News

FIs Getting Brand Conscious

New branding programs to offer financial institution cardholders surcharge-free ATM access.

September 9, 2004

When it comes to ATMs, ISOs and financial institutions (FIs) generally take separate paths. Profit drives ISO programs, while customer service is the main motivation for FIs.

Yet several companies have reached a crossroads, with branding programs in which ISOs offer financial institution customers surcharge-free access to their ATMs -- for a fee.

Gary Walston, vice president of Houston-based ISO Momentum Cash Systems, said that the branding proposition benefits all parties involved -- the ISO offering the service, FIs using it, retailers in businesses with branded ATMs and ATM cardholders.

Toll-Free ATM

About a dozen financial institutions -- ranging in asset size from $20 million to $1 billion -- participate in Momentum's Toll-Free ATM Network, which offers cardholders surcharge-free access to some 750 ATMs in Texas and Louisiana.

"The financial institution cardholder saves money (on surcharges) and gains convenience. The financial institution expands its ATM network for very little cost. We get added revenue and drive new transactions to our ATMs, which makes our merchants happy," Walston said.

Jimmy Lackey, executive vice president of the Beaumont Area Educators Federal Credit Union (BAEFCU), said his institution, which owns five ATMs located at three branches, was looking for a cost-effective way to offer increased ATM access to its 29,000 members in southeast Texas.

BAEFCU's members are mostly educators who work in 25 different school districts, many of them in rural areas.

"It was hard to justify putting an ATM in a town of 2,000 or 3,000," Lackey said. "(Toll-Free) allowed us to increase our ATM penetration at a reasonable cost."

Lackey said that he plans to increase his participation in the program from 25 ATMs to as many as 40 ATMs.

The only slight downside to the program for BAEFCU, Lackey said, is entrusting service to an outside party. Though Momentum has done a fine job with the ATMs, he said, "It's hard for us because we've always done all of the first-line service on our machines, and we're very committed to that. It's hard to rely on these guys to keep the machines stocked with cash and supplies."

Walston said that Momentum spent about a year tweaking the details before launching the Toll-Free program in 2002's second quarter. The concept rose from the ashes of Momentum's failed effort to launch an Internet bank that would have used ATMs as a delivery channel -- the same approach used by E*Trade Financial when it bought the ATM network of ISO Card Capture Services in March of 2000.

Momentum Chief Executive Bob Cannon came up with both ideas while seeking ways to leverage his ATM network. After nearly two frustrating years of attempting to win regulatory approval for a bank charter, Cannon scotched the online bank idea in favor of Plan B: Toll-Free.

eFunds/Co-Op Network

At about the same time, in the spring of 2001, Access Cash agreed to open some 6,500 of its ATMs to cardholders of the 772 credit union members of the Co-Op Network. The St. Paul, Minn.-based ISO had offered branding to financial institutions on a smaller scale since 1999, said Gregg Zastrow, eFunds' vice president of product management.

The Co-Op logo is featured on ATMs in eFunds' branding program. This machine includes another branding partner, California's Wescom Credit Union.

"We worked with some FIs on a regional scope in the Northeast and Southwest," he said, noting those early branding agreements remain in place. "It helped us prove the concept and gauge customer reaction," as well as develop streamlined processes for functions like settlement and reporting.

Access Cash, the Co-Op Network and the branding program have all grown since then. Access Cash became a subsidiary of eFunds in September of 2001; eFunds then purchased four more ATM portfolios, for a total of nearly 17,000 machines. Co-Op Network now has 1,215 members.

Nearly 8,000 ATMs are included in the Co-Op Network's branding program -- 800 of them in Canada, a number relevant to Ontario's Civil Service Co-operative Credit Society, which joined the program last October.

Gene Polito, Co-Op Network's president of EFT Services, said that the branding program helps Co-Op Network attract new members. Credit unions, which traditionally have fewer branches and ATMs than other financial institutions, are quite receptive to the concept of shared ATM access, he said.

Some Co-Op participants have experienced increases in "on-us" ATM transactions of more than 150 percent since joining the program, Polito said.

Surcharge-free access at the eFunds machines is included as part of Co-Op participants' regular network fees, Polito said. For a small additional charge, he said, financial institutions can add their own brand to the machines in addition to the Co-Op logo. "It gives them a little more ownership."

Polito said he stays in regular contact with eFunds, which helps him track Co-Op Network transaction volumes. "We're looking at opportunities to swap out some of the poor performers for other machines," he said. Co-Op Network also is interested in adding deposit capabilities and other functionalities to some of the eFunds ATMs.

Allpoint

The Allpoint Network, which is operated by Washington start-up ATM National, is composed of 25,000 machines manageged by two of the country's biggest ISOs, Houston-based Cardtronics and Arlington, Va.-based E*Trade Access. Among the first companies to join Allpoint are Pentagon Federal Credit Union, the nation's third-largest credit union with $5 billion in assets, and Skylight Financial, a provider of checkless bank accounts.

Ben Psillas, ATM National founder and president, expects to add several more thousand ATMs to the Allpoint network. He is seeking "a balanced portfolio" with the majority of machines in densely populated areas. "We want to put our ATMs where people are located," he said.

When he first announced plans for the network in late 2001, Psillas expected the ATMs to come from large banks that would agree to open their machines to customers of smaller financial institutions for a fee. While he is still in discussions with banks and hopes to add some of their machines to Allpoint, he found them to be more proprietary than expected in regard to their ATM networks.

"Some major banks still believe their ATM networks are one of their last remaining competitive advantages," he said.

Psillas found a more receptive audience in ISOs, who were eager to add a fixed revenue stream to their more variable, transaction-driven profits. While financial models in branding programs vary somewhat, they generally include a flat monthly access fee paid by financial institutions, often combined with a small transaction fee to reimburse ISOs for the "on-us," surcharge-free transactions.

Traffic jam

For ISOs, the prospect of added store traffic that results when customers of participating banks seek out branded ATMs is a selling point when trying to win new business. It also is a significant relationship builder for existing retail accounts.

"The guy who had the only ATM around in '94 understood the value. He knew it could drive traffic to his store," Walston said. "Now that ATMs are everywhere, just having one isn't going to drive the traffic. A branding program will because you're giving bank customers a reason to go to a particular machine."

Momentum has seen significant transaction increases at some of its Toll-Free locations, and there have been no drops in surcharged transactions.

In one location, a hardware store, Walston said that monthly transactions made by customers of a certain credit union increased tenfold when the credit union joined Toll-Free.

Zastrow said that eFunds has experienced similar effects on its transaction volumes. "It varies a lot, depending on the prevalence of the card issuer in a particular area. We've had wide swings -- everything from no change to huge increases."

What's in it for the banks?

Like Toll-Free, a significant number of eFunds transactions at branded ATMs come from customers who hadn't used those machines before. The lack of a surcharge provides a compelling reason for them to alter their ATM usage, seeking out a particular brand.

The Allpoint Network includes 23,000 ATMs managed by Cardtronics and E*Trade Financial.

Banks with large networks understand this, and use it as a recruiting tool, Psillas said. Bank of America, for instance, hired high-powered ad agency Bozell, New York to create print and television ads that showcased its ATM fleet.

Smaller financial institutions have been at a disadvantage when it comes to ATMs, since few of them can afford to invest in large numbers of machines, especially in non-branch locations.

Branding programs provide a way for them to level the playing field, Psillas said. "If you can tell your customers you went from 40 ATMs to 23,040 ATMs, that's compelling."

An "instant" ATM channel is perhaps even more compelling for non-traditional financial players like Internet banks, brokerages and insurance companies, Psillas said. "Those kinds of companies attract and retain customers with attractive rates on mortgages and CDs, but they have the highest percentage of customers who have their primary checking accounts with other financial institutions."

Few Co-Op news releases don't mention the network's 16,800 surcharge-free ATMs -- nearly half of which are managed by eFunds. The Co-Op Network site includes an ATM locator, as do the Toll-Free ATM and Allpoint sites.

A marketing strategy to promote branding programs like Toll-Free is key to making them work, Walston said. To make the Toll-Free logo easily recognizable to cardholders of participating FIs, Momentum installs signage -- including backlit ATM toppers, exterior pole signs, door and gas pump decals and other items -- at each location.

Walston said that Mometum also provides training for employees of participating FIs to help them promote the program, and encourages them to "create a buzz" with statement stuffers, postcards and signage in branches.

Messing with the matrix

For ISOs, a potential downside may be changes in their carefully calibrated service and cash management matrixes due to increases in transaction volumes.

While larger transaction volumes require ISOs to hone their management styles, Walston said that's a given in branding programs. "You've got to have the control and the confidence in your ability to stay on top of your machines if you want to work with banks. They're not going to stand for a machine being out of service."

Zastrow said that eFunds has experienced its biggest transaction increases in locations where ATMs are placements, which are more closely monitored than non-placement sites.

He added, "So it takes a little more cash going through the machine. It's no different than paying more taxes when you make more money. That's what we're here for, to drive transactions."

Branding boom?

Doug Deitel, executive vice president of corporate services for Cardtronics, said the largest ISOs will be better positioned to capitalize on branding -- mainly because of their large ATM fleets and greater geographic reach.As with many industry trends, Deitel said, the largest ISOs will be better positioned to capitalize on branding -- mainly because of their large ATM fleets and greater geographic reach.

"We've got more machines in more locations. We can offer brand names like Sunoco, Circle K and Barnes & Noble that complement a bank's expectations," he said.

In addition to its participation in Allpoint, Deitel said Cardtronics is marketing smaller branding programs to local and regional banks that may welcome the opportunity to pick and choose their ATM locations rather than joining a large network like Allpoint.

Walston said that Momentum plans to expand Toll-Free, although it may have to partner with other ISOs to do so. It is moving some of the 900 ATMs owned by Innovus, its parent company, into the Toll-Free program.

Zastrow said that eFunds expects to gain more branding business due to the synergies between transaction processing and ATM management. "We manage the ATMs, and we run the switch. It's all us."