News
ATMs Down Under
Australia seems poised to follow in the ATM footsteps of the U.S., Canada and the UK and institute a change in its fee structure. As it has elsewhere, this is bound to have far-reaching effects on the market, largely by creating new off-premise opportunities.
January 8, 2002
Australia seems poised to follow in the ATM footsteps of the U.S., Canada and the UK and institute a change in its fee structure. As it has elsewhere, this is bound to have far-reaching effects on the market, largely by creating new off-premise opportunities.
Fueled by high interchange rates, the off-premise ATM market in Australia is already thriving. But a change in fees, particularly the introduction of a convenience fee, would likely drive deployment in lower-volume sites, much as it did in other countries that have adopted a surcharge model.
ATM fee structures are currently under the scrutiny of the Australian Consumer and Competition Council and the country's Reserve Bank. Two senators have recently produced reports critical of financial institutions, contending that there is collusion between major banks in setting interchange rates.
In Australia, there are no major networks such as Canada's Interac, the UK's LINK or America's Star or NYCE. Instead, ATMs are linked through a series of bilateral agreements between the banks. Interchange rates are negotiated separately for each agreement.
The great rate debate
Gavin Napier, national ATMs executive for Commonwealth Bank, one of Australia's four dominant financial institutions (along with Westpac, National Australia Bank and Australia and New Zealand Banking Group or ANZ), said his bank has 14 ATM-sharing agreements with other banks. "With the 14 links we've got, there are probably 14 different (interchange) prices," he said.
Yet interchange rates don't vary much; for a cash withdrawal; the range is about $1 to $1.50. Foreign fees paid by bank customers are slightly higher, about $1.25 to $2.
Regulatory bodies and financial institutions are currently considering a half dozen or so fee proposals, including one that is virtually identical to the U.S. model with customers paying both a foreign fee and a surcharge, called a direct charge in Australia.
"It's too early to pick which one will hold sway," said Peter Frielick, vice president of NCR's financial solutions division, South Pacific. "I think it's quite a healthy debate, and I believe market forces will prevail in the end."
Napier said there is "a lot of wishful thinking" surrounding the possible introduction of a surcharge. "I'm quite convinced it won't happen," he said. "Or if it does happen, the foreign fee will be abolished so the customer only pays once."
That scenario would be similar to the UK model, in which deployers can collect interchange or a surcharge, but not both.
The other issue under regulatory scrutiny in Australia is fee disclosure. Fees are currently not disclosed at the ATM and, because of the large number of bilateral agreements, customers don't often know what they are paying. Regulators are pushing for real-time disclosure at the ATM.
Compared to the outcry that accompanied public discussions of ATM fees in the Canada and the UK before the surcharge was introduced, the Australian public has remained largely mum on the issue.
"The media is beginning to report it a little more widely, but consumer awareness here is atrocious," said Justine Harris, Diebold's sales and marketing manager for Australia/New Zealand."Despite consumers being made aware of ATM fees via bank statements, they only really react because of the media coverage."
Independents' day
Australia data: |
While the advent of the surcharge in April of 1996 practically created the ISO in the U.S., Frielick said ISOs have been a strong presence in the Australian market for at least two years now. "Because the interchange is relatively high, they can already make a dollar out of deploying machines," he said.
In fact, NCR's ATM shipments to non-banks exceeded its shipments to banks for the first time last year. In 1998, non-bank shipments accounted for 30 percent of NCR's total; that number rose to 40 percent in 1999 and to 51 percent in 2000.
Frielick said there's been a great deal of advance interest in the EasyPoint 53, NCR's lowest-cost ATM, with about 1,000 advance orders for the machine, which will begin shipping in September.
Harris, of Diebold, said ISOs have stepped up their pursuit of high-profile locations in anticipation of a change in the fee structure. "They figure once they get the customer locked in for five years, they believe they'll make millions when the surcharge comes in," she said.
"There's a little bit of a Gold Rush syndrome to get machines at the good sites," agreed Kevin Bienemann, director of international sales for Triton. "They figure they'll start selling features and benefits when they have the site."
Bienemann said that a personal recommendation rather than a hard sales pitch seems to sway Australian merchants. "One of the key selling points is when a merchant gets a recommendation from another merchant. As opposed to a fast-talking salesman off the street, they'd rather hear it from someone they know," he said.
Russell Small, director of ISO DirectCash ATM, said his company has deployed more than 900 machines, primarily Triton 9600s, at sites like gas stations, convenience stores and pubs. Unlike the U.S., where many ISOs have fewer than 50 machines under contract, Small said Australia's off-premise market is dominated by a handful of larger independents.
"The barrier to entry is quite high here," he said. "You've got fewer small guys."
Harris said that the number of ISOs in Australia dropped dramatically over the past year. "We started with 20 or 30, and we're now down to five or six players," she said. "They either died off, or they were acquired by a bigger ISO if they were worth acquiring."
She added, "A lot of people think, 'Wow I can make a quick buck,' but they don't understand the full magnitude of what it takes to get involved in the market."
The largest independent, Cashcard, is also a switch provider. After its recent purchase of 530 ATMs from a cash-in-transit company, Cashcard owns about 800 machines and manages a total of 2,250. Cashcard was established in 1993 by nine regional banks and building societies seeking a competitive edge against Australia's four largest FIs. St. George Bank is the single largest shareholder, with a 49 percent ownership stake.
All Australian ISOs are required to work with FIs, DirectCash's Small said. An ISO gives its sponsor bank a cut of the interchange; in exchange, the FI acquires the transaction and handles settlement with other banks.
One quirk of the market: Unlike some other countries where banks deploy unbranded machines in off-premise locations, Australian ATM users must be informed of which FI acquires a transaction. So all ISO machines also carry the brand of the sponsor bank.
Commonwealth Bank works with DirectCash and two other independents. While banks will sometimes go head to head with ISOs over high-volume sites, Napier said that most banks are glad to collect part of the fee income and allow ISOs to handle management of machines in off-premise locations, particularly those that generate fewer than 2,000 transactions a month.
"We're more than happy to let them have all the headaches," Napier said.
Both Small and Napier worry about the impact the introduction of a convenience fee might have on the market.
"If the regulators push us to take away interchange and foreign fees and substitute a direct charge, it will change the model for deployers," Napier said. "It would cause a lot of agreements between banks and independents to be reviewed and renegotiated. The independents operate on such small margins – I'm not sure they can handle so much disruption to their business."
Noting that most of DirectCash's machines typically do in excess of 1,000 transactions a month, Small said, "If you introduce a charge on top, will that reduce the number of transactions? No one really knows."
Average monthly volumes in Australia are 6,000 for ATMs at bank branches and 3,385 for off-premise machines. "The off-premise numbers are skewed by the pub and club market," cautioned NCR's Frielick. Machines at the highly popular waterholes do a staggering number of transactions, he said.
Room to grow
Perhaps one of the biggest challenges for Australian ATM deployers is the country's relatively sparse population of 19 million, the same as the state of New York and 14 million less than the state of California.
In many respects, the Australian demographic is similar to Canada, said Triton's Bienemann. "You've got a huge area with just a few major cities. Most of the population is concentrated near the border, the U.S. border in Canada and the East Coast in Australia."
Australia's current installed base is about 13,500 ATMs. After all the dust clears, how many ATMs will there be?
Commonwealth Bank's Napier said, "Eighteen months ago when we were at 10,000 machines, I predicted we'd go to 13,000 in three years' time. Now I think there's room for as many as 20,000."
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