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Automated teller machines (ATMs) are computerized devices that are used by financial institutions to provide their esteemed customers with the ability to transact without the help of the institution’s employees (Schmitz & Wood, 2006). ATMs came about after the credit and debit cards were introduced in the banking sector. However, this was not the case during the early 1980s. During this time, payment services were quite simple. It mainly involved bank giros, cheques, and cash (Baumol, 1952). Therefore, cash was mainly distributed through banks and other financial institutions. When ATM machines were introduced, they replaced the bank offices and provided the same services (Snellman & Viren, 2009).
The number of automated teller machines has been on the increase since their inception and this has reduced the need of establishing more banking offices. The services provided by these machines are diverse and new uses come up as technology improves (Batiz-Lazo & Wood, 2002). Customers are able to access cash and make balance inquiries. Making money transfers and deposits are also made possible with the use of these machines. New technology has also enabled clients to transfer their stocks, dispense post stamps, and perform sale of concert tickets, among many other uses (Latour, 2002). The importance of ATMs may also be seen in the way they provide banking services 24-hours in a day and during holidays (unlike bank offices).
Despite the fact that ATMs have provided convenience to a customer and enhanced customer satisfaction, they have also posed risks to the customers and the banks (financial institutions) (Introna & Whittaker, 2006). There are several challenges faced by banks that affect the quality and effectiveness of ATM services. These challenges have affected the banks’ ability to integrate and maintain fast and reliable ATM machines (Alvin & Loebbecke, 1988). These challenges also cause the banks to provide poor financial services posing a risk to their financial standing and affecting their reputation. These are usually translated into losses that may hinder the growth and sustainability of the banks.
The issues may be both internal and external. One of the external issues that are associated with the use of ATMs includes ATM fraud. ATM fraud comes in various forms and may include distraction theft or skimming, cash trapping, shoulder surfing, phishing, pin interception, viruses and malicious software, network attacks, and pin cash-out attacks (Hamelink, 2000). Another issue that affects banks includes ATM crime attacks. These include physical ATM attacks. Examples include theft at the ATM, ram raid attacks, safe cutting and breakage, smash and grab at the ATM, and explosive attacks (White, 2004). Internal issues include ATM errors. These errors may affect the quality of services at the ATM. Some computer errors at the ATMs cause the machines to decline deposits and dispensation of cash to the clients. As the ATM functions are affected, customer satisfaction is affected as customers are unable to deposit or withdraw. Another issue faced by banks is their inability to serve a portion of the potential client base. This includes persons with disabilities. Some individuals may not be able to use the standard ATMs due to their inability.
Another error that has been identified as a human error is whereby the individuals loading the machines with money perform incorrect denomination of the notes. When notes of different values are placed inside the cassettes, the ATM machines would remove the incorrect banknotes leading to over-withdrawal or under-withdrawal. When this occurs, the bank may incur huge losses if the machine ends up dispensing more money than required. On the other hand, the customer may be inconvenienced if the machine dispenses a smaller amount from the required amount. In summary, the errors may be categorized as follows:
- Mechanical – failures of the keypads, failures of the hard drives, envelop deposit mechanisms
- Software related – ATM application, operating system (OS), device drivers
- Communication issues
- Operator error – caused by the customer
Another cause of concern for the banks using ATMs is the possibility of the customer receiving counterfeit notes in cases where the money is not checked properly. Several cases have been identified in different areas where ATMs dispensed fake banknotes. When this happens, this poses risks to both the bank and the customer. If the customer is unaware of the fake banknotes, he or she might use it elsewhere and end up getting into trouble with the authorities. On the other hand, if the customer quickly realized that the notes are fake, he or she may lose trust in the bank due to the unreliability of the ATM machines (Hatta & Iiyama, 1991). This might lead to the loss of valuable customers and gaining back their trust may be difficult or impossible especially due to the presence of many other financial institutions.
All these issues affect the ATM services in that they influence their efficiency and reliability (Boeschoten, 1992). ATMs are supposed to ensure 24-hour access to clients’ accounts in order to make banking convenient for them. It has been argued that ATMs are not only used for generating revenue and saving on costs but have also become the face of many banks’ needs (Kalakota & Whinston, 2001). The ATMs have also become the only form of interaction between the bank and some of its clients. Therefore, the failures of the ATMs to provide efficient and reliable service may cost the bank its reputation among its customers. However, the financial institutions that maintain their ATMs and ensure that they are reliable manage to maintain a good face and maintain their customer base. The increase in the use of ATMs among many different banks has led to the use of ATMs as a competitive mark. Competitive banks are those that strive to ensure that the customers perceive their banks as safe and secure. Studies also indicate that many of the customers are depending on and trusting the ATMs to provide financial services (Rasiah, 2010). Therefore, financial institutions have intensified their efforts to manage the risks associated with ATMs.
There are other specific errors associated with the ATMs. They may occur due to mechanical failures at the terminals. When this occurs, it causes several problems that include the following:
- The errors may cause the ATMs to dispense less cash to the client. Despite this, the account is debited correctly.
- The errors may also cause the client’s account to be debited twice with a single withdrawal.
- n other cases, the account may be debited during the withdrawal request but the cash is not dispensed.
Banks need to perform management risk analysis in order to determine whether it is necessary to put in place control measures in order to curb the financial implications associated with ATM losses. This usually includes the formulation of a plan that comprises several functions. It would highlight how the bank intends to identify the particular risks and the methods it would employ to overcome the risks. It would also provide information about the estimated loss to be incurred in the event that fraud or errors occur and the recovery plan after the event.
Risks associated with the ATMs are usually placed at the highest risk category. This is due to the fact that such online transactions may be revoked once they occur. Another factor that makes such cases riskiest is the fact that an attack over the network does not require the fraudster to be present at the site being attacked (Damar, 2006). In order to curb some of the criminal activities, banks have implemented two-factor authentication during login. This is applicable to all types of internet banking services that require authorization. This initiative has ensured the protection of the confidentiality of the clients’ financial data. Management risk analysis also assists in the estimation of the costs of implementing control measures required to enhance the security of ATMs (Essinger, 1987). There are four main steps involved during risk analysis and they include the following:
- Review of the environment where ATMs are located
- Identify the crucial information processes performed by ATM applications
- Estimate the value of the information used by the applications that require protection
- Estimating the amount of loss to be incurred in case of fraudulent issues or system errors
During the installation of the ATM machines, management should ensure that the risks involved are identified and put in place (Boeschoten, 1998). Follow-ups and maintenance must be done in order to ensure that the control measures are functional at all times. Page and Hooper (1987) suggested that compliance testing was necessary. This involved the determination of whether the necessary controls were in place. It also provided assurance that the control measures were fully functioning. Banks also perform ATM risk management that involves the identification, monitoring, and management of the possible risk factors (Martin & Jan 1986). The three areas that are involved include general supervision, system administration, and transaction processing.
It has also been identified that many banks fail to employ the available technology to ensure that the ATMs are also applicable to the disabled (Rogers, Gilbert, & Cabrera, 1997). They seem to assume that all customers will be able to reach the site, see and read whatever is on the screen, and input the necessary details. Some disabled individuals may not be able to perform one or more of the requirements above. Some may argue that the affected individuals (the disabled) constitute a relatively small portion of the population. However, Van der Heiden (1990) disagrees with this notion. He argues that about 20% of the entire population is made up of individuals who have a form of disability that may make them face difficulty or become unable to use the standard ATMs.
One form of disability may be in form of illiteracy. In South Africa, for example, more than 30% of adults are unable to use the text-based ATMs due to their level of illiteracy (Thatcher, Shaik, & Zimmerman, 2005). Other individuals with disabilities include the blind and poorly sighted. Some financial institutions in the U.S. saw the need to put in place measures to ensure that the disabled also access finances using ATMs (Adams & Thiehen, 1991). This led to the introduction of talking ATMs (Johnson & Coventry, 2001). This ensured that individuals with vision impairments could transact easily.
Adams, A., & Thiehen, K. (1991). Automatic teller machines and the older population. Applied Ergonomics, 22(1), 85–90.
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