STRATEGIC PARTNERS
More small and mid-sized financial institutions, fearful that they could lose customers to the mega banks, are forming ATM alliances that allow them to surcharge selectively. by Ann All, editor
March 11, 2002
Many small and mid-sized financial institutions, looking for creative ways to keep their customers from paying ATM surcharges, are forming no-surcharge or selective-surcharge alliances. Members hope the new networks will help keep customers from defecting to bigger banks with more ATMs.
California: Not all quiet on the Western front
After Bank of America and Wells Fargo decided to levy a $1.50 fee on non customers using their ATM networks in California, the No-Surcharge ATM Alliance was formed there in early 1997. The alliance has since lost its two largest ATM deployers, Union Bank of San Francisco and Glendale (Calif.) Federal Bank, but credit unions are taking up the slack.
The alliance started with 795 bank and 1360 credit union ATMs. By November 1998, those numbers had shifted to 759 bank and 2017 credit union ATMs.
One of the alliance's founders, the Pomona, Calif.-based Co-Op Network, decided to allow selective surcharging after its members expressed an interest in surcharging non-cardholders at some ATMs, particularly those in retail locations.
"For many financial institutions, it really depends on where the ATM is deployed," said Irene Whitcomb, Co-Op Network senior vice president.
For instance, she explained, a credit union with 50 ATMs might choose to surcharge at 15 of its off-premise locations. Those locations are in the Co-Op Network, but not the No-Surcharge ATM Alliance. The remaining 35 ATMs are in both the network and the alliance.
The switch to selective surcharging has paid off for some members. CU Ventures, a Co-Op Network subsidiary, won a contract to deploy ATMs at HomeBase home improvement stores in 10 Western states. Co-Op cardholders won't pay a fee at those locations, but non-cardholders will pay $1 for cash withdrawals. Whitcomb said the HomeBase contract was "negotiated on the basis of a surcharge."
The Co-Op Network, which already has 355 credit unions, will become the ninth largest electronic funds transfer network in the U.S. after merging with Beaverton, Ore.-based CU Access. The combined network will have more than 2,600 ATMs in 26 states, serving members of 458 credit unions.
Sarah Canepa Bang, executive vice president of CU Access, said the decision to join the Co-Op Network hinged on the fact that "larger networks can do better things for their customers." CU Access had 400 ATMs before the merger, but the network "just wasn't big enough to really provide the services we needed for our credit union members," she said.
She said the arrangement will work well for customers of the Oregon and Washington credit unions in CU Access. "We have a lot of north and south migration, so this is going to be great for our members who travel to California."
Canepa Bang thinks that for some credit unions, particularly those with members in rural areas, selective surcharging of customers outside the network is a necessary evil.
"Unlike our friends in the banking industry, we don't have branches everywhere and we may not have enough members to justify an ATM in some areas," she said. "The only way we can bring ATMs to those folks is to surcharge those who aren't members."
She added, "I can say categorically we don't have credit unions who are doing it (surcharging) just to make money off of non-members."
Pennsylvania: Banks of the state unite!
On the East Coast, 25 banks have joined the Freedom Alliance in Pennsylvania. More than 200 surcharge-free ATMs will be available to alliance members in early January. Jeffrey Morrow, executive vice president of Pittsburgh-based Dollar Bank, said the alliance averages just under 10 ATMs per member. Dollar Bank owns nearly a quarter of the alliance's ATMs with 58; several members have just one ATM.
Morrow said membership "gives each bank in the alliance a rather large surcharge free network that it can offer to depositors, and depositors loathe surcharges."
He sees the alliance as an added convenience for members rather than a way of competing head-to-head with large banks that are trying to establish coast-to-coast ATM networks.
"The ATM business is basically a local business. People want to have access to ATMs where they live, where they work and where they shop," Morrow said. "I don't think anybody really objects to having to pay $1 or $2 to get cash when they're away from home."
Morrow believes networks such as the Freedom Alliance offer a better way of protecting consumers than legislation. "I think this is the kind of response that indicates you don't need a government response to every problem," he said. "When selective surcharging agreements were banned, it prevented the free market from working. Since the ban was lifted, it has allowed the market to work."
Each of the 25 member banks will make its own decisions on surcharging those outside of the alliance. "What we think would be best would be that every bank would join (the alliance) and the whole issue would be moot," Morrow said, "but that's probably not going to happen."
Massachusetts: NYCE answer to nasty politics
The Woodcliff, N.J.-based NYCE Corporation helped create the selective-surcharge SUM Alliance for its clients in Massachusetts, where anti-surcharge legislation is pending in the state legislature. NYCE served as a "facilitator" in the agreement between 175 financial institutions, with a total of 1,100 ATMs.
"We wanted to enable them to have a meaningful selective surcharging alliance without having to get into a smoke-filled room and have a number of banks trying to pound out a deal themselves," said William Peirce, NYCE's director of network services.
Echoing the sentiments of others in the industry, Peirce said bigger is better for users of ATM networks. "As surcharging becomes more of a norm, an institution with 400 cardholders and one ATM can now tell its customers they have an ATM infrastructure with 1,100 terminals they can use surcharge free in the commonwealth of Massachusetts."
NYCE rules require ATM owners to advise consumers of any surcharges, with specific dollar amounts, via both signage and screen commands. Also, consumers must be given the option to cancel such transactions before they are completed. Any surcharges are itemized on a receipt. Field and administrative audits are conducted each year to ensure compliance.
"The consumer must make an affirmative action to agree to pay a fee," Peirce said. "We're very specific and strict almost about notifying consumers that a surcharge will be included. They (consumers) may not like it, but they pay the fee with a clear understanding that they're getting a convenience."
Surcharging is "a philosophical issue rather than a consumer issue," Peirce said, noting that most consumers choose to modify their banking habits rather than actively protest the fees.
He takes a pragmatic view on the rise of surcharging.
"Consumers have for a long time become accustomed to using any ATM anywhere without a surcharge," Peirce said. "Like any market, it changes as it matures. Prices will reflect the value of a service, and I think surcharging is a reflection of that."
If the SUM Alliance is successful, Peirce said it could expand to the rest of NYCE's service area, which includes all of New England, New York and New Jersey, as well as part of Pennsylvania.
NYCE has announced plans to merge with the Dearborn, Mich.-based Magic Line network, which has more than 10.000 ATMs in the Midwest. Magic Line recently changed its rules to allow selective-surcharge alliances.
