STRATEGIC PARTNERS
March 4, 2002
BOSTON -- According to a new survey conducted by Dove Consulting on behalf of the nation's four largest EFT networks -- STAR, PULSE, NYCE and CO-OP Network -- the ATM industry is returning to a state of equilibrium, with ATM deployers re-emphasizing the customer service benefits of ATMs, while continuing to promote transaction migration and cost reduction
strategies.
"After the surcharge boom years, the industry experienced a period of transition with declining volumes per ATM, increased competition and declining profitability," said study author Tony Hayes, a director with Boston-based Dove Consulting. "Now we are seeing the industry come full circle: from customer service based to profit center back to customer service focused."
He added, "In every sector, we found deployers in the midst of changing their ATM business strategies."
The study, which updates Dove's landmark 1999 ATM Deployer Study, found that large ISOs remain optimistic about new deployment opportunities and expect to nearly double their ATM fleets in the next two years. Gas stations/convenience stores will remain the most popular channel for retail ATM placements, followed by supermarkets, schools and malls.
Many smaller ISOs, on the other hand, are in the process of exiting the business now that the surcharge "bubble" has burst, according to the study.
Banks plan to rationalize their ATM fleets over the next two years, either by relocating poor performing terminals or by removing the ATM altogether. Credit unions, meanwhile, will continue to place incremental ATMs at a steady pace.
Among other findings:
Transaction volumes
Location is the single most important determinant of a particular ATM's usage. In 2001, on-premises ATMs attracted 4,479 transactions per month (on average) while off-premises ATMs operated by a financial institution yielded 1,918 transactions per ATM per month. ISO terminals generated an average of 600 transactions per month. Deployers expect these
volumes to grow modestly over the next two years.
Transaction mix
To a greater or lesser extent, ATMs still remain cash dispensers. Of the total transaction base, 77 percent are cash withdrawals and almost all of the other transactions are for other basic banking functions (balance inquiries, transfers and deposits).
ATM surcharge rates
For the industry as a whole, the average surcharge for an off-premises cash withdrawal rose from $1.36 in 1998 to $1.48 in 2001, or about 9 percent. Hayes said some deployers can be expected to increase fees again in an attempt to produce greater income to offset their costs. "Consumers are relatively insensitive to changes in ATM fees. Based on deployers surveyed, a fee increase of 50 cents caused only a modest decrease in transaction volumes," he said.
The primary sources of revenue for ATM deployers are surcharge income and interchange income, both driven by foreign transactions. Other potential sources of income -- banking services (such as mini-statements), non-banking services (such as stamps and ticketing) and third-party advertising -- produce nominal revenues for all but a few deployers. Hayes pointed out, however, that despite these fees, many deployers continue to operate their ATMs at a loss.
ATM operating expenses
In 1998, the average monthly cost to own and operate an off-premises ATM was $1,090. In 2001, it was $1,016. Once rent expenses and an allocation for back-office operations are factored in, the fully loaded cost per off-premises ATM increases by $282, to $1,298 per month.
For off-premises ATMs, large credit unions have the highest cost structure, incurring a cost of $1,624 per ATM per month. ISOs with fewer than 1,000 ATMs tend to have the lowest costs, averaging $732 per terminal per month.
Large ISOs appear to have similar total operating expenses as their financial institution counterparts. "Scale is not a panacea," said Hayes. "The areas for leverage are merchant contracts and retooled cash management and replenishment strategies."
Deployer strategies
With the industry's evolution comes a shift in deployers' objectives. No longer viewed primarily as profit centers, ATMs are managed as an integral component of a financial institution's delivery system. With customers making fewer branch visits, ATMs now provide the most visible touchpoint for interactions with a financial institution, and need to be managed to attract and retain customers.
The Dove study found that 50 percent of large financial institutions want to apply their investment in Customer Relationship Management (CRM) technology to their ATM channel in order to provide a more personalized experience.
The 2002 ATM Deployer Study was conducted in the fall of 2001 by Dove Consulting to provide an analysis on the state of the ATM industry in the U.S. The 2002 ATM Deployer Study was sponsored by STAR, PULSE, NYCE and CO-OP Network, -- the four largest EFT networks in the U.S. -- as part of their ongoing commitment to industry research.
A total of 127 deployers in all geographic regions of the U.S. were surveyed. Respondents included 22 of the top 50 bank deployers, eight of the top 10 credit union deployers and six of the top 10 ISO deployers. As of August 2001, these respondents had a combined ATM base of 82,188 terminals, approximately 25 percent of the estimated total installed U.S. ATM base of 324,000 (based on Cirrus and Plus data).
