One word clearly defines what is happening to the banking sector in the last half of 2008: consolidation. As the credit crisis intensifies and recession seems all but unavoidable, banks and credit unions that were once thought of as bedrock institutions have folded under the weight of bad debt.
In the past month, several of the United States' top 10 banks have been absorbed by competing institutions. Washington Mutual was bought out by JPMorgan Chase. Wells Fargo & Co. assimilated Wachovia. The most recent casualty came on Friday, when National City Bank announced it had been taken over by PNC Bank. As those banking giants combine, so do their ATM networks.
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Kate Monahan, an analyst with Boston-based Aite Group, is tasked with keeping up with the shifts in ATM ownership and gauging which entity has the upper ATM hand.
For the time being, Monahan says Bank of America still maintains the largest ATM network, with 18,584 machines, according to B of A's September earnings release. But she says the recent acquisitions have upped the ante. With the purchase of WaMu, Monahan calculates that JPMorgan Chase increased its network from 9,000 ATMs to 14,000 ATMs — an increase that included both on- and off-premise machines.
Wells Fargo's fleet of 6,950 ATMs rose to 12,227 earlier this month, after a brief face-off with Citigroup Inc. for the right to buy Wachovia. The Federal Trade Commission eventually approved the Wells Fargo deal and Citigroup dropped the offer, but not before filing a lawsuit against Wells Fargo and Wachovia for allegedly violating an agreement it had signed with Wachovia.
The acquisition of National City increased PNC's ATM network from 3,900 ATMs to just more than 6,000 machines, Monahan says.
Growing pains
But there's more to an acquisition than just combining the ATM fleets. Monahan is quick to point out that several ATMs will either have to be relocated or dropped all together.
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Banks that already have a large off-premises ATM footprint could eliminate some of the off-premises locations they've acquired from other banks, says Edward Woods, a senior analyst for Boston-based Celent.
"Just like you wouldn't see two Wells branches next door to each other, you shouldn't see two Wells ATMs next door to each other, unless it is by design," he said.
For the consumer, the mergers can be a double-edged sword.
"Any of these banks that are being combined will essentially have access to a much larger number of ATMs across the country, so from a consumer's standpoint, I think it is going to be a benefit, initially," Monahan said.
On the other hand, Woods says the mortgage crisis and credit crunch that precipitated the mergers are hitting banks hard, causing them to consider upping — or in some cases, reinstating — ATM surcharges.
"You can't expect things for free," he said. "I think it's the right thing for the bank to do — to charge — because it's costing them money. It's not like it's predatory."
Diversification
As budgets tighten, analysts say cash is almost certain to make a comeback. At the same time, Woods says stingy credit markets will cause consumers to shift from credit to debit.
"There's a segment of consumers that are going to be using their debit cards more as a bridle — a cash management bridle, if you will, to help curb their own spending and potentially control it," Woods said. "Card spending should increase a bit while people are … changing lifestyles tied to what may become a recession. But in time, that spending will go down as overall consumer spending goes down."
In order to prevent becoming the "biggest loser," Woods says major credit card companies like Visa and MasterCard are delving into other markets that are likely to see an uptick during a recession, such as the prepaid market.
He says some ATM servicing companies and manufacturers have restructured to begin offering more diversified, turnkey solutions, and that these companies might be better suited to survive a possible recession. For example, a company that provides transaction processing might expand its service offerings to include ATM maintenance, cash management or ATM advertising.
Even financial institutions are jumping on the diversification bandwagon, offering more services at the ATM, though Woods admits, they're not about to plunge into uncharted territory anytime soon.
"Right now, it's easier to work on initiatives that will help me drive down cost than initiatives that will add value," Woods said. "For example, adding the capability to do a bill payment from an ATM — it adds value for the customer, but it's not necessarily going to bring a significant amount of uptake."
On the other hand, traditional banking transactions like automated deposit and check cashing have promise — even in a recession.
"Those kinds of things — over buying stamps at the ATM — will be easier to make the case for in these times," Woods said.
