Article

What's Amex up to?

American Express became the country's second-largest ATM owner and sent reverberations throughout the industry with its purchase of the remainder of the EDS portfolio. The question on everyone's mind: OK, now what?by Ann All, editor

May 25, 2000

Whether or not they know it, customers at 7-Eleven stores in Dallas may soon walk right past ATM history on their way to the Slurpee® machine. Later this summer, 200 or so 7-Elevens in the Dallas-Fort Worth area will install high-powered machines that offer check cashing, money order issuance and electronic wire transfer in addition to standard ATM transactions. The owner of these kiosk/ATM hybrids is American Express, which has been aggressively growing its network with acquisitions for the past year and a half. After purchasing the remainder of the EDS portfolio in February, New York City-based Amex became the second-largest owner of ATMs in the U.S., though still some 5,000 machines behind Bank of America. The Dallas/Fort Worth 7-Eleven machines, which some industry observers are calling "ATMs on steroids," may offer an inkling of what is to come in the ATM world. Pushing the ATM envelope According to Eugene DeSilva, Amex's vice president of new business ventures, Amex eventually plans to upgrade all of its 8,687 machines to offer "peripheral products and services." Though not all will feature the same array of services as the 7-Eleven machines, Amex seems intent on morphing the ATM into a far more robust and Web-enabled self-service terminal. Amex's primary interest in Web technology, DeSilva said, is the flexibility and speed it offers ATM deployers. "Our desire is not necessarily to have people come in and use our ATMs to surf the Web, but we want to provide the flexible backbone technology that will really speed the time to market for new products and services." Any new features, DeSilva added, must first provide added convenience to American Express cardholders and customers of its online Membership Banking service. They will also strengthen Amex's relationships with the retailers who accept its cards. "We see the ATM, and (retailers) see the ATM, as something that is needed and desired," DeSilva said. "It's a good way to increase our partnership." While other companies are announcing similar plans and forging alliances -- a la Card Capture Services and E*Trade -- Amex has several advantages, among them a boffo brand name, plenty of capital, high profile locations and forward-thinking partners like 7-Eleven. The Dallas/Fort Worth initiative follows a successful two-year pilot of similar terminals in Austin, Tex. The results of that pilot yielded some surprises. While the original target market was 7-Eleven customers without bank accounts, many of those using the terminals did have banking relationships. A significant number of those purchasing money orders, for example, did so with an ATM card. "We found that instead of being under-banked, many people were actually under-serviced," said Rick Updyke, 7-Eleven's vice president of planning. Users don't seem to mind paying fees for financial services offered in a convenient environment, Updyke said, even if it's more than the typical $1.50 surcharge. There's an enrollment fee of $2.50 plus an additional 1.75 to 6 percent charge to cash a check, for example. Fees for other services vary. Supply side Originally called Financial Service Centers, the kiosks have been renamed V.com machines. The new name is meant to suggest "virtual commerce." While the machines will initially offer a set of transactions similar to those in the Austin pilot, 7-Eleven and Amex plan to add e-shopping to the mix in the second half of the year. Updyke said that 7-Eleven wants to become "a physical portal into e- commerce." The convenience chain plans to leverage its strong distribution infrastructure to put items ordered online into customers' hands, he explained. With daily distribution to 4,000 of its 5,700 U.S. stores, 7-Eleven knows how to move products from Point A to Point B. So customers can collect CDs, books or other merchandise at their local 7-Eleven stores 24 hours a day, seven days a week -- with no worries about not being home to accept deliveries. "We're going way beyond the financial service aspects we originally envisioned and creating a unique shopping opportunity for customers," Updyke said. A similar program is already under way in Japan where Seven-Eleven Japan (unlike its American counterpart, the "Seven" is spelled out) is partnered with Softbank, Yahoo! Japan and Tohan, Japan's leading book distributor, in an online venture called eShopping Books. Customers order books at kiosks, then pick up and pay for their selections a day or so later. The V.com is a likely candidate for international expansion because of its "plug and play" platform, which allows products and services to be tailored to customers by geographic area. A check-cashing application is popular in the U.S., for example, because Americans still rely heavily on paper. It might be dropped in a country like Singapore, however, in favor of a smart card application. While DeSilva doesn't rule out international expansion -- American Express is, after all, a global brand -- he said Amex wants to establish its ATM strategy in the U.S. first. "First we want to get the devices to where we can take advantage of the footprint we've established here. Then when we've reached that goal, we can start to think of where we'll go from there." High-end hardware The V.com is an NCR personaS-75 terminal outfitted with a variety of bells and whistles, including a 15-inch, color touch-screen monitor, a check-imaging module, a second thermal printer and a sidecar attachment with a cash acceptor. The need for these types of advanced features "plays nicely to NCR's strengths," said Rob Evans, director of marketing for NCR's self-service division. "All of a sudden it's about more than just shipping out as many cash dispensers as you can." A demand for Web-enabled applications gives NCR and other high-end manufacturers like Diebold and Wincor Nixdorf a natural advantage, he added, albeit a short-term one. "The low-end players who are serious about the self-service business will figure it out -- but we're there now." More deployers will "try to get to a Web space," Evans predicted. "We've been saying that for so long, it's good to see the industry finally moving that way." The V.com machines will have a footprint that's about half the size of the original Financial Service Centers, Evans said. Also, a separate terminal that was provided for lengthier transactions such as registration for check-cashing services has been eliminated. "All that can be done on an ATM, and our research shows that volumes are such that you won't significantly impact customer satisfaction if you go ahead and do registration on the same terminal," Evans explained. In the driver's seat The V.com terminals mark one of the first large-scale deployments of a Windows NT-based platform. Provided by Ft. Lauderdale, Fla.-based Mosaic Software, the Postilion platform uses Internet protocols to switch transactions to a variety of processors and networks. "We have installations where we drive ATMs, installations where we drive different POS devices and installations that allow people to shop over the Internet," said Johann Dreyer, Mosaic's Joint Group CEO. "Here for the first time we have the merging of all three technologies in a single device." Even though the interest in Web-enabled ATMs dates back two to three years, Dreyer said vendors and deployers are just becoming comfortable with the idea of a Windows NT system driving machines. Postilion allows deployers to react to market changes much more quickly than legacy platforms, Dreyer added. "If we need to pass an XML message, because that's the new way people want to communicate with each other, it's very easy for us to do. If you want to do the same thing on a legacy platform, you've got to go and hand code that." Browser-enabled technology "contributes little to the cost of a device," Dreyer said. Rather, it's hardware such as cash acceptors and extra printers that drive up costs. Like NCR's Evans, Dreyer thinks the Amex/7-Eleven rollout is just the beginning of a widespread movement toward Web-enabled ATMs. "They know this will differentiate them from the rest of the players out there. Based on the Austin pilot, they know they've got a business case. They're creating new fee streams here," Dreyer said. "I think it's only a matter of time before other players follow." And all the rest While they are an intriguing aspect of the American Express portfolio, the V.com machines are only a small part of Amex's 47-state network. One of the first and most important tasks is re-branding the ATMs. The network's new name, Axis, has a futuristic ring -- and a logo that reinforces that image. Three familiar blue letters in a gold globe, "ATM," are perched atop an elongated blue sphere emblazoned with the word "axis." Surrounds, toppers and screens featuring the new logo will add a unified look to Amex's fleet, DeSilva said. "We wanted to capitalize on the core functionality, which is cash dispensing, and also give people the impression and foresight that other peripheral products and services will be offered there as well," he explained. The company will continue to acquire ATMs, DeSilva said, but not with a target number in mind. "We're not interested in reaching a certain number, but we are interested in providing convenience to our customers." As in the past, American Express will likely acquire existing sites rather than establish new ones. Purchasing mature portfolios has given Amex such plum locations as Simon Property Group-owned shopping malls and Target department stores. One of the toughest questions, DeSilva said, involves determining the new products and services that consumers really want. "The reality is, in this environment of self-service devices, the only application that has really been successful as of today is the dispensing of cash," he said. "The challenge is to find the next couple of applications that are as complementary or as successful as cash without eroding your core functionality." He added, "The biggest issue we have is evolving these devices not just from a technology standpoint but from a user acceptability standpoint."

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