Article

United We Stand

Just a few years after their inception, many no-surcharge and selective-surcharge alliances are still in place and growing larger. The alliances allow small and mid-sized financial institutions to band together and offer a broad network of ATMs that customers can use without fear of a surcharge, in the hopes of keeping customers who might otherwise defect to a larger bank with more ATMs.

February 6, 2002 by

Just a few years after their inception, many no-surcharge and selective-surcharge alliances are still in place and growing larger. The alliances allow small and mid-sized financial institutions to band together and offer a broad network of ATMs that customers can use without fear of a surcharge, in the hopes of keeping customers who might otherwise defect to a larger bank with more ATMs. 

Birth of the networks

Several alliances trace their beginnings to late 1998 when surcharge arrangements being placed upon smaller banks by ATM networks such as MAC and Plus required an "all-or-nothing" approach to surcharging.

"The networks did not allow groups of financial institutions to selectively surcharge, it was surcharge all or none at all. We wanted to give our member credit unions the best selective surcharge group we could, so we formed Alliance One," said Sheryl H. White, assistant vice president, Product Support, Corporate One Federal Credit Union.

Corporate One Federal Credit Union began Alliance One, which is based in Columbus, Ohio, by drawing on credit unions in Ohio, Kentucky, Indiana and West Virginia to form a selective surcharge group.

"Banks have thousands of ATMs and credit unions typically don't. By banding together, we collectively could offer a wide variety of surcharge-free ATMs," White explained.

The Freedom ATMAlliance was also formed in November 1998 in an effort to permit selective surcharging in the face of the "all or nothing" rules.

Pittsburgh-based Dollar Bank led the recruitment effort, and the alliance began with 19 institutions representing 177 ATMs in an eight-county region of Southwest Pennsylvania.

Joseph B. Smith, senior vice president of marketing for Dollar Bank, said he believes smaller institutions welcomed the chance to increase their customers' access to no-surcharge ATMs in part because "for smaller institutions, surcharging revenue is not as appealing a revenue stream as it is for larger institutions."

Faced with the specter of anti-surcharging legislation in Massachusetts (which never made its way to the law books) NYCE Corporation, based in Woodcliff, N.J., in 1998 began working with the Massachusetts Bankers Association, the Community Bank League of New England and the Massachusetts Credit Union League to develop a selective surcharging program.

The result was the SUM Program, an optional selective-surcharge alliance, launched in October 1998.

"We wanted a program that would address the customer migration concerns of many small and medium sized institutions," said William Peirce, director of network services, NYCE Corp. "The SUM Program allows NYCE participant institutions to pool their ATMs and offer their cardholders surcharge-free access to any participating SUM Program terminal and offers smaller members access to initially hundreds, now thousands, of ATMs without a surcharge."

On the grow

Once they were introduced, many alliances found that growth was brisk.

By January 1999, Alliance One had 100 financial institutions and 200 ATMs in its network. After a June 2000 merger with the Michigan CU Alliance and a subsequent merger with the Wisconsin groupCU Cash,Alliance One now has 868 participating financial Institutions and 2,336 ATMs in 26 states (plus five ATMs in Germany). And it is actively seeking other groups to join the network, according to White.

The California-based Co-Op Network, a selective-surcharge network made up of credit unions, started with 350 participating credit unions, 4.6 million cardholders and 2,000 ATMs in 26 states when it was founded in 1997. It now has 673 credit unions, 7.7 million cardholders and 4,035 ATMs in 40 states.

Irene Whitcomb, Co-Op Network senior vice president ofcommunication and public relations,said members are drawn by shared deposit access (over 70 percent of the network's ATMs accept deposits); surcharge-free access; the convenience of many retail locations; cooperative pricing, advertising and products; and the network's growth, which has averaged over 25 percent per year.

"For our credit unions, one of the primary values is that they own the network," Whitcomb said.

Freedom ATM Alliance's original membership roll of 25 financial institutions with 205 ATMs has grown to include 33 members with 256 ATMs.

Unlike most selective-surcharge alliances, the Freedom Alliance excludes credit unions. That's because the small banks that make up the alliance see credit unions as a competitive threat, according to Smith.

The SUM Alliance began with 100 financial institutions located in Massachusetts, with 800 ATMs throughout the state. Today the program is available to all NYCE financial institutions and consists of 370 members with 2,380 ATMs throughout Massachusetts, Connecticut, New York, Rhode Island and New Hampshire.

Peirce said alliance members enjoy the fact that institutions of all sizes and charters can remain competitive. In addition, the network provides consumers with greater access to surcharge-free ATMs, all transactions are processed as normal NYCE Network transactions, and members can opt to surcharge non-members' cardholders at certain ATM locations.

Much of the growth has occurred with limited advertising in place.

Alliance One's advertising has been limited to "a couple of ads in trade publications," White said. Peirce said SUM member institutions have combined efforts to run radio and print advertising campaigns.

In contrast, Whitcomb said the Co-Op Network has advertised "aggressively," utilizing radio advertising and consumer and industry print ads.

To charge or not to charge?

Because they were formed, at least in part, in an effort not to have to adhere to an "all or nothing" approach to surcharging, network rules regarding surcharging vary from group to group.

Members of the Co-Op Network are allowed to surcharge, as long as all Co-Op Network cardholders are exempt from the fee. Whitcomb said when to charge is up to the individual credit union. "Some of our credit unions surcharge foreign cardholders at all of their ATMs. Some of our credit unions do not surcharge at all."

Alliance One also lets the financial institution that owns the ATM to surcharge non-Alliance One members if they choose. The amount of surcharge is also up to the financial institution.

Non-members of the Freedom ATM Alliance are charged $1 for transactions.

SUM Program membership rules require its institutions to maintain a certain percentage of participating ATMs. Member institutions with fewer than 50 ATMs must have at least 60 percent of their ATMs in the program, for instance, while institutions with 50 to 99 ATMs must have 50 percent participation. Participating ATMs cannot surcharge SUM member cardholders, but can continue to surcharge non-members' cardholders. Also, the SUM Program logo must be displayed on all participating machines.

"Due to the flexible nature of the program, member institutions can choose which ATMs they would like to continue surcharging at, provided they remain within the requirements we set forward," Peirce said.

More to come

The alliances are optimistic that they will continue to thrive as they offer customers an alternative to the larger financial institutions.

"Selective surcharging alliances will likely continue to have market appeal to smaller financial institutions as these programs address, and in many cases eliminate, the disparity in surcharge delivery infrastructure between the large money center institutions and the small community banks and credit unions," Peirce said.

Like other sectors of the ATM industry, consolidation is likely to occur. White expects mergers to drive growth, to a point.

"We have grown significantly and continue to gain interest around the country, so there must be a need for alliances. I think there will be more mergers of alliances, and Alliance One will be a survivor since we are one of the largest in the country. But I think the pace will slow in growth as more financial institutions settle into their respective alliances," she said.

Smith expects the alliances will continue to attract smaller institutions as members to gain the benefits inherent in a large ATM network.

"Allowing institutions to pool their resources enables them to offer higher levels of service and greater value to their customers via more free banking endpoints. Consumers . . . can opt to bank with institutions of varying sizes and charters while still being able to access numerous free endpoints -- greater convenience with less cost," Peirce agreed.