Cash 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 “cashless” economy. Sweden has led the charge against cash with only 5-7% of payments (by value) being made in cash in 2016 . Kenneth Rogoff, a Harvard University Professor of Economics and Public Policy made a case for eventually getting rid of paper currency in his book titled “The Curse of Cash” .
This trend implies a bleak future for the Automated Teller Machines (“ATMs”) 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 . 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’s revenue from the ATM hardware business has been shrinking over the last few years (Figure 2).
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.
The performance of the NCR stock has also reflected how the capital markets view the challenging future (Figure 4).
NCR’s response so far
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 . The company is trying to overcome this hurdle in primarily two ways:
1. Diversifying into other businesses
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’s revenue from POS devices has seen significant growth over the last year and could potentially hedge the company’s performance. Further, NCR also provides software solutions and maintenance services for the hardware, which add to customer stickiness.
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).
One concerning thing about NCR’s 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’s intriguing whether this decision was influenced by the individual industry segments not witnessing the desired growth and/or profitability.
2. Innovation in the ATM offerings
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 .
The jury is still out on the adoption of this technology at a mass scale.
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’s network and technical know-how.
In the financial services sector, the long-standing relationships with its customers are probably NCR’s 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.
Further, the management needs to re-orient their long-term vision for the company’s strategy. Instead of investing in ATM hardware innovation, NCR should focus its R&D efforts towards sunrise technologies related to POS hardware.
With the long history in the ATM industry, NCR’s thought partners and managers continue to advocate that ATMs are here to stay . After over 50 years of dispensing cash to consumers, how long will it take before digitization renders ATMs obsolete? Will NCR survive this transformation?
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 “Europe’s disappearing cash; Emptying the tills”, The Economist, August 11th, 2016. Link
 “In Sweden, a Cash-Free Future Nears”, The New York Times, December 26th, 2015. Link
 “Why some economists want to get rid of cash”, The Economist, August 17th, 2016. Link
 The Federal Reserve Payments Study 2016. Link
 NCR (NYSE:NCR) SEC filings and Quarterly Earnings Releases Link
 Visa (NYSE: V), Mastercard (NYSE: MA) and Paypal (NASDAQ: PYPL) SEC filings and Quarterly Earnings Releases
 NCR (NYSE:NCR) Earnings Call Transcripts
 “Interactive Teller”, NCR website Link
 “Interactive tellers can cut costs and drive revenues”, NCR Blog Link
 “Assessing the ATM of the future and its impact on US branch transformation”, NCR Blog Link
 “Cash — your truest flexible friend?”, NCR Blog Link
 “Why ATMs are not just about cash”, NCR Blog Link
 “What’s behind the war on cash – what is the reality?”, NCR Blog Link