STRATEGIC PARTNERS
Speer & Associates, a financial services consulting firm, released selected findings of its 13th Proprietary EFT Annual Survey of the top U.S. and Canadian ATM owners, including non-financial institutions.
March 7, 2002
ATLANTA -- Speer & Associates, a consultancy firm based in Atlanta, issued a report detailing many changes in the ATM industry.
Speer's Chief Executive Officer, Richard N. Speer, Jr., said, "These agents of change range from rapid industry consolidation to mass deployment of off-premise ATMs and the aggressive pursuit of surcharge revenue. The results of the 1998 Survey reveal the impact of surcharging on the EFT industry."
These factors include the growth in ATMs and accelerated off-premise deployment, changes in ATM fees charged, and a continued decrease in incoming interchange as discussed in the survey results below:
- ATM deployment escalated in 1997.
The number of ATMs per institution increasing 22% overall, as banks
focus on serving customer's convenience needs, while also taking
advantage of surcharging opportunities. Average ATMs per institution
increased from 562 in 1996 to 686 in 1997.
- The proportion of off-premise ATMs increased.
From 33% of the overall ATM base in 1996 to 42% in 1997. Larger
institutions concentrated their new ATM deployment in off-premise locations.
On-premise ATMs decreased to 58% of all ATMs in 1997, down from
67% in 1996. 1997 survey responses reveal that despite the rise in the
number of off-premise ATMs, on-premise terminals still constitute 75% of transaction volume.
- Financial institutions are continually adjusting on-us fees in search of a practical mix for ATM charging; whereas foreign fees are more consistently rising.
Less than 1% of the survey respondents assess on-us fees for
services other than statement generation and vending. These two factors indicate that institutions are somewhat reluctant to increase fees significantly across all ATMs.
- Although the trend for surcharging is rising, some institutions have
chosen to postpone the implementation of surcharging fees. As shown, 56% of total respondents had embraced surcharging in 1997.
When looking at peer groups, 100% of Tier 1 respondents and 80%
of Tier 2 respondents surcharged in 1997. Conversely, Tier 3 and Tier 4 institutions were less likely to surcharge, at 58% and 13%, respectively.
George L. Albright, S&A's Chairman commented, "We expect the industry
will see 75% to 80% of banks surcharging by 2000, even though a
handful of major institutions have stated they will "never" surcharge."
- ATM terminal owners have aggressively adopted surcharging
strategies for both on-premise and off-premise ATM locations.
Of the respondents that surcharge, all indicated they charged non-
customers for using their ATM machines at both on-premise and off-
premise locations. Eighty-nine percent (89%) of on-premise and
86% of off-premise ATMs were subject to surcharges.
Mr. Albright observed, "Historically, terminal owners have focused
surcharging efforts on off-premise locations, but in today's
marketplace, competition has quickly moved to a more aggressive
approach and many institutions are reaping the financial benefits
from a surcharging pricing strategy applied to all locations."
- Large and small financial institutions continue to test the price point that consumers will pay for surcharge fees.
In 1997, the average on-premise surcharge fee assessed by
respondent institutions was $1.32, and ranged from a low of $1.00 to a high of $2.50. Off-premise locations were surcharged on average $1.44 per transaction.
- S&A surveyed how surcharging has affected the terminal owner's
transaction volume. The majority of respondents, 86%, indicated an increase of on-us transaction volume. Survey results show incoming interchange volume declining among 90% of respondents. Of the 90% reporting a decline in incoming interchange, the average decline was 18% in 1997.
- Due to a continuing increase in foreign transaction and surcharging
fees, incoming interchange decreased again this year to 34.3%. The percent of incoming interchange has decreased somewhat significantly since 1995 when it was at 43% and in 1996 at 39%.
S&A, a leading financial services consulting firm, released today selected findings of S&A's 13th Proprietary EFT Annual Survey of the top U.S. and Canadian ATM owners, including non-financial institutions, for the calendar year 1997. The information was compiled from a detailed questionnaire directed to senior EFT executives of the Top 250 ATM owners in the U.S. and Canada. It focuses on ATM networks, both proprietary and check card bases, ATM transaction fees, surcharging and pricing trends, and other important issues relative to EFT operations. The following summarizes the Study's results:
Debit Cards
- Proprietary debit and check card ownership continued the recent
growth trend as account penetration increased to 88% overall.
The number of proprietary debit and check cards grew 18% on a consolidated basis.
- Check cards continued to increase in importance in 1997, as
evidenced by the increase in number of cards outstanding, and 16% growth overall in number of transactions among card users.
Overall number of proprietary and check cards increased rapidly in
1997 versus 1996, up 23%. Despite the increase in cards outstanding,
activation levels remained unchanged from overall 1996 levels.
- Fees charged for transactions using proprietary card and check
cards are relatively similar.
The fee differentiation comes from the size of the ATM program. Smaller ATM networks typically charge smaller fees.
Network
- The largest institutions continued to outpace other groups with a
higher incoming/outgoing interchange ratio. Top financial institutions continue to expand their ATM presence over other groups which is evidenced by their positive net interchange of 127%, compared to the next closest at 102%. This is particularly accredited to their push in the off-premise deployment of ATMs.
- Although ATM switch volume remains high, shared networks
reported increase in transaction volume is attributed to a surge in POS activity.
Average incoming interchange continues to decrease for all Tier
levels.
In 1997, consumers continued to avoid fees for accessing their
funds at other financial institutions' machines.
Mr. Albright concludes, "The continued consolidation within the
banking industry is creating multi-regional and national retail banks,
thus altering the traditional landscape for consumer financial services and EFT businesses. Consequently, payment system-based businesses are emerging as major growth opportunities for those organizations with the economies of scale, management talent, and
market presence required to compete in this area of financial services."
Strategic and Business Issues
- Sixty-three (63%) percent of respondents indicate plans to replace
or significantly upgrade their ATM hardware and software in 1998.
Citing Year 2000 as the main stimulus for upgrading ATM machines,
it is evident that financial institutions are concerned about the
repercussions of a possible system failure.
- Surcharging continues to be a top strategic business issue
although currently overshadowed by the Year 2000.
Other issues of concern listed by respondents are increasing ATM
functionality, increasing off-premise deployment, and evaluating
profitability of machine locations.
Forecast and Future Direction
- Respondents indicated last year that the total number of retail
transaction accounts would rise by 13%.
This year, respondents remained aggressive and predicted another
10% rise in the total number of transaction accounts.
"This is too aggressive," commented George L. Albright, S&A's
Chairman, "as industry competitiveness remains high. S&A believes the most aggressive programs will increase their transaction accounts by
5-7%."
- Respondents plan to increase their total number of debit cards.
Tier 3 institutions report plans for an increase of 18%, followed by
Tier 1 institutions at 16%, Tier 2 institutions at 12% and Tier 4 at
10%. The weighted average for the respondent group is 15%.
Mr. Albright said, "Tier 3 institutions are planning too aggressively
and will most likely grow their debit card base by 10-12%, but does
feel confident that Tier 1 institutions will be able to obtain 15% +
growth due to their large customer base and aggressive marketing/packaging."
- Respondents plan to increase their ATM deployment growth in
1998, particularly off-premise machines.
Mr. Albright said, "With the realized profit potential from
surcharging, we expect that off-premise ATM deployment will remain
over 10% through the end of the century."
The total respondent base plans to increase off-premise ATM base
by 27%, with Tier 2 planning the largest increase at 54%.
- All respondents also predict an increase in total ATM network
transaction volume.
