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Dr Batiz-Lazo is currently researching the development of cash machines and ATMs.

How cash machines have changed banking

The internationally acclaimed research led by Dr Batiz-Lazo of the School of Management

These days, automated teller machines (ATMs) are part of everyday life for most people and something we take for granted. On any high street, almost anywhere in the commercial world we can get cash from our bank account from a familiar ‘hole in the wall’.

Mexican-born Dr Batiz-Lazo, a University of Leicester expert in banking, based in the School of Management, has been investigating the development of cash machines, their transformation into ATM technology and what it has meant for banks and their customers.

Dr Batiz-Lazo has recently been cited 67th amongst the top 100 ‘young economists’ in the worldwide ranking by RePEc (Research Papers in Economics, http://ideas.repec.org/top/top.young.html), which has a database of working papers, journal articles and software components from 66 countries. Among his other research, his work on the development of ATMs, carried out with Research Assistants Dr Claudia Reese, Dr Robert Reid and Mr Leonidas Efthymiou, has been internationally acclaimed.

There are a number of competing claims as to who first invented the cash machine. However, it is commonly believed that the first ‘modern’ cash machine was put in place by Barclays in July 1967 in its Enfield branch. A month later, a Chubb machine was operational in the Victoria Station branch of today’s NatWest. A third team built around a small engineering company (Speytec, later Burroughs and today Unisys) and the Midland Bank (today HSBC). As recognition of the global importance of the British contribution to the development of this technology one Englishman and two Scotsmen have been honored with a CBE, namely John Sheppard-Barron, at the time managing director of De La Rue Instruments, the manufacturing company for the Barclays machine; James Goodfellow, the Smith Industries-based inventor of the PIN in the Chubb machine; and Jim Adamson, the chief executive of NCR’s Dundee plant, who was responsible for making the US giant the leading worldwide firm in ATM design and manufacturing.

Initially, cash machines were seen as an industry specific innovation offering Barclays and the large clearing banks some advantage over its competitors. Now it is a ‘threshold competence’ – something banks cannot afford to ignore.

Dr Batiz-Lazo, who received a grant of £80,000 (full economic costing) from the British Academy (LG41806) towards his research, commented: “Today, if you want to set up an eBank you won’t get far if you don’t offer an ATM for people to get access to their cash. I wanted to explore how this had come about and the role of banks in creating this technology. Moreover, the introduction of the cash machine marked the end of retail customers having to bank with a branch and talk to a familiar bank manager. For the first time, they deal with the organization as a whole because accessing their account doesn’t have to be limited to the location where they live.”

Early precursors of the ATMs were stand alone cash dispensers with no technology for checking balances. The moment when the technology took off in the UK was when NCR in Scotland came up with a device that was affordable and easily maintained. This coincided with regulatory changes in banking rules (1979), allowing building societies to operate as banks (1986) and cash machines in supermarket court-yards (1988). Similar changes elsewhere meant the emergence of a global market for this technology. NCR Dundee plant became the platform from where the multinational effectively dominated manufacturing (until Germany’s Wincor contested NCR’s dominance the early 2000s).

Unlike the US, which has five-six large ATM networks and has always charged for their use, the UK gradually evolved into a single network with a tradition of not charging its customers. This in itself seems to be an ‘outlier’ in the international context.

Strangely, ATMs today have less functionality than they did in the 1980s. Their main use is simply the withdrawal of money and topping up mobiles. The reason lies in the rise of eBanking, which means that people no longer need cash machines to carry out tasks such as setting up payments or transferring money between accounts.

ATMs and other self-service technology have, however, presented retail banks with new challenges. Dr Batiz-Lazo explained: “Banks were very successful in using this technology to service a steep growth in the number of retail customers. Today their problem is how to re-engage those customers. Individuals no longer need to go into a branch if you need cash or make a payment. There are thus limited opportunities for the traditional ways used by banks to market their services. So they may invite you in to talk about what they can offer. But this is not necessarily working for everyone in the high street.”

Dr Batiz-Lazo has been researching ATMs elsewhere in Europe (Spain, Portugal, Sweden and Italy) as well as the US. The latter thanks to research grants from the Hagley Museum and Library and the Charles Babbage Institute (Norbert Travel Fund). He also hopes to study the use of ATMs in South Africa, the Gulf states, India, Mexico, Turkey and Korea to better understand the process of globalization of this technology. The role of regulators and monetary authorities on the process of technological change in the payment system is also in the agenda as is the way that retail banks and their customers create trust through electronic media.

In the future, he sees the potential for the development of a Pan European payments platforms, opening the whole of the European market to financial intermediaries which have, up to now, been inward looking. It could offer an alternative clearing network to Visa and Mastercard.

“Would this make sense?” he mused. “I think many banks could find it very attractive.”

Notes to Editors: For more information on this please contact Dr Bernardo Batiz-Lazo, Senior lecturer in Business and Accounting History, School of Management, University of Leicester, tel +44 (0) 116 252 5520, email bbl3@leicester.ac.uk or visit http://atm.sigcis.org