More than 40 years after Barclays introduced the first cash dispenser, self-service technology has evolved to such an extent that the only limit to what an ATM can do seem to be the bank's imagination or ambition.

Innovation ranges from improved deposit automation (envelope-free, check imaging, real-time availability of the deposited cash) to a replication of online banking services, one-to-one marketing, third-party bill payment, mobile phone or transit card top-up, and so on.

However, actual roll-out varies greatly by region and country and, within those, depends very much on the individual bank's approach to self-service channel, and on whether it is seen as a strategic priority or a basic necessity.

"In terms of innovation, there is what is being rolled out versus what is actually new," says Nicole Sturgill, research director, Delivery Channels, at TowerGroup. "A lot of things being rolled out now have actually been around for a few years, with some major global differences. What's innovative in the US right now is image deposit, but it has been out for years in Eastern Europe or in Asia Pacific."

"For many banks in Western Europe, self-service is often the forgotten channel," adds Andy Morss, vice president, Self Service Solutions, at First Data. "The priority tends to not be about the applications, but on refreshing the hardware when it gets to an unacceptable age."

This is echoed by Sturgill, who points out it has taken years for many institutions in mature markets to start replacing their old OS/2 environment with Windows. "The ATM is a victim of its own longevity," she explains. "It's a workhorse, and there's no reason to replace it as long as it's still spitting out cash."

For Pierre-Marie Dussart, head of branch development at BNP Paribas, ATMs are not a strategic topic when considered in isolation. "However, they are a major corollary of our branch network deployment, as a more or less gradual substitution phenomenon can be observed toward automating traditional teller activities."

BNP Paribas is one of many Western banks to have embarked on an effort to refocus its branches toward sales and advisory activities, while deploying multifunction ATMs to handle cash withdrawals and deposits.

"The EMEA region is seeing an increased adoption rate of deposit automation technology, as both banks and consumers begin to understand the benefits and convenience of self-service cash and cheque deposits," says Aleksandra Lubavs, director of marketing, communications and strategy at  Diebold EMEA. "In the most successful cases, up to 80% of cash and cheque deposit transaction have been migrated from tellers to ATMs. The overall average is in the range of 40-50%."

But in many of the so-called emerging markets, a strong cash culture - sometimes for lack of a widespread card payment infrastructure - combined with a more recent installed base, can foster even more innovative uses of the ATM channel, where the deposit function can be used to pay bills, parking fines or even loan repayments.

"They essentially leapfrog the technology," Sturgill says. "The reason you have seen image-enabled ATMs for a long time in Asia Pacific and Eastern Europe is because growth in ATMs has really occurred there in the last five to 10 years, and so they are getting the newest devices."

In Romania, Citibank lets its credit card customers use ATMs to pay their monthly bills with cash deposits. For several years, the bank has also been offering ATM-based deposits to pay for utility bills, taxes, university tuition or parking fines.

For Morss, another fundamental difference between mature countries and newer deployments in emerging markets is the philosophy regarding the actual location of ATMs.

"A lot of Western countries initially focused on installing ATMs into bank branches and latterly started looking at putting them in retail and leisure locations," he says. "Emerging countries recognised immediately they should be putting their ATMs where people live, work and play."

He also sees mobile devices not as a threat to ATMs, but as a potential alternative means of authenticating oneself to the machine, or as a way to use the ATM as a printer or fulfilment channel to finalise a transaction initiated on a phone or PDA.

In fact, newer markets are also leading the way when it comes to integrating ATMs with mobile payments, notably in Africa. The combination of micro-payment initiatives with high mobile phone penetration in predominantly cash-based societies make ATM an essential part of payment fulfilment.

One example of that is South African bank Absa's CashSend offering - winner of last year's Banking Technology IT innovation award - which enables person-to-person payments via SMS, and allows the recipient to withdraw the sent funds at an ATM.

Some financial institutions in Asia are even putting forward their ATM capabilities as a differentiating factor. A case in point: India's HDFC Bank advertises the speed of its ATM withdrawal transactions (40% faster) in TV commercials.

Emerging markets are also among the most innovative users of ATMs for marketing purposes, as part of an integrated multichannel approach. Bob Tramontano, vice president, financial services industry solutions group, at ATM manufacturer NCR, says that one bank in Singapore found that by using personalisation when servicing the customer at the ATM, they were able to get "twice the take-up of the offer they presented at half the cost of regular direct mail."

Another of NCR's clients is Russian Standard Bank, which allows customers to make monthly payments on one-year loans using the cash accepting ATM cash, but only for the first 11 months.

"On the twelfth month, they push you back into the branch to talk to a person, because they want to talk to you about the next loan," Tramontano explains. "It's a great combination of using technology to do a low-cost transaction and using people when you want that high-value sell."

Still in its infancy in most mature markets, ATM-based marketing or advertising faces cultural hurdles, but also speed constraints, in order not to turn the transaction into an inconvenience.

"The ATM channel is extremely interesting because it is a major source of contacts," Dussart says, adding that BNP Paribas gets 150 million one-on-one contacts a year in France alone, with both customers and prospects.

"However, one should always keep in mind its primary function, which is to withdraw or deposit money," he insists. "Speedy transactions must be ensured. One therefore needs to be selective, and take advantage of this moment to push simple, segmented and personalised information, that is also reworked and formatted specifically for that channel."

While emerging markets might benefit from a "green field" advantage over mature ATM network to introduce innovative functionality, they can also present some challenges for the roll-out of newer generation technologies, such as automated deposit machines.

"Their maintenance is well mastered in a number of countries, but a lot less so in emerging countries, particularly around the Mediterranean," Dussart says. "Manufacturers do not necessarily have a direct presence there and their distributors haven't always made the required investments. Besides, in some countries outside the euro zone, there is sometimes an issue around the quality of bank notes, which can cause failures with the deposit functionality."

Meanwhile, many institutions in mature markets have to deal with ageing fleets, and while some functionality can be added using software upgrades, there is only so much that can be achieved without new hardware.

"The ability to have a fresh new machine potentially gives you higher availability, better connectivity, larger display, better graphics, and potential for a higher processing power," Tramontano says. "Many of those are available as upgrades. The question is, how long do you want to keep painting the car? I think people are moving self-service into the strategic bucket and being more proactive about planning for replacement cycles."

Among the options increasingly being promoted by industry players as a less painful path to ATM fleet refreshment is outsourcing. But for Dussart, while external partners are necessary for repairs or cash supply services, the overall management of the ATM network should be done internally, because it drives a core banking service. BNP Paribas's approach is to federate all relevant skills, be they technical or product-related within the retail banking business line.

"In the banking industry, you often see a pretty strict separation between the marketing teams and IT or operations management, which are often in charge of daily ATM driving," he explains. "We believe that the two are inseparable and that, in both cases, it is about business and customer service."

But all banks do not see the management of their ATM network as a core function. "I think it comes down to the bank's general attitude to IT outsourcing," says First Data's Morss. "A lot of organisations do see it as a core service, but don't consider they need to run it themselves, particularly institutions with good experience with outsourcing other IT functions."

But whatever the individual approaches and strategies may be, just how relevant will the ATM channel remain in decades to come? The expected growth of mobile banking - to check one's account balance, and contactless payments - replacing low amount cash payments, could be seen as a potential threat to the ATM's traditional functions, at least in the very long term. But unsurprisingly, ATM vendors are convinced their devices are here to stay.

"We are absolutely certain ATMs will continue to be used, and that their penetration will grow in coming years," insists Uwe Krause, head of marketing at Wincor Nixdorf's banking division. "Real cash is actually growing and you have to handle this productively and efficiently with deposit, withdrawal and recycling machines, new processes and new logistics. This generates a high need for new technologies. The volume of real cash is growing year by year between 5% and 12%."

And for all the innovation around e-marketing and additional functions, a major driver for ATM upgrades simply remains the reduction of cash handling costs. "From our evaluation, in Europe, banks and retailers have to deal with around ?50 billion (£43 billion) in cash handling costs every year," Krause adds. "We see a big potential for cost reduction, with a combination of hardware, software and additional services."

For Diebold's Lubavs, too, "cash will remain king in the foreseeable future," despite the development of new payment alternatives.  "In the long-term we foresee that the ATM channel will be expected to deliver even more services to consumers, dispensing items like coupons and tickets," she adds. "The key factor will be integration: today this is true between internet and ATM; tomorrow this should be true with mobile and contactless, too."

"People are now using self-service all the time, whether it be check-out device at the grocery store, or check-in machines at the airport," NCR's Tramontano concludes. "Banks need to pay attention because other industries are starting to service their customers in a very unique way and they're going to start expecting that from their banks."

Legal view:  ATM Outsourcing issues

Outsourcing ATM estate management and transaction processing has obvious commercial benefits. However, given that ATMs are an essential customer-facing element of modern-day retail banking, there are also a number of risks that need to be considered and addressed.

Operators will want to ensure that the supplier takes responsibility for lots of things - including complying with disability discrimination legislation, data security, identifying and assessing the risk of new sites, disposing of end-of-life machines (and securely "scrubbing" any data on them), complying with ever changing rules and regulations issued by regulators such as the FSA and the card schemes, ATM balancing and settlement with the schemes.

They will also need to consider and allocate liability for theft, fraud and loss - not just for JCB attacks and theft of cash, but also for vandalism, the use of skimming devices or "Lebanese loops", internally perpetrated (or assisted) fraud, and simple transaction processing errors where business rules have been wrongly implemented. Finally, in the UK, as the arrangements will constitute a material outsourcing, you will need to ensure that the contract complies with the regulatory requirements set out in The Financial Services Authority's SYSC 8.

However, in our experience, one of the key battles will be around the "availability" service levels. To a bank, the availability of cash to its customers is key. If the ATM is down, then customers cannot obtain cash. If your customers cannot obtain cash, they will use your competitors' ATMs - meaning that you incur "us on them" interchange fees, and that you then lose out on lucrative "them on us" interchange fees. These issues apply equally to non-cash revenue-generating services provided through ATMs. And which bank wants its brand to be displayed above an ATM that is out of service?

There are various ways to measure availability. The most important of these is likely to be an across-the-board service level for the availability of the ATM estate and the back-office systems to authenticate, authorise and process transactions - aiming to yield an availability measurement of "five nines" (99.999%). To meet this service level, the supplier will likely look for certain carve-outs for downtime outside its control - such as vandalism or, potentially, an "out of cash" situation caused by an unusual spike in withdrawals. These carve-outs should be considered carefully. For example, even if your systems go down, the supplier should be able to operate in stand-in mode using your pre-defined business rules.

In addition to system availability, you also need to consider the availability of individual ATMs. It is important to measure not only the aggregate availability of ATMs across the estate, but also the time that any single ATM is out of service. Again, consider carefully any carve-outs that the supplier proposes, and ensure that these are dealt with through other service levels. For example, if the supplier proposes carving out downtime due to a JCB attack, then ensure that another service level deals with the maximum time for reinstating the ATM.

Finally, service levels should also consider softer issues - the kinds of things that do not necessarily impact on availability but nevertheless impact on the bank's reputation, such as slow transaction response times or even emergency cleaning to remove the debris of a weekend takeaway.

An ATM estate outsourcing contract is, by necessity, a complex document. However, if your contract can cover off these key areas of risk, together with ensuring a suitably robust service level and governance regime, then you should be able to properly manage and allocate risk, and ensure that those commercial benefits are achieved.

Douglas Mathie is a partner and Martin Sloan an associate at Brodies LLP. Both blog regularly at http://techblog.brodies.com