Article
Conference call
It was no day at the beach -- but for those in the ATM industry, a trip to the ATM Industry Association's Conference 2000 in Orlando, Fla., was the next best thing. Here are some highlights from the keynote address, given by Triton Systems Chairman and CEO Ernest Burdette.by Ann All, editor
March 20, 2002
No overview of the off-premise ATM industry would be complete without a mention of the surcharge.
Ernest Burdette, chairman and CEO of Triton Systems, in his keynote address at last week's ATM Industry Association Conference 2000 in Orlando, Fla., noted that several states, including Nevada, passed legislation to authorize surcharging even before national ATM networks Cirrus and Plus changed their rules to allow it in April of 1996.
It's ironic, Burdette said, that while states first enabled the rise of surcharging, "now they seem to want to roll back the clock" with legislative efforts to eliminate it.
Another irony mentioned by Burdette: Although banks were initially slow to adopt the surcharge, they have "ended up taking the most heat" over the issue. Most anti-surcharge proposals, including those recently enacted in San Francisco and Santa Monica, apply only to bank-owned ATMs.
"Politics are hard to predict" was Burdette's tactful response to an audience member's question as to whether any of the current legislative efforts to ban surcharging will be successful. But, he added, "I do think there is a lot of latent opposition in Congress to this kind of legislation."
Burdette said he believes there is a "huge mismatch" in the perceptions of consumers and politicians. Perhaps the industry can work to help bring the two sides closer, he added.
No free lunch
He maintained that both the public and politicians need to be educated about the costs of deploying and maintaining ATMs.
"Widespread access to ATMs cannot come for free," he said.
Burdette noted some of the costs commonly associated with ATM deployment: purchase or lease of the machine; cash replenishment and other service; repair; communication lines, and transaction processing fees. "Even the money that operators put into the machine costs something in terms of interest, risk and opportunity loss," he said.
The proliferation of ATMs in safe and convenient locations that resulted following widespread adoption of the surcharge in 1996 is a classic example of the free market at work. And Burdette believes it can continue to work.
"ATMs constitute a large and diverse market," he said, with banks and ISOs competing to deploy machines in a variety of locations.
"The marketplace can and will control ATM surcharge pricing, as it does pricing for most other commodities," Burdette said. "Government intervention in the process is unlikely to improve the natural workings of the free market."
Banning the surcharge would lead to banks spreading costs among their customers and retailers raising prices on their products, he opined. "Either strategy will result in consumers paying for ATMs which they as individuals may never use."
Consumers have choices, Burdette pointed out, including using ATMs owned by their bank and using debit cards to get cash back at the point-of-sale. Some financial institutions have banded together to form surcharge-free alliances. Web surfers can use search engines to find directories of surcharge-free ATMs.
"The same convenience fees which contribute to the expanding availability of ATMs also encourage the competition that limits fees. Consumers will vote, with their own dollars, on whether they want to enjoy the convenience of widespread ATM deployment and the very real improvement in personal safety that goes along with ATM banking in the retail environment," Burdette said.
Beyond the surcharge
Looking beyond the bread-and-butter revenue generated by the surcharge, Burdette predicted new opportunities will arise in the off-premise ATM market. One opportunity to watch: advertising.
Burdette stressed the ATM's interactivity, customer self-identification and links to customer databases as advantages in the advertising arena.
Noting the "tremendous potential" of advertising, he added, "I think our greatest success will come when we learn how to use the interactive and self-selective attributes of our medium for delivering target market messages to individual users."
Commenting on the use of ATMs to dispense items other than cash, Burdette mentioned a program managed by XtraCash ATM for McDonald's restaurants in southern California. When XtraCash offered discount coupons to McDonald's customers through the ATM, the San Diego-based ISO tallied a redemption rate of about 16 percent, nearly eight times the typical rate of coupon redemption. ATM transaction rates also increased.
The XtraCash program is "a good example of how to integrate the ATM into a company's basic retailing mission," Burdette said. "The idea of a McDonald's is to sell food. These people figured out a way to use ATMs to sell more food."
Another type of opportunity, Burdette said, involves making the ATM, in effect, "a non-bank bank." He mentioned several examples, in the U.S. and in other countries, in which employers use ATMs to distribute pay to their employees.
World view
He called such payroll applications a good example of the kinds of opportunities that exist outside the U.S. In countries like Mexico and Costa Rica, he said, "they're using ATM technology that no American operator has implemented in places like Silicon Valley."
The key to success for deployers entering the international market is "exporting our basic off-premise business model but adapting it to each individual market," he said.
While surcharging is not yet allowed in most foreign countries -- with Canada a notable exception -- Burdette said higher interchange rates, combined with rules that generally give a larger chunk to ATM owners, make deployment profitable nonetheless.
"I don't think (the surcharge) is critical to opening up new markets internationally. With higher transaction rates, the interchange can make it profitable," he said.
Whether in the U.S. or abroad, the off-premise strategy turns the ATM business into "a whole new ball game," Burdette opined, one that is "as closely related to retail merchandising as to traditional banking." And while the ATM industry needs to take its cues from retailers, the industry can also help influence the marketplace.
What about the analysts who characterize the ATM market as mature? "I think these people don't understand the off-premise world at all," Burdette said.
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