The Science Behind Banks’ ATM Location Strategy

Ever wondered why automated teller machine (ATM) kiosks of various banks are next to each other or in the nearest vicinity? Seen people queuing up to withdraw from these clustered ATMs, while there is hardly anyone in that single ATM which is half-a-kilometre away?

Before looking for answers, let’s understand how most banks decide on the location for an ATM. Banks set up ATMs for two reasons — to provide service to their customers and to acquire transactions of customers of other banks that will give them some revenue.

To service their own customers, banks set up on-site ATMs, those that are next to or in their branches. To get transactions of other bank customers, the ATMs are set up in high-footfall areas such as market places, big residential complexes, big commercial/ office complexes, important junctions, railway stations and bus stands. They service their own customers at these offsite ATMs too.

Banks also place ATMs at strategic locations such as airports, trade centres and heritage buildings. They do this predominantly for the sake of publicity, to make their brand visible, even paying a high rental for the space. Such ATM kiosks are brightly lit with attractive interiors.

A geo-demographic study of the location is conducted to select a spot for an off-site ATM kiosk. While the primary criterion is potential footfall, other factors such as rent, adequate power supply, connectivity, availability of parking space for customers’ vehicles, security risk profile of the location and nearest cash feeder branch, too, are taken into account.

The other interesting factors considered are whether the road outside the location is one-way or two-way, whether the location is next to an eatery, liquor shop or fish/meat market. If the road is one-way, the ATM kiosk needs to be to the left of the road (for right-hand drive countries like India). If the location is next to a not-so-well kept eatery, it could attract rodents that would, in turn, damage cable and other parts. Most banks don’t prefer setting up an ATM next to a liquor shop or bar for obvious reasons.

Banks may set up ATMs at locations that fulfil the above-mentioned criteria, but over a period of time, things may change. For instance, a bank found transactions in one of its high transacting ATM suddenly dipped after the road on which their ATM was located was declared ‘one-way’, while the ATM was on the wrong side of the road.

Another bank that had set up an ATM in a good location and saw a large number of transactions for years suddenly noticed a dip. On investigating, they found the problem was caused by rodents nibbling away at cables of the ATM, as an eatery had come up just next door. A third bank found cement dust clogging the ATM card reader after a shop selling cement came up next door.

Once an ATM is set up in a location and starts attracting a decent number of transactions, it will also attract competition. Very soon, you will see many ATMs being set up in the vicinity. This concept is common in the retail industry and is known as clustering. If one car dealer sets up a showroom in one place, other car dealers, too, come there.

As a customer, you may also prefer going to a location that has multiple ATMs. If one ATM doesn’t work, there is always another nearby to meet your need. You don’t have to worry too much about charges, as a certain number of transactions are free, even if you use other bank’s ATM. Check the number of free transactions you are eligible for with your bank.

Customers are often reluctant to use other bank ATMs as they don’t know how to go forward in case of an issue. If you find yourselves in such a situation,keep your transaction slip or the SMS alert of the transaction safely and approach your own bank immediately.

They will accept your complaint and take necessary steps to ensure the transaction is reversed to the extent of cash not given to you by the ATM. The process by which your bank will take up the matter with the bank whose ATM it was is called a chargeback and is part of the dispute management and settlement process of any payments network.