The Bitcoin ATM industry is unlikely to last in its current form, according to Devon Watson, VP of global software and strategy at ATM and financial services giant Diebold.
In a new interview, Watson discussed what he suggested was the uncertain future for the bitcoin ATM market, which since late 2013 has manufactured speciality machines for the conversion of physical fiat funds into digital currency. Today, more than 400 bitcoin ATMs are in operation globally, with the number of units doubling in the last year, according to CoinDesk’s Q3 State of Bitcoin report.
Watson, however, believes that bitcoin ATMs have so far relied on a "flawed distribution model", one that while offering benefits to a small market of consumers, is unlikely to develop into a competitive business when compared to more versatile, traditional offerings such as those offered by Diebold.
"[Bitcoin ATMs] provide only one benefit to the customer, whereas the majority of ATMs have a number of different possible transactions and meet a number of needs," Watson told CoinDesk at Money20/20 in Las Vegas last week, adding:
Watson, who heads strategy and R&D for the $3bn company, went on to say that he believes the business experiment was successful at demonstrating that physical kiosk offerings are still a necessary part of increasingly digital financial services.
Watson said that Diebold has studied how it could use the blockchain for “transactional purposes”, including offering digital currency withdrawals and transfers.
Still, he called investigating such capabilities an "area of interest" for the company, though one that would be determined by the needs of its customers.
“We’re at the stage where banks aren’t adopting [bitcoin] for those use cases, but you have reasonable line of sight to see these things coming together,” he continued.
Should the need arise, however, Watson called implementing the technology "the easy part" for the firm. He was less clear about any internal testing that has gone on at Diebold, but stated that the company had not yet released “any consumer-facing product” using bitcoin or the the blockchain.
“For us it’s about when it might make sense and how,” he said.
Like many at the Money20/20 conference, Watson was quick to indicate that Diebold was now more interested in blockchain technology, specifically permissioned blockchains or distributed ledgers where a select number of financial institutions or entities share a transaction network.
Watson suggests he sees such applications as holding the potential to help curb issues surrounding data privacy laws and data security related to payments.
“There’s a lot of interesting opportunity for permissioned systems in general, but there are other technologies, such as coding languages. We think that is interesting to pull into the banking sector,” he continued.
Watson said he believes that the blockchain could fuel use cases related to upgrading legacy financial infrastructures, though he cautioned that advancements on such problems were perhaps unlikely to be easily gained.
“It’s still early, the tech is nascent and these are big complex projects where [those involved] will be risk averse,” he said.
Watson said he has been impressed by the new applications for blockchain-based assets, noting that he was “most excited” when introduced to how property titles could be transferred via these systems during a visit to MIT.
Despite the short-term roadblocks to the technology’s proliferation, Watson said he is more broadly optimistic that new solutions will create alternatives to physical cash.
Such a transition has been top of mind for some time for Diebold, which in July 2013, introduced its cardless Mobile Cash Access solution, which allows consumers to transact with a mobile device at the ATM.
“There’s around $5tn in cash circulating the world, and that cash circulation is inaccessible to payments companies,” Watson said.
Watson predicts such a transition is likely to happen first in the developed world, as he believes these markets have a "better appetite" for new financial tools, citing developments in nations such as Kenya and India, which had to adapt to local challenges.
Diebold’s latest annual report indicates it sees a “significant percentage of revenue” from operations outside the US, earning more than 50% of its revenue in 2013 and 2014 from initiatives in international markets.
“I think it will be highly dependant on region and highly dependant on the customer base that that the financial institution is targeting, financial infrastructure benefits from tapping into bitcoin and the regulatory environment being open to it,” he explained.
Mass consumer mindset
When asked about the possible paths forward for startups in the bitcoin ATM market, Watson cautioned that despite his pessimism about industry prospects, "the jury is still out" in regards to their long-term success.
Watson said that while no companies serving the bitcoin ATM space had "failed completely", neither had any achieved "resounding success".
As for how he would advise those serving the market going forward, he was general in his remarks, encouraging product managers and company founders to consider everyday consumers when building products.
"It's really difficult as a founder or whoever has the idea to take a concept and really use a lot of empathy to apply the mass consumer’s mindset to what you’re trying to build," he said.
However, he acknowledged the difficulty that comes with attempting to think big given the long expected curve of digital currency adoption, concluding:
Images by Pete Rizzo for CoinDesk
The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.