STRATEGIC PARTNERS
There's bound to be big changes ahead in the U.K., where non-bank deployers are entering the ATM market and bringing the surcharge with them. by Ann All, editor
March 11, 2002
Independent, third-party deployers could make life a lot more interesting for British banks, much as they did for their American counterparts a few years ago. At least two independents, Euronet and Moneybox, have plans to deploy a combined total of 1,200 ATMs within a year's time.
LINK, the U.K.'s national shared ATM network, recently changed its rules to allow third-party deployers to enter the market, provided they are sponsored by a member financial institution. Both Euronet and Moneybox are sponsored by Woolwich plc, a mid-sized building society-turned-bank.
Established last July, Euronet's U.K. subsidiary had its first ATM up and running by December. According to Managing Director Harry Smart, it was "one of the fastest implementations ever seen in the U.K."
Euronet used mostly freestanding, in-store ATMs, which are still somewhat of a rarity in the U.K. Cash replenishment for such machines is more of an issue, since British security guards generally don't carry weapons. Retailers prefer them, however, since they bring customers into their stores.
Smart thinks the off-site market is about to get a lot more competitive. "We were the first independent live and we're still the only independent live, but our nearest competitor is chasing at our heels," he said.
The company plans to deploy at least 200 ATMs by October, but its plans don't end there. "We'll be happy when we pass 1,000," Smart said.
Moneybox is even more ambitious, with a target of 1,000 ATMs in the next 12 months. Many of those machines will be located at convenience stores. That market is "massively underserved," said Managing Director Paul Stanley. "In the U.K. we've probably got 15,000 c-stores, and you'd be lucky if you could find 250 that have an ATM."
Like Smart, Stanley expects competition among off-site deployers to intensify. Noting that "outsiders" have expressed interest in the U.K. market, he said, "Doing business in Europe is a peculiar thing, and it takes time to get used to the customs here."
Like Moneybox, Euronet is initially focusing on c-stores and other retailers. Smart said most retailers in the U.K. have closely followed the U.S. ATM market and are interested in duplicating its growth curve. "People are starting to beat a path to our door. The emergence of independents like us has crystallized the market."
Location, location
Dave Smith, a spokesman for Co-operative Bank, isn't fazed by the prospect of non bank competition. The bank just announced plans to deploy 350 machines in Co operative Retail Society stores over the next two years, doubling its current network. While those numbers sound conservative by Yankee standards, Smith said the bank doesn't see it that way. While there are more than 4,000 Retail Society c-stores, the bank wants to deploy in only the best locations.
"We're targeting stores which we identify as being in cash machine 'deserts.' We want to maximize those 350 locations," Smith said. "That's not necessarily the end of it. We'll see how these go."
Smith noted that British bank ATMs tend to be clustered together, even in off-site locations. But competition for prime locations will likely heat up now that all of the major banks have joined LINK.
"It's not much point having a cash machine next to another one that everyone can use," Smith said. "You might as well try and put them into areas where there isn't a cash machine for two or three miles. If you can spot those, you're probably going to do very well."
To fee or not to fee
Smith said Co-operative plans to "shun all charges" based on results of a recent six month pilot in northwest England. The bank placed ATMs at 16 retail sites, of similar size and location. While all stores showed an increase in foot traffic and sales, two sites where ATM users were charged a 50-pence fee did not perform as well.
"There's a reluctance in this country, I think, to pay for a service which up until now has been free," Smith said.
Smart disagreed with Smith's assessment of the surcharge. "People are prepared to pay for convenience for a whole range of things. There's no reason why this should be different," he said. "We can place an ATM where there wasn't one before and the nearest ATM is more than a certain distance away, and quite a number of people are happy to use it."
Euronet owns nearly 1,400 ATMs across Europe, with most on the Eastern half of the continent. A majority of the machines are part of its proprietary network; more than 1,000 are driven from its processing center in Budapest.
The U.K. is the only market where Euronet collects a surcharge. Like their American counterparts, Euronet finds that levying a 1-pound fee makes it possible to deploy ATMs at sites where it wouldn't have been economically feasible before.
When a BBC correspondent interviewed customers at Euronet's first installed ATM, he found they didn't object to paying a 1-pound surcharge; a bus ticket to the nearest alternative would cost an additional 40 pence.
As more independents enter the market, Smart predicts that banks will take a closer look at their own off-premise ATM programs, including policies on surcharging. "There's sort of an inevitability about it," he said. "I don't think any bank will be able to stick it out just on principle."
Moneybox, a subsidiary of a publishing and marketing company called Ambient Media, is trying to put a positive spin on surcharging by dispensing coupons at the ATM. "We offer the consumer an immediately redeemable coupon that more than offsets the pound convenience fee," Stanley said.
Following the lead of some American ISOs, Stanley said Moneybox is looking for additional "opportunities to use the ATM in more innovative ways," whether it's on-screen advertising or prepaid mobile phone vouchers.
Come together
While Euronet, Moneybox and other independents are beginning to make inroads into the U.K., Smart said the market "was and still is dominated by banks who predominantly run their own ATMs."
Noting that Euronet manages some 200 terminals for bank clients in Hungary and Poland, Smart said he has been trying to persuade British banks of the merits of outsourcing. "You look at bank operations, and they're outsourcing more and more of their technology services, their communications networks... There's no reason why it shouldn't happen to ATMs."
One high-profile outsourcer is Co-operative Bank, which negotiated the U.K.'s first ever ATM management contract with IBM Global Services in 1994. The bank recently renewed the contract for another seven years. The deal, worth $160 million, includes the 350 new machines. Thanks to IBM, Smith said the bank "enjoys the highest cash point availability in the industry."
Stanley, who has worked for LINK, Midland Bank and NCR, believes there is room for both banks and independents in the U.K.
"Our place in the market is very different, and we'll reach customers in a different way," he said. "I don't really think we're competitors. We're probably complementary in some ways."
