STRATEGIC PARTNERS
Banks have doubled their efforts to capture market identity, provide customer convenience, and profit from surcharges. by Ryan DuBosar, contributing editor
March 7, 2002
Although the playing field is already filled with myriad machines, banks continue to push the ATM deployment ceiling.
Banks have doubled their number of off-premise cash dispensers since 1995 in an effort to capture market identity, provide customer convenience, and profit from surcharges, according to the annual report published by Mentis Corp.'s "Banking Systems and Technology: ATMs and Self-Service Technology."
"Big banks are deploying ATMs to compete with one another," said Martin Molloy, a research analyst with Mentis. "If a bank doesn't have enough ATMs and customers are getting hit with fees when they draw cash at a relatively convenient location, customers will migrate to a bank with a better ATM network where they can do more free banking."
Mentis, a North Carolina consulting firm for the financial services industry, analyzed 80 large banks (each with more than $4 billion in deposits) and a total of 646 financial institutions. Mentis has conducted its survey for more than a decade.
No credit unions or non-financial institutions were surveyed.
Surcharging, customer satisfaction and branding have driven banks to double the number of cash dispensers since 1995.
According to the report, the number of installed ATMs owned by banks increased to 125,000 last year, up from 105,000 in 1996.
"For banks, there's a massive off-premise deployment of ATMs," Mr. Molloy said. "It spreads their brand name around, but more importantly it gives them more points of contact for their customers and it gives their customers a heightened sense of convenience."
Survey says
According to research manager Kristen Min, the new deployments have split roughly but not exclusively along the lines of full-service machines installed in on premise locations and cash dispensers being installed at off-site locations.
Convenience stores are still the most popular location for off-site deployment (nearly 60% of all c-stores offer ATMs), followed by supermarkets, malls and retail stores. "Convenience stores did a huge increase, which has been going on for the past two years," Ms. Min said.
Banks see transaction volumes dropping in the near future and many plan to offer extra services like statement printing, stamp and pre-paid phone card dispensing, check cashing and check imaging.
Not all banks put out ATMs for the same reason, however. Some smaller institutions use ATMs as alternative delivery channels and customer service tools rather than as full-service product dispensers. These banks don't view their ATMs as revenue generators; any transaction revenue usually covers operational expenses.
Other institutions rely on their ATMs as cost cutters, shifting their focus from the profit motive to lowering operating costs. They usually offer a higher number of branch ATMs and very few off-premise machines. The goal: encourage customers to conduct electronic transactions rather than teller-based ones. This reasoning launched the banking industry into ATMs in the early 70s, but proved erroneous as customers only increased transactions in both areas.
Medium size banks seeking to appear larger traditionally deploy large numbers of off-premise ATMs while adopting a more conservative approach to brick-and mortar branches. Their simultaneous quest for new customers and revenue usually results in aggressive noncustomer surcharging.
Large banks with an eye on quick growth--like Bank One with its recently reigned-in Rapid Cash network--spare no cost in both physical branches and off-premise ATM deployment. In return they reap a profitable new-customer harvest as well as significant surcharge revenue.
Surcharging
While new technology, dial-up lines and less costly units have lowered break-even points for off-premise ATMs, surcharging as an end continues to drive deployment in retail locations or other environments where cash-hungry consumers abound.
According to Mentis, the installed base of cash dispensers more than doubled since 1995, when 18,000 machines served customers. By last year this number topped 37,000, representing 30% of the total installed base.
ATM manufacturers continue to roll out more lower-cost units, Mr. Molloy said. Cash dispensers connected to dial-up lines or dedicated satellite communications can slash the operating costs associated with a particular location.
Fewer transactions are needed to make the machines more profitable. "Banks are doing more than developing a brand identity. They are keeping their customers happy," Mr. Molloy said. "If they can keep their customers happy and make them more aware of the brand, so much the better."
Small banks, self defense
Banks of less than $1 billion in assets generally have not profited greatly from surcharging because they've been busy playing catch-up with the far-reaching networks installed by large banks.
"Before surcharging, small banks were able to offer free ATM access to their customers through ATM networks," Mr. Molloy said. "When surcharging came around, every time their customers went to another bank's ATM they got hit with a surcharge."
Deploying ATMs allows small banks to retain customers, improve service and reduce customer migration to larger competitors. It is also a cheaper way to expand brand presence.
Once again, this leaves smaller banks in a catch-up role of deploying ATMs to keep their customers happy.
The saturation point
ATMs owned by large banks were 60% of all bank-owned ATMs last year, compared to 64% in 1996. While this could signal a saturation point, there are too many countering factors to make any prediction of where the point exists and when it will occur.
"The saturation point is still up in the air," Mr. Molloy said. "Five years ago people said we're going to reach that point soon. There won't be any place to put ATMs."
Instead, larger banks leveled off the number of machines they bought. At the same time, the number of branches are growing insetad of shrinking in the massive merger crunch in recent years. When a large bank opens a branch, they want an ATM there.
Mr. Molloy said, "There are a lot of factors that will come into play before the saturation point hits and right now there's no good way to judge when that will hit, if it will."
Related story -- ISOs and banks: Sometimes competitors, sometimes partners
> Sources:
Martin Molloy and Kristen Min can be reached at Mentis Corp., phone (919) 384 1500, ext. 213, fax (919) 384-1501, e-mail inquiry@mentis.com, URL: www.mentis.com.
