Here's a question sure to stump your dinner guests and water-cooler colleagues: when was the first automated teller machine (ATM) put into use? Hint: John F. Kennedy was in the White House and the price of gas was $0.31 per gallon.
For the record, the answer is 1961. Interestingly, the disruptive innovation that would later change banking forever was pulled from service for lack of use. Consumers in New York City, where the ATM was deployed, didn't believe it had a future.
Today, some ATM operators are wondering the same. After years of counting on the reliable cash machine to serve customers and generate new forms of revenue, some have seen their transactions taper off and their local regulators threaten to put a lid on fees. As a result, cash machine operators are asking themselves whether ATMs will play a key role in their organizations or whether debit cards, mobile banking solutions and other forms of money have permanently diminished their appeal.
How did it come to this? The answer provides an important lesson on the value of disruptive and sustaining innovation. Consider: In the years that followed the roll-out of the modern ATM in the 1970s and 1980s, little was done to enhance the machines. ATMs got sturdier, more accessible and easier to use. But they didn't change much in terms of what they offered. Behind the scenes, ATM manufacturers, financial institutions and software developers made improvements to make the devices more secure and more convenient to people who traveled overseas. But to the average consumer, the ATM enjoyed only incremental enhancements.
Meanwhile, attempts to provide consumers alternative forms of money began to take off, especially in emerging markets, where the mobile phone has become an important banking tool. For this and other reasons, the ATM has lost some of its cachet in financial circles--until recently, that is.
Recognizing that they could not live on sustaining innovation alone, ATM manufacturers including NCR, Nautilus Hyosung, Diebold and others have sprung into high gear to make the ATM more relevant. How? By increasing the amount of disruptive innovation they pursue. Inside the labs of these companies, engineers are hard at work on bold, new ideas to redefine money and convenience once more. When complete, they hope these ideas will provide them entry into adjacent markets. Once established there, ATM manufacturers plan on solidifying their positions by providing customers incremental improvements that will enhance and preserve their investments.
Simultaneously pursuing disruptive and sustaining innovation is not a new formula for success. But doing both consistently has proven to be a challenge for companies of all size and ilk. More often than not, organizations struggle to consistently deliver disruptive innovation for a variety of reasons. Some grow risk adverse after generating initial profits. Others become preoccupied with existing customer demands for incremental enhancements. Still more deemphasize disruptive innovation in the name of increased standardization. Regardless of the reason, organizations that come up short miss out on the most important benefit that pursuing disruptive and sustaining innovation both provides--i.e. a multiplier effect that can magnify the success an organization achieves in any one area.
This is why ATM machines today can process cash and check deposits without envelopes. It's also why some new ones can be operated with a mobile phone instead of a bank card, and why many can operate under almost any environmental condition. In the years ahead, ATMs will feature biometric identification capabilities, intuitive pictograms to assist illiterate customers and more. Already, cash stations are being used to pay bills, dispense government benefits and distribute train and bus tickets. Thanks to these and other innovations, buyers in the travel, retail and health care fields are showing greater interest in ATM-styled machines.
"We are very good at incremental innovation, but in the last few years have gotten very good at breakthrough and radical innovation," says Adithya Sastry, director of innovation and business incubation, NCR.
Are customers responding? Indeed they are. This year Citibank will replace older generation ATMs with newer, envelope-free cash machines at more than 1,000 branches. This is on top of the 6,000 intelligent ATMs, which reduce transaction costs by 75 percent, that it has already deployed in 7-Eleven stores. Why go to the trouble? Simple: to keep pace with Bank of America, JPMorgan Chase and other banks that have already rolled out envelope-free devices to the delight of customers.
If the world's largest banks are any indicator, then the second act of the ATM could be as interesting as the first.
Inder Sidhu is the Senior Vice President of Strategy & Planning for Worldwide Operations at Cisco, and the author of Doing Both: How Cisco Captures Today's Profits and Drives Tomorrow's Growth. Author proceeds from sales of Doing Both go to charity. Follow Inder on Twitter at @indersidhu.