News

Uphill battle

Think you've got it tough, American ATM deployers? You may think twice before complaining about your declining transaction volumes after reading about the challenges facing those who want to bring ATMs to Yugoslavia.

March 21, 2002

Amidst the political and economical turmoil of the past decade here in Yugoslavia, life continues. Despite of a series of continuing wars, foreign bombings, high levels of inflation, civil unrests and all other misfortunes, the country underwent a series of reforms trying to keep up the pace with the region, and subsequently, the world.

With the banking sector burdened by low liquidity of funds, foreign currency debts toward its customers and low levels of technology in data processing, one might think it's insane to try to introduce ATMs and POS systems.

The biggest problem: The majority of banking customers have no confidence in the banking system, some of them having lost their savings to galloping inflation back in 1993-94, and others having to wait in queues in order to cash in their wages and pensions at tellers.

The prevailing type of account is the checking or current account, which for a flat fee offers a checkbook. Most people manage to find a way to make ends meet by using so-called monthly rate checks, where a customer pays back the owed principal sum in equal non-interest monthly portions. The majority of department and convenience stores offer that possibility because it is the only way for merchandise to actually get sold.

Several large banks in the market have signed up for the a national card project that will introduce a nationally accepted card. Until now, the largest banks issued their own proprietary cards, most of them a hybrid between a debit and a payment card.

The new so-called YUBA (the national banking association) card will use some of the widely accepted Visa standards and carry many of the same features as a traditional Visa card. A variety of such cards will be offered to the public, from the least sophisticated debit/cash cards with encoded magnetic stripes up to a product comparable to a Gold card.

All of the cards will have a modest annual flat fee, no APRs, no "teaser" rates in the American sense. They will have different on- and off-line limits, as well as set revolving credit balances. All of the cards will be linked to a customer's primary checking/current account -- the most popular account, as described above.

The majority of the banks have purchased the necessary hardware and software, and the clearing/settlement method has been agreed upon by participating banks. With the advent of the new card will come an increased need for ATMs.

Some banks kicked off with 50 ATMs, others modestly started with 20, and the rest only have a few -- primarily on-premise machines. The ATMs are different brands, and will offer different services. The biggest banks will try to take the best locations in the city of Belgrade, taking into account that these institutions have very few High Street branches.

There are no third parties, no ISOs, no processors, no independent ATM owners -- just the joint bank owners of the switching and processing system. But recent democratic changes have made it possible for other banks/card issuers/networks to enter the market, and it's hard to predict what will happen if Visa and/or MasterCard arrive.

Bank authorities face a challenge in making their customers realize that the ATM should not be a one-time usage machine, and that the habit of using it for an approximate day's spending is the right thing. Limits are one method, but what if the little guy goes around the corner and raises the rest of his salary in the bank?

Experimental ATMs were set up in the lobby of a large bank, internal cards were issued to members of staff, and results showed a usage rate of 1.5 percent over a year's time. About 80 percent of the staff used the ATM, which had a withdrawal of 150 dinars -- pocket money, in local currency terms. That is approximately how much a Big Mac meal costs at a local McDonalds. It also equaled the daily off-line limit and was the average fast cash withdrawal.

They generally used the ATM once a month. They weren't patient enough to use it more frequently; instead they raised the remaining balance at the nearest branch.

Another problem is that charging a convenience fee for using ATMs could turn people away, knowing of the current cost sensitivity in Serbia. Instead, a modest "on-us" fee for account holders will be charged, and will be deducted and shown on the customer's balance sheet at the end of the month.

There are doubts about whether to charge a flat fee, which is considered to be better for low limits. At this stage, maybe a better solution would be to charge a low percentage fee per transaction and a higher one for foreign card users.

Banks that own ATMs and issue cards also will charge a foreign fee if customers use ATMs belonging to other banks. The interchange and the switch fee will be distributed and deducted from the foreign fee, so everyone will get their share of the cake.

What it will be once it hits the streets is quite hard to predict. How the public is going to react remains a mystery. Most of the banks are aware of the non-profitability of such a project, but believe that investment in cards, ATMs, POS systems and online banking will pay back gradually.

Of course, with the political changes and reforms that this country is to undergo, and with an increasingly healthy banking environment, we are on a right path for the future. All in all, ATMs could be a real thing. Wish us luck.

The author, Emil Videnovic, is junior manager of development services at the Postal Savings Bank of Yugoslavia. Email him at evidenovic@posted.co.yu