Advantages of ATM: Why banks and people still use ATM

There are many benefits of ATM such as security, accuracy, convenience, and more which both banks and customers enjoy. Click to learn more.
ATM-machine showing transaction-completed

This post on advantages of ATM is the first article in our automated teller machine (ATM) series, which focuses on ATM technology, the advantages, how to use it, terminologies associated with it and the different services and transactions that can be conducted with the technology.

In banking and finance, an ATM is an acronym that stands for automated teller machine. I know that’s a mouthful, so thankfully, we can just call it by its initial, ATM, and everyone will know what we are talking about. Many people, however, call it an ATM machine, which is repetitive as the M already stands for machine. I will do that sometimes in this article. In addition, ATMs are sometimes called bank machines, teller machines, cash machines or cashpoints.

In Nigeria, ATMs are commonly used to withdraw money but there are other services, which banks also offer through the technology. These ancillary services are a large part of the reasons ATMs are popular.

In this article, I explained what an ATM is and where you can find one to use. I also provided a very brief overview of the history behind the world’s first ATM machine as well as the first ATM in Nigeria. Next, I looked at the drivers for the wide adoption of the technology and its benefits to banks and customers.

Now let’s get to the details but note that you can also jump to any section of the article that is of interest to you from the Article Outline. Alternatively, you may choose to read the article as presented, which will be awesome.

1. What is an ATM?

An ATM is a machine (technology) that dispenses cash and/or performs other basic financial transactions when a user places a valid bank card in it and inputs the correct PIN (personal identification number), also called PIN number or PIN code, when prompted. Sometimes, an ATM can be activated without the use of a card but this generally means that the user had initiated the transaction they want to complete elsewhere, such as a bank’s website or app. I will discuss that more in another post.

An ATM is best described by its function, which makes its meaning very clear without ambiguity. It is a machine that bank customers use to perform various financial transactions usually with the aid of a valid bank card (also called ATM card) and PIN code. Where any of these is short, a bank customer may be unable to complete a banking transaction and will have to contact their bank either for a replacement card and/or for a PIN change. Clearly, this is a security measure designed to protect customers from fraudsters and to prevent unauthorised persons from getting access to a bank customer’s funds.

Cardless ATM transactions are also possible. In this case, a customer will need to input a code generated by their bank to be able to complete the transaction. A cardless transaction may be initiated using a banking app, online banking or mobile phone. A code is sent to the email or mobile phone associated with the account. The customer uses this code to complete a transaction via the ATM.

2. Where can I find an ATM?

Banks place ATMs at strategic places where customers can easily access them. So, you can find ATMs inside and outside bank premises, at shopping malls, at supermarkets, community centres, business districts, schools and universities, leisure centres, near churches and mosques, sporting arena, malls, event centres, and more. The closest ATM machine near you will most likely be any of such places closest to you. The strategy for banks is to target locations that usually attract people. In other words, places where they will likely get maximum uses out of the machines.

3. The world’s first ATM as we know it today

The ATM invention has a chequered history with various experimentation by different entities rolling out a version of the technology. However, the first version of the ATM that can successfully dispense cash was installed on 26 June 1967 as one of six machines commissioned by Barclays, a British bank. This paved the way for the wide adoption of the machine the world over. In the UK, the technology is commonly referred to as cashpoint and Barclays installed the first one in Enfield, North London. The English comedian and actor Reginald Alfred Varney was the first person to use the technology, making him the first person in the world to withdraw money from an ATM. From there the technology spread to other countries and eventually made its way to Nigeria. John Adrian Shepherd-Barron is the inventor who led the team of engineers that built the first ATM.

Barclays ATM
A Barclays’ ATM, not the first machine

4. First ATM in Nigeria

The first ATM in Nigeria was commissioned in 1990 by the defunct Societe Generale Bank Nigeria (SGBN), according to a research paper published in the Journal of Social Sciences. However, some sources contend that the first ATM was installed in 1989 but the consensus points that Societe Generale Bank Nigeria was the bank that first introduced ATMs to the Nigerian banking landscape. They called the ATM, Cash Point 24, probably an allusion that one can withdraw money from the ATM at any time of the day or night.

First Bank followed their footstep and installed its first ATM called First Cash at 35 Marina, Lagos, in 1991. An entry in the First Bank journal states that the ATM was introduced as “part of ease of convenience, round the clock banking.”

5. The drivers for ATM wide adoption in Nigeria

The stated reasons by First Bank for commissioning its first ATM have always driven the argument for the wide adoption of ATMs. In fact, John Adrian Sheppard-Baron, credited to have invented the Barclays’ first ATM in 1967, reportedly embarked on the project because of the inconvenience of Barclay bank’s rigid opening hours. It was said that in 1965, he had gone on a certain Saturday to make his usual weekend withdrawal but the door was closed to him because he was one minute late to the bank. While in the bath later that night, the idea came to him. He reportedly pitched his idea to a Barclays senior executive over a cocktail later that year, and the rest, as the saying goes, is history.

At the core of the driver for ATM adoption seems to be the convenience they offer. However, the technology did not become widely available in Nigeria, not until at about the mid to late 2000s when monetary policies in Nigeria, spearheaded by the Central Bank of Nigeria (CBN), began shifting towards cashless transactions. The CBN began encouraging banks to make debit and credit cards available to their customers. It was at that point that banks made a more intentional and concerted effort to make ATMs more widely available for their customers.

Furthermore, it is conceivable that even in the absence of CBN’s policy that forward-thinking banks would have naturally transitioned to doing just that. It was inevitable. Anyone who had ever been to a Nigerian bank pre-ATMs’ wide adoption would attest to the fact that it was a stressful experience. Banking halls used to be filled to capacity as customers waited patiently and oftentimes rowdily to be attended to. Neither bank employees nor bank customers were spared from the uncomfortable conditions. People dreaded anything that would take them to a bank because going to a bank back then was never a quick trip. It was a nightmare that no one willingly went through.

5.1 Advantages of ATMs to bank customers

There are a number of benefits that customers derive from using the ATM, some of which are:

  • Time-saving
  • Convenient
  • Error-free
  • Ancillary service
  • Secure

From our discussions from the previous section, it was clear that Nigerians were primed for anything that could ameliorate the situation of overcrowded banking halls. They were primed to accept the introduction of ATMs. For Nigerians, it meant less time spent in a banking hall. Let’s call this advantage time-saving.

It also meant that they have access to their money (up to the daily withdrawal limit) any time of the day or week. That is convenience. Initially, these two benefits were the drivers of ATM adoption and acceptance by the banking public.

Add to that that cash withdrawals and deposits at ATM machines are exact, which builds trust and confidence that transactions conducted using ATMs are error-free.

Over time, banks have introduced additional services via the ATM, thereby furthering the adoption of ATMs as a means for carrying out various banking transactions.

But perhaps, the major reason people avail themselves to ATM services is that ATM machines are reasonably secure. The security is achieved by means of a combination of an ATM card and ATM PIN. I shall describe those subsequently.

5.2 Advantages of ATM to banks

Banks also derive huge advantages and values by installing ATMs that the banking public can use. Some of these benefits are:

  • Decongest banking halls
  • Cost-saving
  • Fee earnings
  • Commission earnings
  • Security
  • Risk transfer
  • Reduced footfall
  • Accounts reconciliation
  • Brand awareness and recognition

On the other hand, banks saw the introduction of ATMs as a means of decongesting the banking hall in the short time, and overtime as a cost-saving tool since fewer people will be needed to man the tellers.

Furthermore, banks could potentially earn fees when customers of other banks use their ATMs.

That is not all. Banks also earn commissions when they sell third-party services and services such as airtime purchase, bill payment, etc. through the ATM machine.

Also, just like for the customers, banks also derive many benefits from the fact that ATMs are reasonably secure. This sense of security drives banks to continue to offer services through the channel. Furthermore, ATMs are often managed by third-party, which means that banks effectively transfer risks to the company handling the ATMs on its behalf.

There are other merits that banks derive from ATMs such as reduced footfall whereby ATMs enable banks to concentrate on their core business of lending money without having to directly serve the customer who just wants to collect their deposit. Banks make money when they lend money to customers; ATMs enable them to focus more on that.

It is also easier and more accurate to reconcile ATM transactions than by tellers and/or cashiers. A bank will be inclined to consider any technology that can help it to do that.

Another value offered by ATMs to banks is that the technology is also a kind of advertising for the bank, helping it to build brand awareness and recognition. A bank with more widespread ATM machines outside of its banking premises will be more recognisable than one that is not.

5.3. Commentary

So, banks win, customers win and those in the job market potentially lose. You can confirm this by visiting any bank. You will find that not all the teller stations are manned while customers queue outside waiting patiently for their turn to withdraw money or to conduct other transactions at the ATM station.

So, that’s a preamble on how ATM came to be widely available especially in Nigeria. However, while ATMs are mostly used to withdraw money in Nigeria, there are many other services, which customers can conveniently carry out at an ATM, which I discussed in the link provided. Meanwhile, the next article on the ATM series is a guide that explains how to use the ATM.

6. Summary

In this article, I gave a concise explanation of what is an ATM machine including a brief overview of the history of its origin. I also mentioned the first ATM in Nigeria, which was brought by the defunct Societe Generale Bank Nigeria. I then touched on the drivers for the technology including the advantages of ATMs to both the bank and to the customers, which makes their use very popular.

From my discourse, you can see it is not hard to see why banks and customers love ATM machines. The customers find them convenient and time-saving. Banks can offer different services through them, cut down on cost, and earn fees and commissions. Both banks and customers benefit from the fact that ATM machines are secure and because of that, we trust them and allow them to make our lives more comfortable. It’s a win-win situation for all, except for those who could have been employed to provide the services taken over by the machines. I guess something’s gotta give.

I hope you find the article useful. Let me know in the comment section your favourite transaction to carry out at an ATM. Also, bookmark this page for easy reference and don’t forget to share with your networks. You can also check out previous articles for something that might catch your fancy.

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