STRATEGIC PARTNERS
The Canadian ATM market greets deregulation with open arms, reminding observers of the off-premise deployment fervor that broke out in the U.S. a few years ago. by Rodica Tessier, Special Contributor
March 7, 2002
TORONTO -- ATMs apparently know no boundaries. Like migrating birds pausing on a northward journey, they tend to perch where food--and cash-hungry consumers--abound.
Privately-owned ATMs, dubbed "white labels" by Canadians, appear as endemic as their American counterparts. Their installation in c-stores, g-stores and other retail locations in Canada mimics the early stages of off-premise deployment in the U.S. a few years ago.
In hopes of harvesting an eventual cash crop from their machines, independent owners brave a market plagued by high start-up costs and strong competition. No major cost-cutting breakthroughs seem imminent for at least a few years until demand for ATM services increases. Forecasters think this will draw the attention of American ATM management companies, manufacturers, servicers, and vault cash suppliers.
In the meantime, however, consumers, c-stores, manufacturers and parts suppliers will all enjoy the benefits of an open marketplace, albeit an expensive one.
"Currently there is a great deal of competition for the independent market," said Patrick Foster, vice president of business development and electronic commerce solutions at CGI, a network services provider in Canada.
Originally, most people believed competition would make things more convenient for consumers and might have an impact on bank service charges, Foster said.
"There are more machines in interesting locations, however the price for these machines carries a surcharge and therefore the cost to the consumer goes up," he said.
Deregulation promises to revitalize an industry whose growth rate peaked several years ago, said Frank Helt, president of ABM Direct. ATM manufacturers, contracting firms and supply and parts distributors will all see an immediate windfall as the bravest independent ATM owners jump into the market.
An open market
Automated banking machines, or ABMs, first appeared in Canada in 1972. Eight years later they began spreading when financial institutions started developing their own retail delivery networks.
In 1984, five of Canada's largest banks combined their ATM networks to forge a national system called the Interac Association. Since most of Canada's financial institutions served customers across the country, this new allegiance gave consumers easy access to their money at any ATM bearing an Interac logo. By 1986, the association had grown to ten members.
"During the past 13 years, the system grew to include institutions of all sizes and encompassed 97% of Canadian ATMs," said Vincent Bordenca, executive vice president for strategic planning with Meta-4, a business networks solutions company. Many of the smaller institutions joined in order to offer their services on a national level. A small bank with one branch could now use the shared services to allow its cardholders access to all ATMs and POS terminals in the Interac network.
According to Mary Beggan, Interac's marketing manager, the association now includes 20,354 units and is one of the world's most successful point-of-sale networks.
In a separate statement provided by the association, Interac's 330,000 debit terminals conduct over 1 billion transactions annually, and in five years Interac's Direct Payment transactions have reached and should soon surpass the combined volume of Visa and MasterCard in Canada.
Members pay no service access or license fees when they join. They pay only a per transaction fee, which is the same for all members regardless of transaction volume.
Interac members originally ruled that only financial institutions could be members, and this lock-out existed until November of 1996, when the Bureau of Competition Policy and Interac negotiated an agreement and jointly presented it to an independent tribunal body for ratification and approval. A consent order was declared that opened the network to other types of organizations who wanted to join or affiliate with Interac. Independent ATM owners could now freely pursue the Canadian market.
According to Ginny Dennehy, a spokesperson for IBM, "The major limiting factor now is the ability to provide settlement systems, access and liability. Members without these factors typically sub to a major financial institution."
Since then, Canadian casinos, bars and retail stores have attracted widespread ATM deployment, bearing out the symbiotic relationship of location convenience and transaction volume. But it also brought in surcharges, which the original Interac members did not allow.
"This led financial institutions to deploy more off-premise ABMs and allow internal charges where appropriate," Foster said. "In return, there was an interchange fee that was charged amongst the members that each could pass along to their customers as they saw fit."
To date, only one institution--a credit union serving the Toronto Transit Union workers--openly surcharges its customers.
But since independent ATM owners generate most of their operating revenue form the surcharge, the fee should continue to proliferate as white label networks expand. Beggan reports a handful of third-party processors have joined the Interac association.
Consumer impact
It's too early to gauge the independent owners' real success, but their revenue streams should grow with the industry's deployment momentum, Foster said.
"Because the market is so immature, where the profit will go--and how much is available--is still not known," he said. "As well, the consumer has not reacted to surcharging because it is not very prevalent and they still have significant options to avoid this charge."
U.S. consumer groups and politicians like Senator D'Amato continue to resist surcharging, but independent owners have attempted to blunt the surcharge's impact on consumers' wallets by offering coupons for other services and discounts. This added-value tactic is already catching on in Canada.
The market itself is changing rapidly, especially in the private sector, IBM's Dennehy said.
"There is a major transition happening in the ATM marketplace that is spreading to our country," Dennehy said. "It is shifting from the traditional bank-based electronic ATM delivery to private label ATMs providing either stand-alone cash services or non-financial retail banking services."
Dennehy stressed that Canadian consumers realize they can access their cash in an increasing number of locations. "Soon the consumer will benefit further through more advanced functions such as greater content, targeted marketing and links to other services such as ticket purchases."
ABM Direct's Helt said consumers will have better access in locales where financial institutions would never consider placing an ATM, including convenience stores, restaurants and night clubs--even school cafeterias.
"This convenience, not unlike the introduction of the pay telephone, will directly benefit the consumers and allow the industry to thrive," Helt said.
Many deployers who fear an approaching ATM saturation point in the United States need only look to the north. This new land of opportunity offers thousands of potential ATM sites, but the frontier, warned Helt, won't remain uncharted for too much longer. ••
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Rodica Tessier is president of Advanced Computer Parts Services, located in Ontario, Canada. Her company provides training, parts, and whole unit support for NCR and Diebold/IBM/Interbold ATMs. She can be reached by phone at (905) 415-8481, fax (905) 415-8634, or via e-mail at rodicat@idirect.ca.
Sources:
> Patrick Foster can be reached at CGI, phone (905) 821-2252, fax (905) 858-7171, e-mail patrick.foster@cgi.ca.
> Ginny Dennehy can be reached at IBM Customer Service headquarters, phone (604) 938-3110, fax (604) 938-1553, e-mail gdennehy@ca.ibm.com.
> Vincent Bordenca can be reached at Meta-4, phone (905) 709-2446 ext 230, fax (905) 709-4294, Web site www.mbns.com.
> Frank Helt can be reached at ABM Direct, phone (905) 627-5757, fax (905) 525-9602, Web site at www.abmdirect.com.
> Mary Beggan, Interac's marketing manager, can be reached at (416) 362-8550, fax (416) 869-5080, Web site www.Interac.org.
