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* Microsoft withdraws support for Windows XP on April 8
* U.S., UK major banks negotiate fees for extended support
* 95 percent of world's 2.2 million ATMs run on outdated XP
* One-third of ATMs have been upgraded to Windows 7
* Cost of upgrade for each UK bank around $100 million -sources
By Matt Scuffham and David Henry
LONDON/NEW YORK, March 14 (Reuters) - Banks around theworld, consumed with meeting more stringent capital regulations,will miss a deadline to upgrade outdated software for automatedteller machines (ATMs) and face additional costs to Microsoft to keep them secure.
The U.S. software company first warned that it was planningto end support for Windows XP in 2007, but only one-third of theworld's 2.2 million ATMs which use the system will have beenupgraded to a new platform, such as Windows 7 by the Aprildeadline, according to NCR, one of the biggest ATM makers.
To ensure the machines are protected against viruses andhackers many banks have agreed deals with Microsoft to continuesupporting their ATMs until they are upgraded, extra costs andnegotiations that were avoidable but are now likely to be adistraction for bank executives.
"There are certainly large enterprise customers who haven'tfinished their migrations yet and are purchasing customsupport," a spokesman for Microsoft said, declining to namethose customers or to quantify the extra revenue it is earning.
"The cost will depend on both the specific needs of thecustomer and what support they already have in place, so it'sdifferent for every customer."
Britain's five biggest banks - Lloyds Banking Group, Royal Bank of Scotland, HSBC, Barclays andSantander UK - either have, or are in the process ofnegotiating, extended support contracts with Microsoft.
The cost of extending support and upgrading to a newplatform for each of Britain's main banks would be in the regionof 50 to 60 million pounds ($100 million), according toLondon-based Sridhar Athreya, principle at financial technologyadvisers SunGard Consulting Services - an estimate corroboratedby a source at one of the banks.
Athreya said banks have left it late to upgrade systemsafter being overwhelmed by new regulatory demands in the wake ofthe 2007-08 financial crisis.
"They were probably not very serious about the directivethat came in from Microsoft. There's a lot of change going on atthese banks at this moment in time and they would have seenWindows XP as one more change," he said.
Windows XP currently supports around 95 percent of theworld's ATMs.
About 440,000 - or one-fifth of the world's ATMs - arelocated in the United States and many of the banks operatingthem will still be running their ATMs with Windows XP for awhile after the April 8 deadline, said Doug Johnson, vicepresident for risk management policy at the American BankersAssociation.
"One thing in our favour is that XP is battle-hardened,"Johnson said. "People will benefit from years of fine-tuning ofXP...It has been through wars."
STAND IN LINE
The queue of banks waiting to upgrade means there aren'tenough people to do the work.
"There is a little bit of a bottle-neck," said Johnson.
Some banks are using the upgrade as an opportunity tointroduce new features to their ATMs such as being able to readcards that have microchips rather than magnetic stripes.
Banks in the United States, where the old-fashioned swipeand sign magnetic stripe credit cards are still in use, have toupgrade their ATMs to read chip cards.
JPMorgan, which has 19,200 ATMs, will start converting itsmachines to Windows 7 in July, with a goal of finishing by theend of the year. With the change, JPMorgan expects to improvedata encryption and ensure machines take software upgrades moreefficiently and be offline for less time.
A spokeswoman for the bank declined to say how much JPMorganis paying Microsoft for the extended XP coverage.
Bank of America also said it would ask Microsoft to extendsupport for its machines still running on Windows XP.
Citigroup Inc, which has more than 12,000 ATMsworldwide, said it is in the process of upgrading its machinesfrom XP and declined to give further details.
In Britain, RBS, which has been hit by a succession of ITproblems, has agreed a fee with Microsoft in return for itcontinuing to support its 9,000 ATMs for up to three years, asource familiar with the arrangement told Reuters.
RBS will begin upgrading its ATMs to run on Windows 7 nextyear and expects to complete the process within three years, thesource said. The investment is part of the 1.4 billion poundseach year which new Chief Executive Ross McEwan has committed inorder to improve the bank's computer systems.
McEwan admitted in December that RBS had neglected itstechnology for decades.
Lloyds said it had agreed to pay Microsoft an undisclosedamount to extend support until 2016 while it upgrades its 7,000ATMs. The bank will start upgrading its ATMs later this year.
HSBC, which has 3,200 ATMs, said it was two years into athree-year programme of upgrades which it expects to completenext year. It had also reached a deal with Microsoft.
Barclays, which has 4,300 ATMs, said it was stillnegotiating with Microsoft while Santander UK, which has 2,370ATMs, said it had already agreed a deal.
