Banking & Finance

Out of cash

The bleak outlook for China’s ATM makers

ATM-w

Is the ATM heading for extinction?

The automatic teller machine was the greatest banking invention ever, former Federal Reserve Chairman Paul Volcker once remarked.

The first ATM machine to be installed in China appeared in 1987 in Zhuhai’s special economic zone. That was some 20 years after the world’s first ATM debuted in London. China went on to become the biggest consumer of ATMs, with about 700,000 machines in place by the end of 2018. That compared with 433,500 in the United States, according to China Business Journal

ATM manufacturers in China did well out of the surge in installations. On top of a fast-growing market, state-owned banks started to switch to domestic suppliers from global heavyweights such as NCR and Diebold Nixdorf.

GRG Banking Equipment was the first domestic manufacturer to go public on the A-share market in August 2007 (less than a year after the IPOs of ICBC and Bank of China). Guangzhou Kingteller Technology followed two months later.

“In the good old days, the ATMs were as good as money-printing machines for their manufacturers. Demand significantly outstripped supply,” Tencent Finance recalled last week.

But the investment case for the same firms has now foundered, Tencent Finance opined. “Time has left ATMs behind, without even saying goodbye,” it remarked.

Guangzhou Kingteller first dropped into the red in 2018. Last year it reported a tiny profit of Rmb25 million ($3.62 million), but only thanks to a Rmb96 million gain in stock market investments. It told shareholders in April that it had earmarked Rmb800 million for the equity markets this year. Cashway Fintech, a Shanghai-listed rival, also said it would invest Rmb200 million in wealth management products this year.

In a recent stock exchange disclosure, Guangzhou Kingteller explained that its manufacturing business has been hampered by the seemingly unstoppable growth of digital payments. This phenomenon has seen lenders cut back their bank branches (the big six lenders closed 1,730 outlets in the first seven months this year, after shuttering 836 last year). This has an immediate impact on the number of cash machines too.

In 2015, when the number of ATMs in China had climbed more than 250,000 in 12 months to 867,00, Alibaba’s payment platform Alipay started to sponsor a digital hongbao (‘good luck’ money given during the Chinese New Year) on the state broadcaster’s widely watched Spring Festival Gala – massively boosting it user base. It has been a downhill ride for Chinese ATM makers since, with the number of mobile payment transactions spiking from 13.8 billion in 2015 to 101 billion last year. The banks have responded: ATMs made available by ICBC, for instance, fell by 17,892 between 2016 and 2019. The amount of money withdrawn nationwide at ATMs plunged Rmb5 trillion during the same period.

The ATM manufacturers have tried to talk up other options for boosting sales, like increasing their exports. There’s hope of partnerships with an emerging group of virtual banks, allowing customers immediate access to cash in cases where there is no physical branch network.

But China is speeding towards a cashless society faster than most other nations (see WiC502) and in more bad news for the ATM sector, the Ministry of Commerce unveiled a new plan last week to expand trials of a new digital renminbi scheme in selected cities in the Greater Bay Area and the Beijing-Tianjin-Hebei region.

The official Xinhua news agency clarified a day later that the pilot scheme for the digital currency would stick to four previously identified cities (Shenzhen, Suzhou, Xiongan and Chengdu, as well as a group of venues for the 2022 Winter Olympics).

The conflicting message points to the fact that there is still no formal timetable for the fuller launch of the digital renminbi. Nevertheless its inevitable debut will reduce the demand for physical cash further – compounding the already massive shift that’s already occurred and has seen consumers preferring to use the digital payments services of Alipay and WeChat Pay.

That sends the signal that – rather like the fax machine – the ATM in China could be heading for technological extinction.


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