Article
Northern exposure
One of the first retailers to embrace ATMs, 7-Eleven now has the largest retail network in the U.S., with nearly 5,000 machines. A partnership with Canadian Imperial Bank of Commerce makes them an early off-site power in Canada as well. by Kevin Gibson, contributing writer
March 7, 2002
It was the late 1970s when ATMs first began appearing in 7-Eleven stores in Texas. By the early '80s, ATMs had expanded to 7-Elevens in California. It was only the beginning, and it mirrored the overall ATM boom in the United States.
Now there are nearly 200,000 ATMs in the U.S. Some 4,800 are in 7-Eleven stores, making it the largest ATM network of any retail outlet.
"I think ATMs are very important to our customer base," said Dana Manley, marketing and communications manager for 7-Eleven. "We are open 24 hours a day, so it's definitely a service that fits the whole convenience need."
Could history be repeating itself in Canada?
ATMs have been in use there since the 1970s, but surcharges were banned and banking institutions dominated the industry until recently. In November 1996, Canada's Interac Association, the national EFT network, began allowing independent ATM owners to join. Then in 1997, the network lifted its surcharge ban on ATMs, which are known in that country as automatic bank machines (ABMs).
The ABM market suddenly was wide open in Canada. Not coincidentally,
convenience stores were among the most sought-after locations for both bank and independent, or "white label," ABMs.
Meanwhile, 7-Eleven stores reached an agreement with Canadian Imperial Bank of Commerce (CIBC) to place their machines in some 455 7-Elevens. It was the first such partnership of a major financial institution and a major retail chain in Canada.
Once again, 7-Eleven was in the news at the beginning of a boom.
"Put simply, ABMs in convenience stores provide convenience for the consumer," said Sharon Gibbs, general manager of self-service banking for CIBC. "For the retailer, it increases store traffic, leading to increased sales. Experience indicates that a branded ABM can increase store traffic by 15 percent."
Gibbs said CIBC has machines in about 1,500 locations in Canada, and the number of ABMs continues to grow. Is this boom like the one that occurred in the U.S. a few years ago? "I would expect it is," Gibbs said, "and there's starting to be more of an appetite for it."
Growing pains
Clearly, convenience stores and ABMs go hand in hand. However, as the market for electronic cash transfer grows in Canada, so do the options -- not to mention the number of companies looking to utilize those options. Canadian financial institutions and any investor looking to place white label machines must choose their locations carefully, especially if they plan to surcharge.
"I think the future of some of the new players coming in could be in
question," Gibbs said. "You have to be filling a general customer need. I think you have to pick your spots, and I don't think it's one size fits all."
Gibbs continued, "I think there will be niches for the smaller companies. Right now (finding small niches) is a field where the larger companies are not playing, so if we're not careful they can succeed at our expense. They might pick a segment that the traditional markets are not serving well, and it could be a geographic area or a demographic that is not being served well."
Mark P. McDade, vice president of sales and operations for ABM Direct, said his company is beginning to place ATMs in airports and grocery stores, and is having excellent success with ABMs at Ontario Jockey Club race tracks. "They smoke," he said.
He added, "Some expansion can still be done as far as the locations."
Other sites where ABMs are popping up include hotels, casinos, entertainment centers, bingo halls and bars.
Another key issue for ABM owners in Canada is maintaining a high level of quality. Just as in the U.S., owners sometimes contract various services from several companies. For instance, they may hire Brinks to service machines and/or refill the cash inside them, while another company may provide "switch" or processing services. If any of these providers fail to keep up with service or technology, it could mean financial failure.
"There are a lot of growing pains for ATM owners. … It's a learning curve," said Brian Kett, Triton's Canadian marketing director.
Most will learn the hard way, according to McDade. His company sells an ABM to the customer and then manages it for them. That way, the burden is off the owner. ABM Direct works with the switching and service companies and offers a warranty program, along with ensuring durability and versatility of the machines.
He said ABM Direct stresses customer service -- "We customer service customer service to death" -- transaction volume and, of course, convenience. Cutting corners, McDade said, "comes back to haunt you later."
McDade, who previously worked for Brinks and therefore has seen two sides of the ABM business, believes the cream ultimately will rise to the top.
"I think (the market) has peaked as far as the number of companies that are going to be coming to the table. I think anyone who wants to come in now is kicking the can too late," he said.
Of the many white label companies currently doing business in Canada, McDade predicts, "within the next year to 18 months, there will be only about six survivors who will be picking up the pieces of those who destroyed themselves."
Charge! Full speed ahead?
CIBC's Gibbs believes it all goes back to surcharges -- those who rely too heavily on surcharge revenue may be putting themselves in danger. "It's still very dominated by the big banks in Canada. I don't think (white label ABMs) can overturn the banks and take dominance. They may prove me wrong, but I don't think so. You're seeing a strong backlash against (surcharging). If people have a choice, people aren't going to go to a surcharge machine."
Still, she believes there is room for growth in surcharging because ABMs in Canada are doing higher volumes than those in the U.S. She thinks enhanced machines -- those where cash withdrawals aren't the only transactions that can be made -- will increase the volumes even more.
"And as you see more transactions, more growth will occur," Gibbs said. "I don't think we're saturated."
Her advice to those getting into the ABM business: "For the retailer, they need to determine what they are looking for from the ABM -- increased store traffic or a new revenue source. ABMs are costly to operate, and there are many factors that can impact the revenue. They need to assess the risks as well as the opportunities. Since their primary business is sales, they need to understand the risks inherent with surcharging."
Triton's Kett believes the market is only just beginning to mature and that the greatest changes are just ahead. Banks certainly have the advantage, because most of them do not surcharge.
"The white label is coming in underneath that and competing from the pure convenience aspect," he said. "The major financial institutions are working with a lot of the retailers, and a lot of retailers are looking at owning ATMs themselves as an alternative to having banks own them. And a lot of those agreements are coming due."
Still growing
Kett said that last year the number of ATMs in Canada rose by about 3,000, which was in excess of 10 percent. That's well ahead of a worldwide growth rate of about 6 percent, he said. There were 23,506 ABMs across Canada last year, up 22 percent from 1997. Canadians made 333.2 million cash withdrawals from ABMs in 1998, up from 314.9 million in 1997.
And it's still growing. Toronto's TNS Smart Network Inc. processes nearly 50,000 transactions daily at more than 1,000 white-label ABMs. White-label network switch TCS Limited has more than 600 ABMs in its POSHnet network, with plans for expansion.
Meanwhile, American ATM companies are moving into Canada. Card Capture Services, based in Portland, Ore., established a satellite office in Montreal. Triton established Calypso Canada Ltd., a processing company.
Interac reports that Canada trails only the U.S. in number of cash dispensers per 1 million inhabitants, and leads the way in terms of number of ATM cash transactions per person. According to the Bank for International Settlement, Canadians made 52.7 transactions per inhabitant in 1997, well ahead of the U.S.'s 41.4 transactions per inhabitant.
So what's next? How about bigger and better ATMs? Thirty-seven 7-Eleven stores in Texas are now equipped with fully integrated, self-service machines that not only process debit withdrawals, but cash checks, sell money orders, allow customers to pay bills and more.
"It's like an ATM on steroids," said 7-Eleven spokeswoman Margaret Chabris.
She said they'll be in Canada by 2000.
For more information:
The Interac Association Website is at: http://www.interac.ca
Mark P. McDade may be reached at: mpmcdade@interlynx.net
Sharon Gibbs may be reached at: sharon.gibbs@CIBC.com
Brian Kett may be reached at: 805-772-9129
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