Thursday, May 27, 2010

Obituary - John Shepherd-Barron - Inventor of the ATM machine

John Shepherd-Barron passed away on May 15. His is an interesting case of an invention which can be called a true Eureka moment. One day he was in an urgent need of cash but was locked out of his bank since the banking hours were over. While having his bath, the idea of a cash dispensing machine like a chocolate dispensing machine struck him. Being an engineer working with De La Rue instruments, he could give shape to his idea and designed what could be called the first ATM machine. This machine did not work with a plastic card but with a slightly radio active cheque. This machine was first installed by Barclay's Bank in North London on June 27, 1967. Come to think of it, the world existed without an ATM machine just over 40 years ago and now we have more than 1.7 million of them installed worldwide.

Another interesting snippet is that originally, he wanted a 6 digit PIN. But when he asked his wife, she said that she can't remember a number more than 4 digit. And thus was the ubiquitous 4 digit PIN born.

Shepherd-Barron's principal motivation while inventing the machine was 24*7 availability of cash. However, it helped reduce the cost of a transaction greatly and replaced the human tellers rapidly. Today in India, the average cost of an ATM transaction could be as low as Rs 12 (majority of the cost going towards cash counting and transportation) while the cost of the same transaction if done through a teller clerk, in spite of the low salaries, could be Rs 50 or more. The difference between cost of cash dispensed by humans and the ATM machines in the more well economies such as UK or USA would be much higher.

It is quite possible that the plastic card itself or mobile payment products or another invention could obviate the need of an ATM machine in future and the ATM machine becomes but a footnote in the long history of financial innovation. But at the moment, this machine is the mainstay of the retail banking industry replacing the need of a branch with this machine. In fact, Paul Volcker, the former US Fed Reserve Chairman, described the ATM as the last truly great innovation in financial services

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