Bitcoin ATMs have many flaws

  Devon Watson, vice president of global software and strategy at ATM and financial services giant Diebold, believes that the Bitcoin ATM industry cannot survive in its current form for long.

     In a recent interview, Watson discussed the uncertain future of the Bitcoin ATM market, which began manufacturing self-service machines that convert physical fiat funds into digital currency in late 2013. Today, there are more than 400 Bitcoin ATMs in operation around the world, a number that doubled in the past year alone, according to Coindesk’s third quarter Bitcoin report.

     However, Watson believes that bitcoin ATMs have so far relied on a “flawed distribution model” that only benefits a small segment of the consumer market and cannot develop into a competitive business model compared to the more diverse and traditional services provided by Diebold.

“Bitcoin ATMs are a convenience for consumers, but most other ATMs offer a variety of different transaction methods to meet a variety of needs,” Watson told CoinDesk at the Money20/20 conference in Las Vegas last week. “I think it’s more appropriate to say that the one-trick pony is going to struggle.”

     Watson, who leads strategy and R&D at the $3 billion company, added that he believes the commercial trial has only succeeded in demonstrating that physical self-service remains an integral part of the growing digital financial services landscape.

     Watson said Diebold has studied how bitcoin ATMs can use blockchain technology for “transactional purposes,” including providing digital currency withdrawals and remittances.

     He continued: “We’re at a stage where banks are not adopting Bitcoin for those use cases, but you can clearly see these things developing.”

     Watson said that if those demands grow, it would be a “very easy step” for the company to implement the technology. Watson did not provide a clear answer as to what internal testing Diebold has conducted, saying only that the company has not yet released “any consumer-facing products” that utilize bitcoin or blockchain technology.

     "What's important to us is when and how this technology might work," he said.

  Blockchain Interest

     Like many of the Money20/20 panelists, Watson said Diebold is increasingly interested in blockchain technology, particularly permissioned blockchains or ledgers that allow a number of financial institutions or legal entities to share a transaction network.

     Watson believes these applications can help address difficulties with data privacy laws and data security related to payments.

     He continued: “There are a lot of interesting opportunities in permission systems as a whole, but there are a lot of other technologies like coding languages. We think it’s very interesting to apply those technologies to banking.”

    Watson said he believes blockchain technology will find new use cases for upgrading legacy financial infrastructure, but he also warned that making real progress on these issues may not be easy.

    It’s still early days, blockchain technology is new, but these are large and complex projects, and those involved will seek to avoid risk.”

     Watson said he was impressed by the new applications being developed for blockchain-based assets and was “thrilled” during a visit to MIT when he was told how property ownership could be transferred through these systems.

Digital Currency

    Watson said that despite short-term roadblocks to the spread of blockchain technology, he is optimistic that new solutions will create new alternatives to physical currencies.

     Such a transition is something Diebold has been thinking about for some time. In July 2013, they also launched a cardless mobile cash access solution that allows consumers to use mobile devices to conduct transactions near ATMs.

     “There’s about $5 trillion in cash in circulation around the world, and payments companies don’t have access to that,” Watson said . Watson envisions a transition that will likely happen first in developed countries, as he believes those markets have a “greater appetite” for new financial instruments, while countries like Kenya and India will need to adapt to many local challenges.

    Diebold's latest annual report mentioned that the company's operations outside the United States have achieved gratifying turnover. In 2013 and 2014, the company's investment in international markets generated more than 50% of the company's total revenue.

     “I think it will be highly dependent on geography and the target consumer group of the financial institution, and the financial institution will benefit from the development of Bitcoin and the regulatory environment that is open to Bitcoin,” he explained.

Demands of mass consumers

     When asked about the opportunities for startups in the bitcoin ATM market, Watson said that while he is not optimistic about the industry’s prospects, “the verdict is still out” on their long-term success.

     Watson said that while companies involved in the bitcoin ATM space haven’t “completely failed,” they haven’t achieved any “substantial success” either.

     When asked what advice he had for companies in the Bitcoin ATM market, his answer was very general, but encouraged product managers and company founders to consider the everyday needs of consumers when developing their products.

    “It’s very difficult for company founders, or anyone with the brains to bring a concept to life, to really put themselves in the shoes of the general public and incorporate the needs of their products into their designs,” he said.

    However, he also pointed out that this difficulty also comes from the ambition of startups, which is their long-term expectation of the development of the digital currency application curve. Finally, he said: "This process will take some time."