Modelling satisfaction with ATMs: THE UK AND HUNGARIAN BANKING SYSTEMS

The banking sectors of the UK and Hungary are in stark contrast. The UK has a highly developed financial system and a rapid pace of financial innovation, whereas Hungary has one of the least developed banking markets in the post-communist region, despite rapid banking reform. In both markets, however, competition between banks and other financial institutions and markets has intensified. Strong competition for corporate clients has forced banks to seek out and expand retail banking business and place greater emphasis on the quality of services that they provide to retail customers.

Within the UK retail banking market, payments mechanisms are in a period of structural change with cheque and cash usage declining and plastic cards and direct debits increasing in popularity. New technology in the form of telephone banking, Internet banking and electronic commerce has both increased the range of payments mechanisms available to the consumer and enabled new players, such as supermarkets and insurance companies, to enter traditional banking territory. It has been forecast that the level of non-cash payments will reach 16.5 billion by 2007.

Despite the migration from cash to plastic, cash payments accounted for three- quarters of all UK payments in 1997 and it is predicted that in 2007 they will still account for 63 per cent of payments. ATMs are the main method of withdrawing cash from personal customers’ accounts and ATM installation at new sites such as stations, hospitals, motorway services and supermarkets has increased their accessibility. At present, 6,000 of the 24,574 ATMs in the UK are sited away from bank branches. In 1998, around 62 per cent of adults were regular ATM users and APACS has forecast that this will rise to almost 80 per cent in 2007. ATM usage is strongly affected by demographics. It has been found that younger people (under 45) are most likely to withdraw cash via an ATM and also make more frequent withdrawals. Currently, there are around five million withdrawals per day in the UK, averaging a value of £53.

Future ATM usage in the UK depends to a large extent on the speed at which personal customers switch to non-cash methods of payment. The evidence to date suggests that the UK public is fairly slow to react to the introduction of payments products based upon new technologies. Furthermore, the major retail banks have invested heavily in existing payments systems. It was not until 1991 that the average volume of ATM transactions reached an economic level, at 5,000 per month. The cost of investing in parallel services (Internet etc) may deter existing banks, but it provides a market opportunity for those companies that are not burdened by a branch network and older technology.

Figure 1 Model of overall satisfaction formation for ATMs

Since 1994, the economy of Hungary has been through a period of restructuring. The process of transformation to a western-style market economy has been complex and difficult, but the Hungarian economy is currently in a very healthy state. By the end of 1999, it was predicted that inflation should have been down to single figures and the economy is growing at a rate of 4—5 per cent per year. Privatisation of Hungarian enterprises is entering its final phases and at present around 80 per cent of recorded GDP is attributable to the private sector.

Reform of the banking sector has played a vital role in the restructuring process. Initially, the government supported banks by taking measures to remove bad loans and recapitalise the banks, thus restoring confidence. As a result, by 1994, the banking sector was predominantly state owned. The next step was to sell off banks to private strategic investors (mainly foreign-owned banks) and at present 80 per cent of total bank assets are held by foreign majority-owned banks.

The result of these radical changes in ownership of the banking sector has been an increase in competition, which has narrowed spreads from 7 per cent to 4-5 per cent. In the earlier stages, competition was most fierce at the corporate end of the market, but as this became overbanked competitive forces increasingly came into play in the retail sector. As banks have entered the retail sector to seek out new business the result has been that more banks are attracting household deposits and consumers have more choice in terms of the services offered, such as credit cards and personal loans. Clearly, the foreign- owned banks are able to enter this market easily by using new banking technology. Although the banking market is one of the least developed in the post-communist region, it is changing rapidly and consumers will benefit in terms of competition between foreign-owned banks to provide new banking services, including ATMs and debit and credit cards.