Are ATMs Unprofitable? How Banks Can Continue to Satisfy the Swiss Public’s Fondness for Cash

Are ATMs Unprofitable? How Banks Can Continue to Satisfy the Swiss Public’s Fondness for Cash

Although cash transactions have been sharply on the decline in recent years, people in Switzerland still want to continue to use cash. But the decreasing number of cash transactions makes operating automated teller machines (ATMs) unprofitable for many banks. What can they do to change that?

Does Switzerland still need cash these days? Theoretically, the country could largely do without it. Card payments are accepted practically everywhere, and mobile payment solutions like digital wallets or Twint even eliminate having to carry around a billfold or pocketbook altogether. But if you ask people in Switzerland, you quickly discover that cash won’t disappear here. Two-thirds of the population in Switzerland is inclined against or vehemently opposed to abolishing cash, according to the latest edition of the Swiss Payment Monitor jointly published by the Zurich University of Applied Sciences and the University of St. Gallen. The study reported that cash transactions accounted for 13.2% of all payments made throughout Switzerland in the first quarter of 2024, behind debit cards (27.3%), credit cards (19.6%), mobile payment solutions (19.3%), and payments by invoice (15.8%). Paying with cash had been sharply on the decline ever since the outbreak of the COVID-19 pandemic (it accounted for 26.5% of all payment transactions in Switzerland in 2019), but has stabilized in the meantime at the present level.

The Swiss National Bank phrases it more drastically in its 2023 annual report, stating that 95% of the Swiss public would like to retain the option of paying with cash in the future and to be able to choose between cash and electronic payment methods.

Switzerland Has Too Many ATMs

We maintain that cash has a raison d’être even in a digitalized Switzerland, and the Swiss public very actively continues to use banknotes and coins. Conversely, though, this means that the public must be ensured access to cash. It takes ATMs to do that, and Switzerland has more than enough of them at the moment. The problem with this, however, is that it is an unprofitable business for many banks that operate ATMs. Approximately 5,400 ATMs are connected to the network run by SIX. This costs banks a good 180 million Swiss francs each and every year. A study conducted by SIX in collaboration with Senozon revealed that the demand for cash could still be met even with far fewer ATMs.

Cash withdrawals from ATMs were already on the decline prior to the pandemic. Whereas a few years ago up to 180,000 transactions per annum were processed by a single highly frequented ATM, these days most ATMs do not even deal with 30,000 a year anymore, which is much less than ATMs in other countries handle. For banks, this means that supplying the public with cash is anything but profitable. So, what can they do to change that? Here are two approaches to solving the problem:

1. Outsourcing ATM Services

Operating an ATM involves numerous tasks for a bank. It, for instance, must install the ATM in the designated location, take care of troubleshooting and repairs, load the ATM with cash, arrange a constant delivery of fresh cash, take out the necessary insurance, and even take over branding.

Banks these days can outsource all or some of those steps, meaning that a centralized actor takes over the provision of those services for banks. Banks have the choice of how far they want to go. They can opt to just outsource the maintenance and management of ATMs or can completely outsource everything having to do with ATMs, eliminating, among other things, the need for a contract with an armored car company and rendering it unnecessary to finance, prep, and insure the cash. At the same time, the ATM outsourcing company benefits from economies of scale, which enables fair pricing for operating the machines.

2. Pooling as a Long-Term Solution

The so-called ATM pooling would be another way to increase efficiency. The idea is for banks to consolidate their devices under the umbrella of SIX and organize operations centrally to ensure cash remains as accessible as possible. By sharing the infrastructure, banks can achieve cost savings.

This model has already proven successful outside Switzerland. A number of regional banks in Germany have formed alliances to ensure public access to cash, and several of the largest banks in the Netherlands have founded a joint venture to operate ATMs more efficiently.

New Approaches Are Needed

Although the acceptance and use of electronic payment options is steadily increasing, cash remains indispensable for many people in Switzerland. Banks must meet the demand for cash, but must also operate profitably. That requires innovative approaches. Outsourcing their ATMs or pooling them are two promising solutions to the problem.