Software

Evolution of ATM acquiring software

Traditional ATM Acquiring architecture needs an infrastructure upgrade to be able to remain relevant within the context of more digital channels and changing customer behaviors. Happily, technology has evolved and a channel integration model has emerged, which looks to be able to solve many of the problems that ATMs are coming up against.

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| by ATM marketplace

Traditional ATM Acquiring architecture needs an infrastructure upgrade to be able to remain relevant within the context of an increasingly wide range of digital channels and changing customer behaviors.

Happily, technology has evolved and a channel integration model has emerged, which looks to be able to solve many of the problems that ATMs are coming up against.

In a digital first world, the ATM of the future has the potential to be pivotal, and to complement, enhance and even replace branches, helping banks meet the challenges they face from all quarters.

Auriga has recognized for some considerable time the inherent weaknesses in the traditional ATM architectural model for anything other than the limited cash-dispensing role for which it was originally designed.

The introduction of new technologies and innovation in the Financial Services sector has prompted banks and other deployers to start to break down channel-based silos and offer true cross channel services in order to reduce costs while providing a set of common integrated services across all digital channels.

The basic architecture on which most of the world's 3 million ATMs still operate on however, has not evolved. For years, banks have had to manage multiple vendors with incompatible applications and estate upgrades largely dictated by Microsoft's end-of-life cycle for its Windows operating system. The eXtensions for Financial Services (XFS) standard, which was an attempt to free operators from hardware vendor lock-in, has been available since the beginning of 2000.

However, despite being a big step forward, it has not yet radically changed the basic ATM Acquiring architecture and hence the industry. Its authors could not after all have foreseen the arrival of mobile and tokenized payments, EMV and contactless cards, cryptocurrency and the rich ecosystem into which ATMs are now expected to fit.

In considering the possibilities and roles for future standards, it is highly instructive to learn from the past, particularly the reasons behind the creation of de-facto standards like hardware vendor defined protocols such as NDC (NCR Direct Connect) or DDC (Diebold Direct Connect) and the CEN/XFS standard.

Hardware vendor centric model

As most current deployments are based on the decades-old legacy NDC/DDC architecture, there is a strong separation between the ATM software and its Terminal Handler counterpart at server level. This derives historically from the fact that originally only the hardware vendors had access to the API to be able to manage the ATM. Typically, therefore any bank wishing to deploy ATMs from different vendors (for obvious competitive reasons) was felt obliged also to get a software solution from each of the vendors and hence multiple ATM applications.

This has worked, to a point, but it has been problematic.

"This first generation was dominated by the hardware vendors. They also wrote the software and so dominated the market," Mark Aldred, head of international sales of Auriga, said.

"The hardware vendors gave the market the end product rather than the banks setting the agenda."

In such an environment, the only layer where it was possible to define any standardization was in between the ATM with its Application (provided by each hardware vendors) and the Terminal Handler (typically part of the Switch solution). This drove the success of protocols between ATM and Central Host environment (in particular NDC or DDC) and created these de-facto standards with a hardware vendor centric model.

This model obviously restricted and limited the possibility to evolve following market needs. Furthermore, it forced financial institutions, in order to benefit from competition among different hardware providers, to deploy ATM applications from different vendors causing operational complexity and compatibility issues.

XFS model

Starting around the year 2000, CEN eXtensions for financial services (CEN XFS) was introduced more and more widely as an interface between the ATM hardware and its application software driving the terminal to allow applications from many providers to be used at the ATM; in much the same way as a banking platform allows for open banking.

As a result, most if not all, ATMs currently support XFS and similarly, most if not all, ATM Applications are built on XFS.

Any application making use of XFS should ideally be "multi-vendor", meaning it can run equally efficiently on any ATM from any vendor.

RBR's report "ATM Software 2018" distinguishes between applications just making use of XFS and applications making use of XFS that actually run and are certified on ATMs from different vendors and hence can properly be called multi-vendor; the latter yet represent only 40% of the total market.

Multi-vendor applications can be provided either by the companies that produce ATM hardware or by independent companies with no commercial ties to hardware vendors. In practice, only true (independent) multi-vendor applications supporting any hardware vendor allow banks and other deployers to exploit the real competition between hardware vendors allowing them to break any monopoly or duopoly they have been forced to accept over the years.

"The XFS standard was built around Microsoft and should have opened up the software market, breaking up the hegemony of the hardware vendors," Aldred said. What actually happened was that the hardware vendors moved to create software that was, at least theoretically, multivendor. However, in practice it best supported only the already established ATM hardware vendors and as a result they retained their market dominance."

Real multi-vendor applications instead have resulted in a significant reduction in customer investments into ATM applications, as a single application can run on any hardware. Not only has been cost saving, but customers have also benefited from being able to independently select their hardware and software, resulting in greater competition among both hardware and software vendors alike.

In this respect, the CEN/XFS standard can be openly endorsed as an innovation-positive standard.

But although the introduction of XFS, coupled with real multi-vendor applications, now allows for the monopoly or duopoly of hardware vendors in the software space to be broken, the ATM channel itself, however, remains siloed and unlike any other digital channel in the way it is managed.

In fact, restrictions derived from the use of the de-facto message protocol (e.g. NDC/DDC) have been responsible for delayed time to market for new functionality, limited channel integration and create a continuing dependency on hardware providers to produce and publish new standard versions.

The ATM channel remains siloed and unlike any other digital channel in the way it is managed. Introduction of new technologies, integration with other channels like mobile and branch, flexibility to implement both new functionalities and mandates are all still encountering a number of infrastructural obstacles. Specifically, the need to synchronize the three main parts of the current infrastructure (ATM application, terminal handler and the protocol that is the "contract" between the two).

While XFS has not directly solved these issues, it has created a real opportunity to break the legacy hardware vendor centric model in a more flexible, sound and cost effective channel integration model.

Channel integration model

In this model and architecture, the hardware is isolated through XFS and the software stack can be more logically structured into an integrated ATM solution. This connects more effectively with external entities like other channels or transaction processing layers (e.g. transactional switch, core banking and services).

In addition, the layers are now clearly defined by proper international standards

(XFS and ISO 8583 or ISO 20022) into:

  • ATM hardware
  • Integrated ATM solution (ATM software and Terminal Handler)
  • Switch / business services

Benefits from the channel integration model include a much simpler, cost effective, standard and generally accepted interface (usually based on ISO-8583, ISO-20022 or web services) that focuses on the business part, forgetting all the complexity linked to ATM management.

Other positives linked to this standardized and integrated approach include a lower total cost of ownership, increased availability, cross-channel capabilities and more efficient maintenance and management of the ATM estate.

Further operational advantages include an enhanced customer experience and personalization via a modular vs disparate products approach and accelerated time to market by having a single point of control and modification of the ATM channel without the need to define, agree, publish and implement (both at the ATM and the terminal handler side) new specifications to deploy new functionalities.

Not to forget the benefits deriving from a real multi-vendor application and resulting in increased choice and reduced cost of hardware.

Financial institutions can leverage this moment of disruption by reducing their dependence on legacy and difficult to maintain and evolve solutions.

Having an integrated solution means that the ATM is no longer a distinct silo and, with the right solution, could perform other functions and easily link into banks' other channels.

Business trends and opportunities

RBR's recent report "Global ATM Market and Forecasts to 2025" highlights the importance in investing in advanced software solutions in order to boost the profitability and functionality of ATMs.

"It is clear that ATM operators place a high value on streamlining their processes and

maximizing uptime at their terminals. Whereas previously deployers might have focused largely on increasing ATM numbers, there is now greater emphasis on investing in robust software solutions. The exponential rise in the digitalization of banking services has already brought about large-scale branch closures, simultaneously increasing the need for a convenient, secure ATM channel and freeing up funds to help achieve this. As quantity becomes less important and quality increasingly moves to the forefront for deployers and their customers, equipping ATMs with the latest software will help them to stay relevant and secure in an ever-evolving industry".

The RBR Report said also that COVID-19 has prompted interest and innovation in card-less ATM withdrawals as more and more deployers around the world are embracing contactless technologies and adopting new solutions, like full mobile integration.

Having ATM software that enables seamless alignment with current and future needs is going to be key in the future. Customers demanding consistency between mobile and physical channels and ATMs that meets those needs will lead to greater usage of an ATM and thus could even reduce the cost per transaction of maintaining an ATM system.

"Today's market requires something that allows the ATM to behave like any another digital channel so that customers are able to access their bank their way and at a time to suit them. It is vital to be able to offer expanded services across self-service and other channels using a framework that was built for that purpose," Aldred said. Auriga's WinWebServer (WWS) solution is a leading multi-vendor integrated solution (ATM Application, Terminal Handler, Monitoring, Marketing, etc.). It has been designed to align advanced self-service systems such as deposit and recycling systems, assisted self-service terminals, as well as cashless kiosks, and is proven in production. It can accelerate time to market for new products and services, reduce TCO and improve quality and availability".

Other opportunities include the ability to gather integrated personalized, seasonal and location-based data at the ATM and to apply analytics to enhance marketing capabilities and further refine the ATM offering. Again this brings about operational efficiency by providing only what is actually used, and promotes customer loyalty by providing what is needed in a user friendly way. In a digital first future, the ATM will be pivotal alongside branches, and digital in helping banks realize their wider transformation initiatives.

"Customers want to see banks as a single entity and be able to choose between channels. ATMs need to be one of those channels." He says, "As an example, in Portugal ATMs have been deployed as a 'bank in a box' within the branch, supported by bank staff," Aldred said. "Once the branch closes the ATM provides remote video support so that the customer can always access human help."

Summary

In summary, NDC/DDC message protocols between the Terminal Handler and the ATM application gained a high level of adoption but arguably, they significantly constrained the evolution of ATM services, even as the underlying technologies became more flexible.

In many institutions, the proprietary ATM infrastructure that grew up around the "NDC/DDC-thinking" has resulted in the self-service channels becoming isolated from the mainstream digital banking investments. Given the proprietary ownership of NDC and DDC, there was little scope for the industry players to redefine this vital link in the current ATM ecosystem.

Fortunately, the advent of channel integrated solutions, technology and flexible internet protocols has allowed innovative vendors to bypass the structural restrictions of NDC/DDC.

INCLUDED IN THIS STORY

Auriga

+39.080.5692111


Auriga is a top international software solutions company, specialized in end-to-end systems that integrate the various delivery channels used in retail and internet banking.

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