Download A Window of Opportunity for ATMs

A Window of Opportunity for ATMs
Peter Lucas
The switch by banks and manufacturers to ATMs running on Microsoft’s Windows operating system has opened the door
for better services than had been available through IBM’s formerly ubiquitous OS/2 platform.
Now that International Business Machines Corp. has officially bade farewell to its OS/2 operating system—Big Blue began phasing
out production of OS/2 products in 2003 and ceased providing standard support for the software in December—financial institutions
have little choice but to get serious about Microsoft Corp.’s Windows operating system for their ATMs.
Unlike the once-dominant OS/2, the open coding standards used in Microsoft Windows create a myriad of possibilities when it
comes to adding new features and functionality to an ATM, such as connecting to a bank’s database to deliver personalized marketing
messages.
Bank of America Corp., which operates 16,700 ATMs nationally, took a lead role in demonstrating the advanced capabilities of
Windows last June when it deployed 1,500 ATMs equipped with scanners that can read checks and currency. The scanning
functionality allows customers to deposit checks and bills without placing them in an envelope, reducing the bank’s handling costs
(“Pushing the Envelope Aside,” November-December 2006).
The scanner also provides front-end fraud detection by reading a check’s magnetic ink character recognition (MICR) line and antifraud markings, such as watermarks. Images of the check are printed on the receipt to assure the customer it has been accepted. And
images of currency are displayed on the screen as they are scanned to verify to the customer they have been accepted.
50% Threshold
Connecting ATMs to the back office or installing such sophisticated applications as scanners was not practical on most ATMs running
OS/2 because the operating system created a closed environment that imposed limitations on software functionality. It also meant that
ATM applications were not interoperable between competing hardware platforms, which hindered the ability of financial institutions
that had relationships with multiple manufacturers to roll out new applications across their networks.
Interestingly, IBM and Redmond, Wash.-based Microsoft worked together on the OS/2 system years ago. But the companies parted
ways as Microsoft poured resources into Windows, which, with its flexibility and graphical user interface, went on to become the
world’s dominant desktop computer operating system. Early in this decade, software developers began adapting Windows to ATMs,
and the resulting applications quickly found favor among financial institutions and ATM manufacturers (box, page 22).
“Prior to Windows, ATMs were pretty much an island within the financial institution,” says Stephen Risto, director of the APTRA
Software Center of Expertise at Dayton, Ohio-based ATM maker NCR Corp. “But as financial institutions faced more security
challenges, regulatory changes, and consumer demands for increased ATM functionality, they began to see the advantages of moving to
an open ATM architecture to enable data sharing with the back office.”
Further, the proprietary coding used in OS/2 for ATMs limited the sophistication of ATM applications, because third-party
software developers, who often push the envelope on functionality, shy away from supporting proprietary platforms. As a result,
financial institutions were largely confined to the OS/2 functionality provided by the ATM manufacturer.
“A lot of applications written for OS/2 were done on a custom basis, usually by the ATM manufacturer, and that limited the
functionality and sophistication of the applications and narrowed access to the developer community,” says Risto. “Today, the speed
at which applications created in an open-architecture environment are evolving is orienting ATM manufacturers more toward software
development than hardware development.”
NCR, which ceased shipment of OS/2-based ATMs last year, says it intends to support its OS/2 machines for several years since
some smaller financial institutions are likely to hang onto OS/2-based cash dispensers indefinitely. Risto estimates that about 50% of
NCR ATMs deployed by financial institutions now run on Microsoft Windows.
Support for open ATM software architecture follows what is taking place within the back office, where financial institutions are
installing hardware-agnostic software to break down information silos. Open software allows each department to synchronize
customer data at each contact point. This way, banks can send unique messages to each customer consistently, and know beforehand
what offers have already been presented to the customer across each communications channel.
“What Windows provides is a better platform on which to build consistent cross-channel communication with a single application
across the enterprise,” explains Tony Hayes, vice president and head of financial-service practices for Boston-based Dove Consulting,
a division of Hitachi Consulting.
By the end of 2008, Dove predicts nearly two-thirds of all ATMs in the United States will be running Windows, more than double
Windows’ share last year. Another researcher, Boston-based Celent LLC, forecasts that the installed base of ATMs running OS/2 will
shrink to less than a third by 2009 (chart, page 23).
Among the largest financial institutions, Windows will pass the 50% mark soon because these companies typically replace their
ATMs every five years, according to industry experts. Charlotte, N.C.-based Bank of America, which began deploying Windows-based
ATMs in 2004, says it has already reached the 50% threshold.
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As the migration moves down the food chain to community banks and credit unions, the adoption rate is expected to slow only slightly,
since support for OS/2-based ATMs is going to become more costly.
“IBM will support OS/2, but not indefinitely, and that support will be paid for by the client,” says Madhavi Mantha, a senior analyst
at Celent. “If an ATM is going to be replaced, it makes more sense to do it sooner with a Windows-based unit.”
The majority of Windows-based ATMs run either Windows NT, which Microsoft released in 1993, or Windows XP, the successor
to Windows 2000. Industry observers expect few financial institutions to embrace Windows Vista, the latest version of the operating
system that was released to businesses in 2006, for their ATMs, as Windows XP satisfies their current needs.
“There is not as strong a business case for migrating ATMs to Windows Vista as there is for desktop systems, because Vista does
not necessarily open up more self-service capabilities through the ATM than are available through Windows XP,” says Martin
Macmillan, business development director for Level Four Software Ltd., a Maidenhead, England-based developer of ATM applications.
ATM experts agree that financial institutions have yet to scratch the surface of enhancements Windows can bring as their initial
focus has been on simply deploying Windows-based machines. As that installed base grows, deployers will come under pressure to
raise the return on investment on machines that can cost up to $20,000 or more.
“Financial institutions are waking up to the fact they can’t just replace OS/2 with Windows, they need to boost their return on
investment in the new hardware by using it to deliver more dynamic content,” says Macmillan.
Content can include preapproved offers for auto loans, credit cards, or home-equity loans. Other possibilities include linking the
ATM to a financial institution’s Web site, thereby allowing customers to set their ATM preferences on their desktop system.
Preferences can include language, whether they want a receipt, and preferred withdrawal amounts.
Currently, customers using an ATM are asked those questions when conducting an ATM transaction. Knowing a customer’s ATM
preferences ahead of time speeds the transaction, spares the customer from having to set his or her preferences at the ATM, and creates
a more personalized, user-friendly experience.
Diagnostic Flow
Such capabilities are the tip of the iceberg. Connecting the ATM to the back office will enable financial institutions to follow up on
offers made to individual customers through other communications channels, prevent repeating offers that the customer has rejected in
other channels, or even sweeten offers to net a response. In other words, the ATM will know the customer better.
This is a huge step up from presenting the same canned offers to every ATM user. “ATM marketing is a one-size-fits-all approach,”
explains Level Four’s Macmillan. “The move to Windows is pushing financial institutions to look at the ATM as a localized marketing
tool that tailors promotions based on customer needs, preferences, or the clientele that use the machine by location or that use it during a
specific time of day. It is about creating a richer user experience.”
Nevertheless, financial institutions need to tread carefully when adding features and functionality to ATMs. One of the benefits
consumers see in the self-service capabilities of the ATM is that transactions can be completed quickly. Pitching text-heavy offers or
ones that require several steps to complete undermines the convenience of self-service and pushes consumers away from the channel,
according to some ATM experts.
“Consumers want the ATM experience to be richer and more interactive, but not lengthy,” says Dove’s Hayes. “Increased
functionality can’t detract from the primary purpose of the machine.”
Leveraging the interoperability of Windows with legacy software and hardware platforms provides advantages beyond improving
the customer experience and creating graphical continuity between the ATM and the bank’s Web site. With Windows, financial
institutions can streamline ATM support costs through improved diagnostic data flow out of individual machines and to the back
office.
Performance data can be sent over a secure connection to the bank and used to isolate specific malfunctions in the machine, or, even
better, performance slowdowns that indicate a larger problem is looming. Previously, financial institutions had to send a technician to
diagnose a malfunction.
“This way, a technician knows exactly what equipment and parts to bring to fix the problem, which reduces the amount of time
needed to get the machine back online,” says Dean Stewart, a director for North Canton, Ohio-based ATM manufacturer Diebold Inc.,
which stopped shipping OS/2-based ATMs in 2006.
Banks can also upload software applications directly to the ATM from a host system, which eliminates the need for technicians to
load applications on individual machines. Transaction processors are uploading new applications to point-of-sale terminals, and ATM
experts say the most technologically sophisticated banks are moving down the same path.
Locking Down Windows
Still, for all its advantages, Windows comes with security concerns. Because the software is a desktop operating system, ATM
manufacturers and financial institutions have already had to close several security holes.
One of the biggest security measures ATM vendors took was disabling the Web browser in the application to prevent hackers from
breaking into a bank’s ATM network through the Internet. They also added firewalls and introduced new software, such as anti-virus
applications, that can only be received from authorized host systems that send security codes.
Banks also are taking steps to disable pop-up windows when the operating system detects a virus. While the pop-up windows can be
a desirable feature on the desktop, they will not play well on the ATM, where consumers do not expect to see such messages, according
to industry executives. Instead, the ATM can send data about suspected viruses to the host running the machine, which then alerts a
support technician.
ATM vendors and operators of ATM networks say they are in touch with Microsoft about how to modify Windows to create a
better fit on the ATM and ensure security patches and other upgrades are delivered to financial companies in a timely fashion.
“A lot of steps have been taken to lock down Windows,” says Jerry Garcia, chief information officer of Houston-based
Cardtronics Inc., which operates a non-bank ATM network servicing more than 24,000 locations in the U.S., including supermarkets,
gas stations, and convenience stores.
ATM experts agree the care and feeding of Windows-based ATMs is certain to be more extensive than that of OS/2-based ATMs.
Banks are betting, though, that the benefits of running ATMs on a Microsoft Windows platform will far outweigh the increase in
support costs. “Financial institutions are just starting to match the integration of data from disparate sources to the ATM that has been
taking place in the back office for years,” says Garcia. “We’ve only seen the beginning of what Windows-based ATMs can do.”
The OS/2-Windows War
International Business Machines Corp.’s OS/2 may have lost the operating-systems war to Microsoft Windows, but that does not
diminish OS/2’s legacy as the first operating system for desktop computers that provided users with multitasking capabilities. Still,
one of the greatest ironies about OS/2 is that it was jointly developed by IBM and Microsoft Corp. Three years after OS/2’s debut,
Microsoft split from the project, put its energies behind Windows, and the rest, as they say, is history.
December 1987: IBM and Microsoft jointly introduce OS/2, a 16-bit operating system. That year, Microsoft releases Windows 2.0,
the latest version of its fledgling operating system introduced in 1985.
1988: OS/2 receives a graphical user interface (GUI), creating a more user-friendly environment.
1989: Database Manager, a multi-tasking relational database, is added to OS/2.
1990: Disagreements between IBM and Microsoft over the development of OS/2 prompt Microsoft to withdraw its support of OS/2
and focus on Windows, which was finally gaining traction with consumers. Later that year, Microsoft releases Windows 3.0. IBM
counters with OS/2 1.30, which was developed entirely without Microsoft.
1992: IBM releases OS/2 2.0, the first 32-bit operating system for personal computers and capable of running DOS- and Windowsbased applications.
1993: IBM releases OS/2 2.1, which includes sound and video multimedia capabilities. Microsoft introduces Windows NT 3.1, a
32-bit operating system.
1994: IBM releases OS/2 Warp 3.0, the first desktop operating system with an Internet browser.
1995: Microsoft releases Windows 95. Upgrades include enhanced multimedia capabilities, more features for mobile computing,
and integrated networking.
1996: IBM releases OS/2 Warp 4.0. Key new features include Java, and VoiceType Navigation and Dictation.
1998: Microsoft releases Windows 98, which can read DVD discs and supports universal serial bus (USB) devices.
2000: Microsoft unveils Windows 2000, the last Windows version based on the Windows 95 code base. ATM manufacturers start
seriously testing Microsoft Windows as an operating system.
2001: Microsoft releases Windows XP, which uses the Windows 2000 code base.
2003: IBM announces it will cease production of the OS/2 operating system later that year, although production of OS/2 Warp
products will continue. Industry experts attribute the decision to the lack of support from third-party software developers for OS/2.
Diebold Inc. introduces its Aptiva line of ATMs, which run on Windows.
2005: IBM announces it will end production by year’s end of OS/2 Warp V4 and OS/2 Warp Server, the last members of the OS/2
family in production, and stop providing standard support for OS/2 products effective Dec. 31, 2006.
2006: Diebold and NCR Corp. stop shipping OS/2-based ATMs.
2007: IBM begins supporting OS/2 products on a contract basis. Microsoft releases Windows Vista to consumers after first rolling it
out to business users in late 2006.
Source: Millennium Technology Inc., Microsoft Corp., IBM Corp.