Article

A conversation with Bipin Shah

Drop the ATM surcharge? Yes, says Bipin Shah. The Genpass CEO says financial institutions should consider offering an account that would encompass all products and services for a flat monthly fee.

September 26, 2004

During a recent trip to Dallas, ATMmarketplace.com editor Ann All had an opportunity to sit down for a discussion with Bipin Shah, the CEO ofGenpass.

Shah, one of the founders of the MAC network, has a well-deserved reputation as an industry visionary and a provocative thinker. During his tenure at MAC, he helped create and develop the market for point-of-sale debit transactions at gas stations and supermarkets in the late 1980s.

Here are some highlights from their discussion:

Shah said he is "not a big believer in the surcharge." It makes little sense for financial institutions, many of which charge no fees for visits to the teller line and minimal if any fees for check usage, to levy a fee for foreign ATM visits -- especially since they receive interchange from card issuers for such visits.

Bipin Shah

Instead of punishing the ATM user or making him drive several blocks out of his way to seek out an ATM owned by his bank, Shah said, financial institutions should consider offering an account that would encompass all products and services -- including ATM usage -- for a flat monthly fee.

"Let's say a financial institution has 5 million checking accounts. Like most financial institutions, most of their ATM transactions are on-us," Shah said. (Indeed, most FIs I have interviewed over the years say 60 percent to 80 percent of their transactions fall into this category.) "So they are making maybe $3 million to $4 million in ATM fees a month. If they charged a flat $2 a month, they'd make $10 million a month. They'd come out ahead financially."

Shah's relative disdain of the surcharge led him to establish MoneyPass, a national surcharge-free network managed by Genpass. Since its debut last November, MoneyPass has signed FIs with a total of 4 million cardholders. Shah said a "very major bank" with some 2 million cardholders is poised to join the network.

According to Shah, the issuers hold all the cards -- both literally and figuratively. Like others in the industry, he sees "enormous potential" in stored value cards such as Genpass' PayCard, which is used for dispensing funds from paychecks. Shah uses the split deposit option on several of the cards himself, for monthly disbursements to his 15-year-old daughter and to send money to his brother in Bombay.

Stored value cards are the "most exciting development of the past decade," Shah said. "So many different kinds of payments can be made with these kinds of cards."

Genpass developed the Flex Convenience card for insurer MBIA Inc., for the distribution of medical benefits. Employees with flexible spending accounts deposit tax-free dollars on the cards and use them to pay doctor's bills and other expenses. Clients include Citibank, which has provided some 45,000 of the cards to employees since last October.

Because some 40 million people in the United States have flexible spending accounts, the two million Flex Convenience cards now in circulation are "just scratching the surface," Shah said. "Two years ago, we had 300,000 transactions a month on this card. Now we've got two million a month, and next year we think we'll have four million."

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Eventually, Shah said, all payment accounts will be consolidated on a single card. "Why should someone with $12,000 in his checking account be charged interest on a $3,000 card balance? Sooner or later, someone will figure it out and put everything on a single card."

Shah foresees more consolidation in the transaction processing arena. The cost of processing has dropped to just pennies per transaction, he said, and the major remaining players including Genpass "can absorb twice the volume without any added cost."

Genpass has been in the hunt on several recent notable deals and is eying another possibility or two, Shah said.

Few ATM owners will continue to drive their ATMs in-house, Shah predicted. "(Processing) is a commodity business. They cannot produce the economies of scale I can. It will be just like credit card processing. At one time, almost everybody did their own, but not you've got just three or four guys doing it. There is not that much difference in ATM product sets."

Shah believes ATM transaction volumes will remain flat for the foreseeable future and will not experience much growth from value-added transactions such as prepaid phone top-ups. Although Genpass currently offers Western Union money transfers on about 600 ATMs and phone top-ups on about 100 machines, Shah said there has been little consumer demand for the services.

"ATMs are always going to be there, but we're never going to go back to the growth we saw in the '80s," he said. "We'll probably never find a product or service other than cash that's going to cause someone to visit the ATM three to five times a month."