The late 1960s marked the beginning of modern ATM and POS systems, although the concepts of ATMs and debit cards existed prior to this (see timeline page 13). It might be argued that the first ATMs were cash-dispensing machines.
England’s Barclays Bank, for example, installed the first cash dispenser in 1967.
But it did not use magnetic-stripe cards; customers were issued paper vouchers that were fed into the machine, which retained the voucher and dispensed a single £10 note.21 Don Wetzel has been credited with developing the first modern ATM. The idea came to him in 1968 while waiting in line at a Dallas bank, after which he proposed a project to develop an ATM to his employer.
A major part of the development process involved adding a magnetic stripe to a plastic card and developing standards to encode and encrypt information on the stripe. A working version of the Docutel ATM was sold to New York’s Chemical Bank, which installed it in 1969 at its Rockville Center (Long Island, N.Y.) office. Although the Docutel ATM did use the modern magnetic stripe access card, the technology remained primitive compared with today’s.
The Docutel ATM only dispensed cash and was an offline machine. To enable payment processing, the machine printed a transaction record that was MICR encoded.23 By the early 1970s, ATM technology advanced to the system we know today. ATMs were first accessed primarily with credit cards, but in 1972, City National Bank of Cleveland successfully introduced a card with an ATM but not a credit function.24 ATMs were developed that could take deposits, transfer money from checking to savings or savings to checking, provide cash advances from a credit card, and take payments.
ATMs also were connected to computers, allowing real-time access to information about cardholder account balances and activity. By connecting a string of ATMs to a centralized computer, banks established ATM networks. Although many ATM networks were proprietary (single bank) networks, a major development was the emergence of shared networks.
At first, ATMs were located on the premises of bank offices, but off-premise ATMs soon followed. Grocery stores and convenience stores quickly recognized the benefits of installing ATMs on their premises. By providing convenient access to cash, ATMs increased customer traffic as well as the amount of purchases per customer. Dahl’s Foods of Iowa first installed ATMs in its grocery stores in 1975.27 In the early 1980s, ATM installation at grocery stores and at convenience stores became widespread, which provided further stimulus to development of shared networks.
Grocery stores also led in installing POS debit systems, starting with the Massachusetts grocery chains of Angelo’s and Starmarket in 1976.28 By the early 1980s, serious testing of POS debit began at many of the large gas station chains. However, throughout the 1980s and into the 1990s, the volume of POS debit transactions remained modest, mired by conflicts between merchants and banks over payment of transaction fees and the cost of POS terminals, and by the existence of multiple technical standards.29.
The 1980s marked several important developments for EFT networks. In contrast to POS debit, the ATM system was flourishing. In 1982, Visa acquired ownership positions in the regional network Plus and began to build a national EFT network.30 Perhaps more important, in 1985 the U.S. Supreme Court held that ATMs did not represent bank branches. Until that time there had been considerable legal uncertainty about the legal status of ATMs. If ATMs were considered branches, the limitations on interstate branching would affect their placement and, in turn, might put any EFT network that operated across state lines in legal jeopardy.
The decision by the U.S. Supreme Court encouraged interstate EFT networks. By removing a potential barrier to forming networks across state lines, it also was a factor in beginning a trend toward consolidation of shared networks.31 By the early 1990s, national EFT networks had extended their geographic reach from coast to coast, in part due to the 1990 “duality” agreement between Cirrus and Plus, whereby ATM owners belonging to one of the two networks could service customers of the other without incurring additional membership fees.32 Establishment of true national networks, growth of regional networks, reciprocity agreements between networks, and cards tied to multiple networks assured virtual universal access to ATM services.
In the mid-1990s, most of EFT development was in the debit arena. The impasse between merchants and banks finally broke down as merchants sought to reap the benefits of 14 A Guide to the ATM and Debit Card Industry online debit and banks pushed for more efficient payments systems. Debit terminal installation accelerated and the number of online and offline debit transactions grew rapidly. Perhaps following the trend toward consolidation of ATM networks, POS networks started to consolidate.
An important development was the change in the ownership structure of EFT networks. Until recently, most EFT networks were joint ventures owned by bank members of the network. In 1999, a milestone was reached when Concord EFS, a publicly traded payments processor, acquired the MAC network, at the time the third-ranking network in terms of transaction volume.
In that same year, the first- and second-ranked networks, Star and Honor EFT, merged under the Star brand name. Concord EFS then made more news in 2001 by acquiring the Star EFT network, which raised its branded ATM count from 52,500 to 180,000.33 Concord EFS subsequently combined all of its acquisitions under the Star EFT brand, which today is the largest regional EFT network in the United States.
In general, there has been a recent trend toward nonbank ownership of EFT networks, of which Concord EFS is the most visible example. This history of the ATM and debit card industry is brief but gives a flavor of developments that led to the current structure of the industry. The next two chapters look more closely at the industry today by reviewing trends in transactions, infrastructure, and consolidation, as well as providing a more complete description of transaction processes, fees, and settlement.
No comments:
Post a Comment