News

Commentary: Convenience ATMs going global

While the U.S. and Canada continue to lead the way in convenience ATM deployments, a new study from KLCI Research Group shows that ATM popularity is on the rise in Europe and the Pacific Rim.

January 29, 2002

Peter Kulik

Around the world, consumer demand for cash is driving deployment of an increasing number of ATMs in convenience locations. Independent deployers in the U.S. and Canada were at the forefront of deploying "convenience ATMs," starting with the introduction of surcharging in the mid 1990s.

Since then, however, the trend has caught on elsewhere. Independent (i.e. non-bank) deployers go by different names in different countries - "Independent Service Organizations" (ISOs) in the U.S., "White Label" ATM deployers in Canada and "Independent ATM Deployers" (IADs) in the UK and Australia. Whatever the name, independents have found a climate conducive to convenience ATMs in many areas of the world.

Enough consumers seem willing to pay for convenient access to cash that deployment of new ATMs continues to expand - even without surcharging. Outside of the U.S. and Canada, independent businesses, banks and even retailers are realizing there are profits to be made and are increasingly getting involved.

KLCI Research Group's recent worldwide study of Entry-Level ATM Trends and Futures showed that cash withdrawal accounts for 85 percent of all transactions from convenience ATMs. Canada has the highest percentage of cash withdrawal transactions (100 percent); other countries offer balance inquiries, and many are experimenting with new transactions (more about that in a future column).

With few exceptions, deployers report that it is more profitable today for them to deploy new ATMs than to deploy new services to their current ATM portfolio. Though each country is unique, our study showed that there are more similarities than there are differences due to the common catalyst of consumer demand for cash.

Many deployers are expanding their geographic coverage beyond the U.S. and Canada, realizing that proper site selection allows them to be profitable based on interchange rates alone. Europe in particular is seeing more deployment of convenience ATMs - including countries throughout Northern, Eastern, Central and Western Europe.

Our study also identified active initiatives in some banks in Europe, and some retailers in the Pacific Rim and the U.S.

Many look to the U.S. and Canada for leading indicators of the future of convenience ATMs in other countries. As the U.S. and Canada were the earliest to introduce surcharges and broadly deploy convenience ATMs, it's no surprise that their density of ATMs is highest - 1,119 and 1,054 ATMs per millions of population, respectively, according to recent studies.

Transaction volumes per ATM have been declining steadily since 1995, while the number of independent deployers has expanded dramatically, by some estimates to more than 250 in the US and 100 in Canada. To maintain profitability, merchant replenishment of cash has become the norm.

Narrowing the field

Consolidation among deployers appears to be continuing, and the high-profile failures in 2001 of Credit Card Center (CCC) and InnoVentry suggest that deployer business models are under pressure. Our study showed that a number of deployers are evolving their business models in response to these challenges, some more successfully than others.

Debit at the point-of-sale is beginning to compete with ATMs for sites with very low transaction volumes; especially in Canada, where the recent authorization of POS debit surcharging by independent deployers is increasing POS debit terminal installations.

The UK also allows charging of convenience fees for ATM transactions, and an increasing number of IADs are operating there, including U.S.-based companies such as TRM and Hanco.

UK deployers report that good ATM sites are still plentiful, with transaction volumes that support a full-service operating model in which armored car cash replenishment is the norm. Our study showed that while the number of convenience ATMs is already substantial in the UK, this number has the potential to double over the next two to three years.

Falling Volume

As the number of ATM installations appears to be increasing more quickly than the number of ATM withdrawal transactions, we expect the average transaction volume per ATM to fall, putting downward pressure on operating costs - and making the merchant cash replenishment model more common.

Australia does not currently support surcharging, but introduction of convenience fees for independent deployers in some form is expected within the next two years. A handful of independent deployers are currently operating in Australia, though the market seems to be expanding rapidly. Today, these deployers focus on sites that are profitable based on interchange fees alone, and are deploying ATMs as quickly as logistics - and processors - will allow.

Like Australia, ATM fees are projected to rise in Ireland and throughout Europe - and recently rose in Germany, which has helped Euronet and other independent deployers operating there.

Then we also found some special cases - such as tourist sites in the Caribbean, in the Alps, and along the Mediterranean - where international interchange fees are high enough to make deploying ATMs in hotels and other tourist locations extremely profitable.

Throughout these countries and elsewhere, the common thread is consumer demand for cash. As long as consumers need a few pounds for a visit to the pub, dollars to buy gas, lira for a movie or marks for a dinner out, convenience ATMs will have a place.

Convenience ATMs live and die by consumer acceptance, and so far consumers have broadly accepted them. And I say this is a good thing - as ATM Industry Association International Director Mike Lee has so eloquently stated, ATMs are a force for freedom, and it is free consumerism that is shaping the economic future of our world.

KLCI Research Groupis a market research firm with focus on the Financial Services, ATM, and Kiosk industries. Recent studies have included "ATM Industry Operations and Cost Benchmark", "Entry-Level ATM Trends and Futures", "Reducing Costs of ATM Cash", and the Kiosks.org RFI Analysis.

With more than 15 years experience in the financial services industry,Peter Kulikhas published and spoken widely on topics ranging from ATM Operations to Outsourcing to CRM. He is Managing Director of KLCI Research Group, and focuses on research for banking and independent ATM deployment. Some recent clients have included CIBC, Halifax plc, NCR, and RBC Royal Bank; he also spoke on CRM in the ATM Channel at the 2001 BAI RDS conference.