Cardless cash ATMs aim to reduce fraud
New tech allows you to pre-stage cash withdrawals to bypass skimmers
By Tony Mecia | Published: July 22, 2015
Your smartphone could soon help put cash in your hands -- and keep it out of the hands of thieves.
Increasing numbers of banks are looking at ways to allow customers to use their smartphones to "pre-stage" cash withdrawals at ATMs, meaning they can get their money without inserting their debit cards. Industrywide, 69 percent of financial institutions say they're planning to implement some type of mobile-ATM integration in the next few years, according to a June report by ATMmarketplace.com sponsored by KAL ATM Software.
With ATM fraud on the rise, developers say using smartphones in place of debit cards at ATMs offers greater security, as well as convenience.
The idea is an interesting twist on digital payments, which typically involve shifting money electronically between accounts to pay for goods or services. In this case, some of the newest technology is being used to produce a financial instrument that has been around for thousands of years: cash.
"We are very bullish on where this goes," says Douglas Brown, senior vice president and general manager of FIS Mobile, a division of FIS, one of the world's largest providers of technology to financial institutions. The service is in operation at three regional banks: Chicago-based BMO Harris Bank; Rosemont, Illinois-based Wintrust Financial Corp.; and a third bank that has not been publicly announced.
In the coming months, the company plans to announce partnerships with banks in Massachusetts, New York and Pennsylvania. Within three to five years, he says, it could become "the predominant method of cash access." By early 2016, FIS expects the service to be available at more than 100,000 ATMs for customers of participating banks.
Doug Peacock, vice president of mobile banking for BMO Harris, says his bank is pleased with customers' reactions to what it calls "mobile cash." He says the bank does not disclose usage statistics, but that it expects usage to increase.
Popular with customers
While future solutions will include those that allow the consumer's smartphone to talk to the ATM using Near Field Communication technology, current installations rely on QR codes. The service works like this: A customer logs in to a mobile banking app on his or her phone and orders cash from a particular account. The customer then heads to an ATM configured to accept smartphone transactions. At the ATM, the customer presses the button for cardless cash, and the ATM displays a QR code.
Video courtesy of BMO Harris Bankz
Banks are testing and implementing systems that allow customers to pre-stage cash withdrawals on their smartphones and get their money without ever inserting a card into the ATM.
Then, while logged into the bank's mobile app, the customer holds up the smartphone, which reads the QR code and sends details about the transaction to the bank. The bank gives the OK to the ATM, which dispenses the cash, debits the account and sends a receipt to the smartphone, all in a matter of seconds.
The transaction is tokenized, which means that the data switching between the phone and ATM can be used only once, rendering it useless to cyber-thieves. Brown says he is aware of no instances of fraud involving the cardless ATMs.
He says the process has become popular with different age groups. One 75-year-old man, he says, wrote to Wintrust and said: "Dear Wintrust: I really love using cardless cash. Why aren't more (expletive) ATMs equipped like this?"
Using phones for cash has also proven popular with people in their late teens and 20s -- even though banks guessed that those users would be adept at using mobile wallets and paying for transactions electronically, and would prefer to use those methods over paper currency.
"They like cash for being anonymous from Mom and Dad sometimes," Brown says.
Mobile banking, fraud on rise
The interest in using smartphones at ATMs comes as more Americans are becoming accustomed to using their phones for payments. Apple's release of Apple Pay in 2014 helped give mobile payments a "cool factor" and propelled some of the interest after years of sluggish adoption of other so-called "mobile wallets."
The number of Americans using mobile banking has nearly quadrupled in the past five years, to about 70 million, according to Aite Group. By the end of 2018, that number is expected to surge to 133 million, an increase of 90 percent.
At the same time, credit and debit card fraud has increased. Using a variety of high- and low-tech means, criminals have been able to obtain credit card numbers. They then mint new cards by placing the stolen information into the magnetic stripes on the back of cards. Those stripes contain enough information for a valid credit or debit transaction.
We are very bullish on where this goes.
In the first three months of 2015, the number of successful attempts to use fraudulent cards more than doubled at bank ATMs compared with the same period a year earlier, according to FICO, a credit scoring company. Attacks at non-bank ATMs more than tripled.
On the credit side, banks and retailers are transitioning to cards that rely on EMV computer chips, which are more secure when paired with a retail terminal that can interact with the chip. But the process is going slowly: Despite an October 2015 deadline to upgrade their terminals, just 42 percent of small businesses plan on complying, according to an April survey by Intuit.
On debit, the transition is moving even more slowly, because the deadlines are farther off. MasterCard debit cards are supposed to be converted to chip cards by October 2016, and Visa debit cards by October 2017.
The switch to EMV will counter some of the fraud, and banks are taking steps to identify potential areas of vulnerability, says Doug Johnson, senior vice president of payments and cybersecurity policy with the American Bankers Association.
For instance, he says some have deployed technologies that counter skimming devices that criminals place on ATMs to harvest card data. In some locations, banks have stepped up inspections of their ATMs to identify those devices.
He says consumers will decide whether ideas such as card-free ATMs become widespread, but he says there is plenty to like about cards: "The card is convenient. Your card doesn't run out of batteries."
In any event, fraud will never be eliminated, he says. "There's never really one layer of security that is going to carry the day completely," Johnson says. "You see fraud shifting. It's just like a balloon. You squeeze it in one area, and it expands in another area."
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