ATM outsourcing is a relatively new phenomenon in the United States. Historically, financial institutions (FIs) owned, operated and managed their own networks. But that's not the case anymore. Practicality has led many small- to medium-sized FIs to outsource service, maintenance and operation of off-premise ATMs to third-parties.
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The revenue drop, most experts agree, is because the number of ATMs in the marketplace increased from 2001 to 2003. However, experts disagree on what the future holds. Outsourcing may help FIs extend their reach into the off-premise market, where they can generate more revenue, but will the drawbacks outweigh the benefits?
On the sidelines
That's one question that has kept many FIs waiting on the sidelines, said Matthew Burns, vice president of electronic banking for Cleveland-based National City Corp.
"We put an exceptionally high premium on service and availability, that's why we don't outsource. Today, we've felt the best way to provide top-of-the-line service for our customers was to deliver it ourselves."
Burns said National City's perspective is typical. Whether that perspective is a good one is debatable, he added.
"The key point is that when you outsource, you outsource your credibility and your customers' good will. And that's something we want to tread on lightly," Burns said. "As an industry, we've probably been leaning too hard toward thinking the only way to do it is to do it ourselves."
He continued, "I do think (outsourcing) will be a viable and credible option for banks to look at in the next couple of months."
Shelly Chandler, vice president of self-service banking for Pittsburgh-based PNC Bank, said FIs are reluctant to let go of their networks. That's why PNC's decision to ink a retail branding deal with Cardtronics earlier this year was something new for the $80 billion bank.
"This is the first (arrangement) of its type," Chandler said. "It's unique for us to brand a machine that we don't own and operate. It's hard to give up something you're used to controlling."
Under the agreement, Cardtronics branded approximately 170 ATMs for PNC in Walgreens stores in Ohio, Kentucky, Indiana, New Jersey and Pennsylvania. The ATMs look and operate like PNC branch ATMs, including offering PNC's option of seven languages.
"I would say this type of program is very beneficial in areas where you need a presence, but you don't want to spend the money to build the business there," Chandler said. "I think it's best to say it's a solution that works in certain markets."
Westley Horton, vice president of marketing and financial services for Houston-based Cardtronics LP, agreed. "These retailers are building in areas that are typical bank-branch real estate. So the banks say, 'If we can't have our own branch there, we can at least get a presence there.'"
