Article
Virtual profit
Momentum Cash wants to turn surcharge revenue into banking income. So the Houston ISO is getting into the Internet banking business -- and using its ATM network to promote it.by Ryan DuBosar, contributing writer
March 11, 2002
ATM surcharges are being threatened by legislation -- and they are just plain unpopular. At the same time, virtual banking technology has become a reality, albeit a rare one so far.
With those market forces in mind, Momentum Cash Systems has developed an ambitious plan to turn its network of ATM users into bank customers.
"We have been looking for a way to leverage our investment in our ATM network," said Bob Cannon, president of the Houston-based ISO. "We've identified this as a way to leverage our entire investment to give us more than just a transaction-based business."
Briefly, Cannon wants to turn surcharge revenue into banking revenue. "We feel like there are more revenues and more profits available than with just straight ATM customers," he explained.
Brand building
The plan is to re-brand the nearly 2,000 machines currently in his company's 28-state network as the Momentum Bank network. The machines will be used to market a banking Web site Momentum Cash plans to launch this spring.
"We feel like the ATM is a good place to build a brand," Cannon said.
Cannon said the costs involved in using ATMs to promote his company's banking services will be "relatively minor" and offer better long-term payoffs compared to the big advertising bucks spent by other Internet businesses.
Momentum Cash deploys 2,000 machines in 28 states, with the majority located in Texas, Oklahoma and Louisiana. Cannon said Momentum expects most of its banking clients to come from those states, at least initially. In those markets, the company will supplement its ATM advertising with traditional media such as radio and TV.
Bye-bye surcharge?
Momentum hopes to attract banking customers by offering them surcharge-free access to its ATMs. Other virtual banks use similar marketing ploys, offering to reimburse their customers for a certain number of transactions a month, for example.
Momentum's existing ATM network gives it an advantage over virtual banks, which have no installed base of machines and no control over the terminals used by their customers, Cannon said. "We've got tremendous base of equipment in the marketplace and convenience to customers that is not available to customers in a virtual bank scenario."
Although all change involves risk, in risk exists the potential to gain. And Cannon believes the risk involved in this effort is minimal. Momentum Cash's network will not lose surcharge revenue on customers who do not use the virtual bank, he said, and it will make more from customers who do make the switch.
"Over the course of time, statistically speaking, the average a bank customer will generate somewhere between $200 and $250 in revenue to a bank annually," Cannon said. "We've calculated an average ATM user is $50 to us. We think that's a pretty good exchange. I would love to have no surcharge revenue 12 months from now."
But, he added, "I don't expect that to be the case."
Virtual banks report a higher average balance per customer than do traditional banks. They generally pay higher interest rates to buy in deposits, so they are getting a higher balance. However, Momentum Cash based its model upon a traditional bank's revenue because it does not want to buy in deposits using a higher interest rate.
Calling his business plan "conservative," Cannon said, "We have a profitable company now. Assuming we never get a bank customer, we shall remain profitable. If we get bank customers, then they will bring in more revenue than their surcharge revenue."
New hardware
Eventually, Momentum wants to offer access to its virtual bank via its ATM network. At that time, Cannon said, his company expects to upgrade or replace machines at select locations.
But while several manufacturers are displaying Internet-enabled ATMs at trade shows, few if any have actually been shipped. "I think we're a little bit early on that curve in terms of hardware," Cannon said.
Even when the units become more widely available, Cannon plans to proceed slowly.
"We will start replacing our current equipment and doing some pilot programs to see who is doing what on the machines before we go on a full roll-out," he said. "I don't want to go out and replace a bunch of equipment if I'm not sure people will use it."
Momentum Cash is also gearing up to issue its own bank cards and process its own transactions. In fact, Cannon believes the processing business has the potential to become a lucrative sideline.
Winning regulatory approval has been complicated, time consuming and expensive, however. Momentum Cash has been working on its charter since January of 1999 and expects to receive it in March or April.
"Our bank will be a virtual bank and there are some specific challenges, as opposed to brick and mortar," Cannon said. "Between the issues of a virtual bank and merging an existing entity into a bank are really where the complications come in."
New customers
Yet the biggest challenge of all may be winning consumers' approval.
According to Catherine Corby, senior vice president of Atlanta-based consulting firm Speer and Associates, ATMs are a logical device to be incorporated into an Intranet network, and several banks have already tried it.
"From a technical perspective, it's not that pioneering, but from a user acceptance perspective, that is where more of the viability needs to be proven," she said.
Cannon acknowledged that users who have never done more than withdraw cash from an ATM will have to become accustomed to what an Internet capable terminal can and cannot do.
"It will take time to train people in the marketplace to use other functions on an ATM machine that are currently not available to them," he said. "There's no question that early on in the game -- and we are early on in the game -- there will be functions available that people will not know are there."
Eventually, Cannon said, customers will have the ability to conduct any banking transactions from the ATM that they could do from their PC-based Web browser. That includes checking whether transactions have cleared, tracking account balances and downloading statements.
According to Corby, in the long run ATMs will be treated like any other browser in a bank network. The architecture is so much more flexible that it will be adopted over time.
Testing, testing...
More traditional financial institutions are currently experimenting with Web-enabled ATMs. For instance, Union Planters Bank has installed an Internet-capable Diebold unit at its operations center in Memphis, Tenn.
Mike Wooten, vice president of Union Planters, said his company is conducting a test run with bank employees and vendors to assess what customers want from such units and how the bank can benefit from their use.
The impetus stemmed from the desire to have the phrase "You've got bills," a message akin to AOL's ubiquitous "You've got mail," greet customers signing onto the bank's Web site.
But, Wooten said, "We're still undecided as to the final deployment strategy. You don't want to stand behind somebody that's trying to pay their bills for the month. That's something that we're still toying with."
Also, focus groups showed that users preferred to conduct many of their banking transactions from the privacy of home. The bank could eventually limit ATM functions to those typically performed while users are on the road, Wooten said.
The bank is working with the FundsXpress Financial Network, an Austin, Texas-based Internet technologies company. While the Web enabled ATM communicates with the bank's host via a TCP/IP network, Wooten said it is driven by mainframe software. "We didn't have to make any changes to our host," he said.
Union Planters, which has a network of 1,100 ATMs in 12 states, limited itself to one unit to learn about the technology before deploying more machines. The bank wanted to fully understand touch-screen technology, Web site sign-ons and customer security.
"We're still playing with this technology," Wooten said.
Union Planters plans to continue experimenting with an Internet terminal that has several features not found on the original model, including a swipe card reader and a statement printer.
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