Banking Without Bricks and Mortar
As ATMs continue to evolve, other services follow the money

Thanks to the convenience of the automatic teller machine, needing cash after banking hours has nearly become a quaintly obsolete problem. The same convenience people have come to expect in obtaining that cash may soon exist for purchasing postage stamps, money orders, or even tickets to a local art or sporting event.

Chances are, your ATM looks considerably different today than it did when it was first introduced in the 1970s. The machines are rapidly morphing into a new breed of service provider. Although many are still strictly cash dispensers, more and more ATMs are offering complex services such as Internet access. Some have become providers of tickets, postal stamps and telephone cards. Others cash checks while still others issue money orders. Eventually, some Internet-enabled ATMs will allow you to pay your bills at the site.

Tom Harper, of Louisville, is publisher of ATMmagazine.com, a trade journal that provides information for the global ATM industry. Harper says, “the biggest thing with the development of ATM technology right now is the Internet.”

The Internet is used as a delivery mechanism for ATM content. Banks can use the Internet to sell their products on screen as well as to allow the user to gain access to the financial institution through e-mail or on-line banking programs.

Some ATM owners are also experimenting with advertising at their site. Harper said on-screen advertising “is under heavy development right now.” The key to successful advertising will likely be an acceptable balance between the advertising content and length and the customer’s desire for speed and convenience.

Along those lines, Wells Fargo recently unveiled an ATM machine that shows movie previews, features pop-up advertising, and has a scrolling news report across the bottom of the screen. MSNBC will eventually provide stock market information and weather reports on selected ATMs.

How do ATMs work?
By today’s standards, ATMs are not terribly complicated machines. Each ATM is typically connected to at least three computer networks. The first connection is to the network of the bank or firm that owns the ATM. The second is to a shared network that links many of the banks that operate in a state or region. The third connection is to a national network operated by the major credit card associations. The latter allows cardholders from other states or regions to use an ATM.

When the cardholder inserts his card into an ATM and enters his personal identification number, it checks to see which network would best fulfill the customer’s needs.

Surcharges
Aside from advertising and new services, one of the biggest issues surrounding ATMs presently is the levying of surcharges.

Ken Pennington, deputy commissioner for the state Department of Financial Institutions in Frankfort, said the biggest complaint his agency receives regarding ATMs is surcharges.

“Particularly from the point of not being properly disclosed,” said Pennington.

Nationally, those fees rose to an average of $1.27 in 1999 from $1.19 in 1997, according to the U.S. Public Interest Research Group. In Kentucky, those fees range from $1 to $2 at most ATM locations.

ATMs began charging these fees nationwide in April 1996, when the two main national networks, Cirrus and Plus, lifted their ban on ATM surcharging. Following that move, many regional networks also lifted their bans, and by April 1997, “all but four of the top 25 ATM deployers nationwide were actively surcharging in at least one of their markets,” according to a 1998 report prepared by the Congressional Budget Office.

ATM owners and financial institutions explain this surcharge as a convenience fee.

“I think, as businesspeople, we realize that we’re providing a 24-hour a day service to customers so that they can obtain cash and make deposits,” said Steve Kelly, vice president of marketing and sales for Central Bank in Lexington. “Those banks that had high volume areas found that they had a lot of use by non-customers and needed to be compensated for the use. We were operating at a loss.”

From a bank’s standpoint, the surcharges help recoup a variety of costs associated with operating an ATM. First, there is the cost of the machine itself. That cost varies widely depending upon the sophistication of the machine. Some basic machines can be purchased for around $5,000. But the cost can also go as high as $50,000, depending upon the machine and its location.

Secondly, banks must pay a cost to use the data lines, which connect the ATM to the networks. Some must also pay a rental fee to the owner of the ATM site.

“You add all of those items up and it’s a considerable expense per location per month,” said Kelly. He said Central Bank’s costs average between $1,500 to $2,000 per location for each of its 22 ATMs.

Debra Stamper, general counsel for the Kentucky Bankers Association, said her trade association supports financial institutions’ ability to impose surcharges.

“Our position is that it’s a marketing issue,” said Stamper. “Banks should be allowed to compete and charge fees.”

Stamper said consumers sometimes forget how difficult it once was to get cash before the advent of ATMs.

“Now they’re a given, a utility,” said Stamper. “The ATMs are a wonderful convenience.”

For the foreseeable future, ATMs will maintain their primary purpose of dispensing cash. But ATM owners continue to explore new uses for the machines, some of which they hope will help offset the cost of operation.

“A lot of our younger customers don’t ever want to come to the bank,” said Kelly. “Obviously, that’s a challenge for us.”

Kelly said widespread use of ATM machines, on-line banking, and banking by telephone reduces the financial institution’s ability to sell other financial services.

“Convenience has a price for us too,” said Kelly.

Lisa Summers is a staff writer for The Lane Report.
lisasummers@lanereport.com

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