sophisticated with systems like the IBM 4730 Personal Banking Machine. A one-stop ATM connected to a System/370 computer, it accepted check deposits without slips, delivered cash paychecks, adjusted account balances, and dispensed exact change down to the penny. (The ability to dispense coins was soon discontinued because the feature was costly and rarely used.)
As consumer banking began migrating to the web, lBM exited the ATM business and turned its attention to developing internet banking solutions — such as online debit card transaction capabilities. IBM helped pioneer check-imaging technology, which enabled banks to store checks as images rather than pieces of paper. IBM has been a leader in helping banks correlate customer information from email, phone calls and additional channels with other business intelligence sources to provide more personalized service and anticipate customer needs.
In recent years, the number of ATMs has dipped due to branch closures and the popularity of online banking and mobile payments. But 40% of ATM users visit a machine eight to 10 times a month, and with millions of ATMs in use worldwide, they’re not going away anytime soon.
Ultimately, the ATM sparked a revolution in banking. It enabled customers to feel comfortable being untethered to a specific branch and gave them the freedom to conduct transactions any time of day. Such behavioral shifts set the stage for the rise of 24x7, branchless banking. The banks themselves, meanwhile, came to understand that their most valuable real estate was not on Main Street but, rather, on their customers’ mobile phones and laptops — and that their core business proposition isn’t money management. It’s information processing.
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