{"id":25230,"date":"2017-11-15T21:04:54","date_gmt":"2017-11-16T02:04:54","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/will-cash-always-be-king-what-does-it-mean-for-atms\/"},"modified":"2017-11-15T21:05:57","modified_gmt":"2017-11-16T02:05:57","slug":"will-cash-always-be-king-what-does-it-mean-for-atms","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/will-cash-always-be-king-what-does-it-mean-for-atms\/","title":{"rendered":"Will Cash Always Be King? What Does It Mean for ATMs?"},"content":{"rendered":"

Situation Overview<\/strong>
\nCash has been the primary medium for exchanging financial value in the banking and monetary value chain for ages. However, the use and existence of cash is now being challenged by digital substitutes and there are directional trends towards a \u201ccashless\u201d economy. Sweden has led the charge against cash with only 5-7% of payments (by value) being made in cash in 2016 [1][2]. Kenneth Rogoff, a 性视界 University Professor of Economics and Public Policy made a case for eventually getting rid of paper currency in his book titled \u201cThe Curse of Cash\u201d [3].<\/p>\n

\"\"<\/a>
Figure 1. Number of card transactions per person in Europe [1]<\/figcaption><\/figure>\n

This trend implies a bleak future for the Automated Teller Machines (\u201cATMs\u201d) industry in the long term. Over 2012-15 in the United States, while the number of non-cash payments grew at 5.3% CAGR, the number of ATM cash withdrawals declined at -0.3% CAGR [4]. Banks are critically revisiting their strategy for ATM networks. NCR (NYSE:NCR), one of the largest ATM hardware manufacturers, has borne the brunt of this trend. NCR\u2019s revenue from the ATM hardware business has been shrinking over the last few years (Figure 2).<\/p>\n

\"\"<\/a>
Figure 2. NCR revenue by segment for Jan-Sep, 2014-17. Revenues for only 9 months presented for like-to-like comparison with 2017 performance [5]. ATM and POS hardware revenue not reported separately before FY15.<\/figcaption><\/figure>\n

This is in the backdrop of transactions moving to digital channels. Figure 3 shows the rapid growth in total transaction value experienced by digital \/ cashless payment enablers like Paypal, Visa and Mastercard.<\/p>\n

\"\"<\/a>
Figure 3. Total transaction value (indexed) for Visa, Mastercard and Paypal [6]<\/figcaption><\/figure>The performance of the NCR stock has also reflected how the capital markets view the challenging future (Figure 4).<\/p>\n
\"\"<\/a>
Figure 4. Performance of the NCR stock, indexed to the S&P 500 and S&P 500 Financials Sector Index [14]<\/figcaption><\/figure>\n

NCR\u2019s response so far<\/strong><\/p>\n

The NCR management team recognizes the long-term headwinds for the ATM industry, acknowledging the need to reduce the dependency of their business on ATMs [7]. The company is trying to overcome this hurdle in primarily two ways:<\/p>\n

1. Diversifying into other businesses<\/span><\/em><\/p>\n

NCR has diversified into other sectors outside of financial services. The company offers a portfolio of self-service and assisted-service solutions to serve customers in the retail, hospitality, travel, telecommunications and technology sectors. NCR offers point of sale (POS) hardware including terminals, handhelds, PC workstations, and self-service kiosks. NCR\u2019s revenue from POS devices has seen significant growth over the last year and could potentially hedge the company\u2019s performance. Further, NCR also provides software solutions and maintenance services for the hardware, which add to customer stickiness.<\/p>\n

However, competition proves to be a barrier to the diversification effort. Technology companies including ToshibaTec, Fujitsu, Hewlett-Packard, Honeywell, Oracle, Datalogic, Embross, SITA, etc. compete in the retail, hospitality and travel industries. Consequently, NCR has struggled to gain significant traction in these businesses and the total revenue has seen a flat \/ mildly declining trend (Figure 2).<\/p>\n

One concerning thing about NCR\u2019s attitude towards the other businesses has been the change in the business segments reported in the financial statements. The company used to report financial results by sectors (Financial Services, Retail, Hospitality and Emerging Industries) until 2015. Since then, NCR has shifted to reporting results only by the type of offering (Hardware, Software and Services). It\u2019s intriguing whether this decision was influenced by the individual industry segments not witnessing the desired growth and\/or profitability.<\/p>\n

2. Innovation in the ATM offerings<\/span><\/em><\/p>\n

NCR has launched a new series of Interactive Teller Machines (ITMs). ITMs enable banks to offer their customers the benefits of self-service video banking, closing the intimacy gap between an ATM and a bank branch experience. It gives the customers a choice of self-service or connecting with a remote teller in a highly personalized, two-way audio\/video interaction. In addition to the benefits of convenience and efficiency to the customers at all hours, this system could help banks reduce their operational costs and the ability to more efficiently deploy their teller resources [8][9].<\/p>\n

The jury is still out on the adoption of this technology at a mass scale.<\/p>\n

\"\"<\/a>
Figure 5. An NCR Interactive Teller Machine<\/figcaption><\/figure>\n

Looking ahead\u2026<\/strong><\/p>\n

The ubiquitous trend of consumers moving away from the use of physical cash towards digital payments poses an existential threat to the ATM business. NCR needs to aggressively pursue its POS business. In order to compete effectively against competition in the near term, the company could potentially partner with a technology giant to leverage each other\u2019s network and technical know-how.<\/p>\n

In the financial services sector, the long-standing relationships with its customers are probably NCR\u2019s most prized assets. The company should collaborate extensively with banks to identify alternative avenues in their operational value-chain where NCR can add sustainable long-term value.<\/p>\n

Further, the management needs to re-orient their long-term vision for the company\u2019s strategy. Instead of investing in ATM hardware innovation, NCR should focus its R&D efforts towards sunrise technologies related to POS hardware.<\/p>\n

With the long history in the ATM industry, NCR\u2019s thought partners and managers continue to advocate that ATMs are here to stay [10][11][12][13]. After over 50 years of dispensing cash to consumers, how long will it take before digitization renders ATMs obsolete? Will NCR survive this transformation?<\/p>\n

 <\/p>\n

(Word count: 796 words)<\/em><\/p>\n

 <\/p>\n

References:
\n[1] \u201cEurope\u2019s disappearing cash; Emptying the tills\u201d, The Economist, August 11th, 2016. Link<\/a>
\n[2] \u201cIn Sweden, a Cash-Free Future Nears\u201d, The New York Times, December 26th, 2015. Link<\/a>
\n[3] \u201cWhy some economists want to get rid of cash\u201d, The Economist, August 17th, 2016. Link<\/a>
\n[4] The Federal Reserve Payments Study 2016. Link<\/a>
\n[5] NCR (NYSE:NCR) SEC filings and Quarterly Earnings Releases Link<\/a>
\n[6] Visa (NYSE: V), Mastercard (NYSE: MA) and Paypal (NASDAQ: PYPL) SEC filings and Quarterly Earnings Releases
\n[7] NCR (NYSE:NCR) Earnings Call Transcripts
\n[8] “Interactive Teller”, NCR website Link<\/a>
\n[9] \u201cInteractive tellers can cut costs and drive revenues\u201d, NCR Blog Link<\/a>
\n[10] “Assessing the ATM of the future and its impact on US branch transformation”, NCR Blog Link<\/a>
\n[11] “Cash — your truest flexible friend?”, NCR Blog Link<\/a>
\n[12] “Why ATMs are not just about cash”, NCR Blog Link<\/a>
\n[13] “What\u2019s behind the war on cash \u2013 what is the reality?”, NCR Blog Link<\/a>
\n[14] CapitalIQ<\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

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