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KeyBank's shared ATMs play well with some other FIs

Some 80 small financial institutions are sending their customers to KeyBank ATMs. For them, offering their cardholders more convenience at a reduced cost is worth the risk of losing customers to a big bank.

October 9, 2003

For several years, large independent ATM providers such as eFunds/Access Cash, Momentum Cash Systems/Innovus and Nationwide Money Services have offered programs in which financial institutions pay a fee in exchange for offering their cardholders surcharge-free access to the independent company's ATMs.

Gary Walston, Momentum's vice president of marketing, called such programs a winning proposition for all involved. "The bank customer 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," he said.

Earlier this year EFT veteran Ben Psillas launched the Allpoint network. Its financial institution members pay a fee for surcharge-free access to 25,000 ATMs managed by two of the country's largest ISOs, E*Trade Accessand Cardtronics.

A more surprising player in the shared ATM access game is Cleveland-based KeyBank, whose agent bank program has attracted some 80 FIs in 11 states, the majority of them in Ohio and New York where Key has a big branch presence.

Independents tend to tout the brand neutrality of their machines. "Why would you want to send your customers to a competitor's ATMs?" asked Walston.

Competition vs. convenience, cost

Yet Key's success has shown that for many smaller FIs, desire to offer more convenience outweighs the fear of losing customers to the big guys.

Before joining Key's agent bank program, Albany, N.Y.-based Capital Communications Federal Credit Union (CapComm FCU) had just 10 ATMs, said Dennis Halpin, its president and chief executive. Even with its participation in SUM, a selective surcharge alliance organized and administered by NYCE Corporation, "our members were telling us that we didn't have enough free or low-cost ATMs," he said.

Unlike SUM and other selective surcharge programs, Key requires no reciprocity from its agent banks. It also does not prohibit them from joining other networks or programs.

Key owns 290 ATMs in New York, most of which are located at Key branches. Halpin seems unconcerned about sending his members to a competitor's branch. Instead, he said, the branches' high profile makes it easier to promote the service to his members.

"They are well known to our members," he said. "It's easier to direct them to those ATMs than the ones in SUM. You can tell people to look for the SUM logo, but it's probably going to get lost among the eight or 10 other logos that might be on the machine."

Many of Key's ATMs are located in drive-through lanes, which means his members don't even leave their cars to get cash, Halpin added.

CapComm's senior management team had suggested that the credit union could spend $120,000 to deploy 12 new ATMs a year, Halpin said. "At that rate, it would take us 28 years to match what Key has today."

While no surcharge is assessed, CapComm members pay a 50-cent foreign fee when they use the Key ATMs.

Brian Sismour, national sales manager for Key's program, expects to see an uptick in interest with the addition of 876 ATMs owned by SouthTrust, a $51.7-billion financial institution headquartered in Alabama.

He said many of Key's existing agent banks have shown interest in adding SouthTrust ATMs, which are located in nine southeastern states where Key does not have a presence.

"As large as both institutions are, there is no overlap in footprint," Sismour said.

David Oliver, SouthTrust's director of corporate communications, said SouthTrust considered creating a similar program on its own but decided it made more sense to take advantage of Key's existing marketing muscle.

"They were at the forefront of this concept of opening an ATM network to smaller institutions," Oliver said. "They've done a good job of selling it."

SouthTrust would not have partnered with a bank in its own service area, Oliver said. "We didn't want to be in a position where we were in direct competition for clients."

In addition to a new revenue stream, SouthTrust gains exposure with prospective customers, Oliver said. "The smaller institutions have to weigh the pros and cons from their side, but we see it as a chance to familiarize clients with our locations and our products and services."

"(Attracting new customers) is not the intent of the program," said Sismour, "but it would be foolish to say that it could never happen."

Sismour said Key's agent banks range in asset size from de novo to $10 billion (USAA Federal Savings Bank in Texas), with most in the $100 million range. They own zero to 162 ATMs, with an average of fewer than 10 machines.

Though the program was once sold almost entirely on word-of-mouth, Sismour said Key has stepped up its marketing efforts with attendance at state credit union and community bank trade shows.

In addition to surcharge-free cash withdrawals, Key offers transaction processing, deposit taking and card issuance and management. Several new products are planned, including terminal driving, branded off-premise ATM placements and prepaid debit cards.

"We want to offer agent banks any products and services that we can do well and provide less expensively than they can purchase them on the open market," Sismour said.