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The future shape of the Latin American ATM market

Chris Herbert

Associate/Retail Banking Research

Published  Friday, October 16, 2009

The last several years have seen many Latin American banks undertake large scale investments in ATMs and other types of self-service terminals. Crowded bank branches is a costly problem for banks in the region not only in monetary terms, but also in terms of poor customer service that eventually leads to loss of image and reputation.

Migrating basic bank transactions to ATMs and other self-service machines is one of several solutions that banks are pursuing today in their quest to solve the long-standing problem of crowded branches.

UK-based research and consulting firm Retail Banking Research (RBR) estimates that the total number of ATMs in Latin America and the Caribbean could grow as much as 40% in the 2007-13 period. At the end of 2007 there were a total of 199,635 ATMs in Latin America and the Caribbean, according to RBR.

To gain further insight into the future of ATMs in the region, BNamericas talked to RBR associate Chris Herbert.

BNamericas: What has been the historical evolution of ATM deployment in Latin America versus other geographical regions?

Herbert: Latin America developed quite a bit later than the US, Europe and Asia-Pacific in terms of ATMs, and it only reached 10,000 machines by 1990 for the whole region. It has 10% or 11% of the world's total share, and that percentage has been rather static for some years.

BNamericas: Where does that place Latin America on the world ranking?

Herbert: It is the fourth largest region in the world.

BNamericas: What level of future growth do you see for Latin America, and will the region remain in the fourth spot over the next several years?

Herbert: Latin America will probably grow in line with global growth, although faster than some regions and slower than others. Within the next five to six years, the Central and Eastern Europe region will overtake Latin America as the fourth largest region due to the huge growth potential in markets like Russia and the Ukraine. There will be relatively strong growth in Latin America also, but populations are much smaller there than in Russia and other countries in the Central and & Eastern European region. And the biggest market in Latin America, Brazil, is already fairly developed in terms of ATM numbers.

BNamericas: Growth of ATM numbers worldwide is linked to the use of cash, and many studies have shown that cash will not go away any time soon despite increasing use of plastic cards, e-banking and also m-banking. What is your take on this issue in regards to Latin America?

Herbert: The different and alternative payment methods to cash that we have today, and also efforts by some governments to reduce the amount of cash that people use, could be a limitation for ATM growth in the long-term. In Colombia, for example, some banks have mentioned that customers have been encouraged to use cards instead of cash due to security concerns. But overall the use of cash is still very strong in Latin America and it will remain so for many years to come - and that is something that will help to keep up a high demand for ATMs in many countries.

BNamericas: What countries in Latin America do you expect to grow most in the future in terms of ATM numbers?

Herbert: Countries that are not as developed in terms of ATM numbers, like in Central America, will grow faster than more mature markets like Brazil. Peru is another country that has a big growth potential. The financial crisis has slowed growth in Mexico, but it still has a lot of potential to grow and it's the only nation in the region where non-bank players deploy ATMs. It is also worth noting that bank consolidation in Mexico has already taken place and will not disrupt ATM sales, like might be the case in other countries in the region.

BNamericas: Talking about non-bank ATM deployers in Mexico, Cardtronics from the US is the only such player today in the Mexican market. Do you expect more of these independent players to enter that market in the future?

Herbert: We could see the entry of two or maybe three such companies from the US into Mexico after the passage of the financial crisis. We will probably also see retail groups deploying more ATMs in Mexico and also in other countries in the region. A good example of this trend is Chile, where retail groups like Falabella and supermarket chain LIDER are operating their own ATMs through financial services subsidiaries.

BNamericas: ISOs - or independent sales organizations - are very big, or even the biggest ATM deployers in countries like the US and the UK. Why have we not seen this happening in Latin America?

Herbert: This is largely due to two factors: first, you have very strict regulations in Latin America that in many cases only allow banks and other financial institutions to deploy ATMs. Even Cardtronics in Mexico operates under a so-called 'bank sponsorship', which means that a non-bank gains membership of an ATM network through a bank.

The second factor is ATM surcharging, which is a hard sell in a region like Latin America because of the limited disposable income of most of the population. Without surcharging, the business case for ISO players is reduced as transaction volumes are not high enough at most Latin American ATMs to make it an attractive option for an interchange business model - where the only form of revenue is the interchange fee from the card issuer.

BNamericas: Finally, I would like to ask about ATM manufacturers and their interest in Latin America. For many years NCR, Diebold and Wincor Nixdorf have dominated global ATM sales, but today they are facing increased competition from rivals coming out of emerging markets like Brazil and China. How do you see this battle for market share playing out in the Latin American market?

Herbert: The global ATM manufacturers see an attractive sales potential in Latin America, but not as much as in they see in countries like China, India, Russia and the Ukraine.

Brazilian ATM maker Perto is a good example of these new players that are coming from emerging markets, as it has embarked on an international expansion to compete with the big global players outside its home market. I believe some Latin American banks will probably be keen on looking at alternatives to the big global ATM providers, which due to their current market dominance will continue to lead in terms of market share for many years to come. For banks, it is very important that ATM providers can ensure an adequate level of service and maintenance, and in this respect the large players are at an advantage.

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RBR provides research and consulting services in the areas of banking automation, ATMs, cards and payments.

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