Coming soon to ATMs: Cash for rewards points!

Pedestrians walk in front of Wells Fargo headquarters in San Francisco, California.
David Paul Morris | Bloomberg | Getty Images
Pedestrians walk in front of Wells Fargo headquarters in San Francisco, California.

When Wells Fargo customers open up their profile at one of the bank's automated teller machines this week, they'll find a new option.

The bank has introduced a feature allowing customers to access reward points at the company's 12,500 ATMs, converting them into cash in hand. The machines will spit out $20 for each 2,000 points customers want to cash in, in an attempt to provide tangible benefits for loyalty.

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Alicia Moore, head of Wells Fargo ATM Banking, said the feature had been in the works for about five years while other updates (envelope-less check deposits, for example) took priority.

Banks like Wells Fargo have been carefully tweaking the retail banking experience to make them smarter and keep account holders happy. Where ATMs are concerned, Moore says the bank must make at least one change to the interface each year "just to keep activity on par."

"Activity" at ATMs is tough to measure, as about half of the more than 400,000 machines in the U.S. are owned by financial institutions, with the other half owned by independent operators. And while the basic purpose of ATMs is to withdraw cash, they've also increasingly become places where customers make deposits, transfer funds between accounts or pay bills. Mike Moebs of consulting firm Moebs Services calculates that ATM usage is declining about 2 percent each year.

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The volume of cash dispensed from ATMs has remained largely unchanged over the years, said Brian Bailey, vice president of strategy and branch transformation at NCR Corporation. "Consumers still use cash on a regular basis," he said.

The Federal Reserve Bank of Boston found that consumers' desire to use cash isn't necessarily going away; it's still the preferred mode of payment for transactions under $20.

That's why one of the most prominent changes to ATMs in the last few years has been the introduction of lower-denomination bills like ones, fives and tens. Chase Bank and PNC in 2013 rolled out technology to let ATM customers choose their own denominations; TD Bank is introducing similar technology in a sampling of stores in Canada and a prototype branch in Maryland.

More than 150 banks have debuted "video teller" technology, according to NCR, with Bank of America using it prominently since 2013. JPMorgan Chase is experimenting with iris and palm scanners to identify customers at ATMs. As William Sheley, head of ATM and branch innovation at Chase, told the New York Times last April: "You basically have to future-proof everything."

The future won't see cash disappear, but the Boston Fed study did find that higher-ticket transactions were more likely to be paid using a card or other technology. And new capabilities exist to electronically carry out payments that were traditionally always in cash (paying a babysitter or tipping a bellhop, for instance).

That's part of the reason banks are racing to equip ATMs with more tools, in fear of the day when digital and mobile banking takes away the need for the ATM (and potentially denting the millions in fees banks get from customers using out-of-network ATMs).

It might be slow and steady change, but it's important for bank revenues that ATMs—now nearing 50 years in use—don't start to look their age.