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LAS VEGAS -- The number of automatic teller machines has proliferated in recent years and that growth has sparked competition between banks and independent operators for the best sites, reported Las Vegas’s Business Press .
Retailers are also realizing that not all ATMs are branded equal. Smaller store owners have discovered that cash machines are not always cash cows and big-name retailers are opting for ATMs that come branded with the name of a major bank, industry expert David Gosnell told Business Press .
"Over the last couple of years, retailers have wanted bank names on their ATMs. They feel it will bring in customers," Gosnell, the senior editor of the industry publication ATM and Debit Trade News , said in the report. "Banks still own the majority of ATMs in this country, over 50 to 55 percent. But over a period of time, it has declined."
ATMs are no longer confined to banks. Just over 67 percent of the nation's 396,000 automated teller machines are located on off-bank premises, according to ATM and Debit Trade News data. The off-site statistic includes stand-alone bank ATMs and independent operators. "There are hundreds of non-financial institution operators," said Gosnell in the report.
The bank's motives are not, however, wholly altruistic. In return for that convenience, the ATM screens will offer customers personalized pitches for various bank products. "We are using Windows Prodigy," U.S. Bank ATM Banking Manager Patty Henneke told Business Press . "With the information we are gaining through the ATM, we know they are a U.S. Bank customer and we know what our customers have."
That type of target marketing might not sit so well with ATM users, surmised banking analyst Avivah Litan. "I think people will get annoyed," she said in the report. "Nobody wants to stand and wait longer for ads to pop up, but it won't send consumers away. People need their cash."
The analyst with the Stamford, Conn.-based Gartner Group also sees the Windows-equipped ATMs as the wave of the future. "Those ads cost the bank next to nothing, so even if they get a less than 1 percent return, it was a good investment."
The big retailers benefit two ways: The ATM owners pay fees to place the machine and bank customers tend to spend some of the cash they withdraw in the store, Gosnell told Business Press . "Sometimes it is a rental agreement or sometimes it is a fee split, where the surcharge would be used," he said. "It depends on the transaction volume."
Following the Money
ATM customers are charged a fee -- usually known in the industry as "the surcharge." The fee is deducted from the user's bank account and sent to the ATM owner. The operator then divides up the surcharge according to its agreement with the ATM operator and/or the store owner.
Surcharges typically range from $2 to $4 per transaction, but can go higher.
Others make money on the transaction, too. The customer's bank, called in the trade "the issuing bank," pays a fee for every transaction. That network fee (called an "interchange fee" or "foreign ATM fee") is often passed on to the customer, according to Business Press .
While customers often find a $1 has disappeared from their accounts when they use a foreign ATM, the actual cost to customers' banks is much less, BankWest of Nevada President Larry Woodrum told Business Press .
"The big banks make the money," he said in the report. "The network fee is usually under 25 cents per transaction for the interchange fee."
Major networks, including Cirrus (owned by Mastercard), Plus (owned by Visa), Star and the surcharge-free network Allpoint, also make money on annual membership fees that they charge the ATM owners. Those fees, Woodrum told Business Press , vary based on the bank's asset size or the number of machines. Woodrum's BankWest of Nevada also paid between $500 and $1,000 for installation of its ATMs.
According to Business Press , ATM owners must also pay the processing company that is transmitting the transaction request from the ATM to the issuing bank. Armored car cash pick-ups are commonly used by banks, with some of those costs passed along to store owners. And the teller machines themselves can cost as little as $3,000 and as much as $40,000.
Not Banking on It
All those expenses can give non-bank operators a competitive edge in finding locations, according to ATM and Debit Trade News' Gosnell. "Typically, a retailer will want to use them because they operate out of a lower cost than a financial institution. They want to at least break even on an ATM," he said in the report. "No bank would allow a retailer to put their own cash in an ATM. They'd have an armored car service pick it up. But some independent operators will allow it because it is less costly."
Some bankers say the small ATM operators are not doing that well and aren't much of a threat. Bank of America Nevada President George Smith told Business Press he isn't worried about competition from non-banks.
Deregulation in 1996 opened the door for independent operators by allowing them to charge fees, Cardtronics Executive Vice President of Sales Brian Archer told Business Press . His company touts itself as the "world's largest owner/operator of ATMs," according to its Web site.
Cardtronics owns about 11,000 of those, said Archer, but also operates another 15,000 for other owners. Buying a non-bank ATM is easier than one might think, said the Cardtronics executive.
"We help the merchants contact the networks through the processors. We have contracts with all of them," Archer said in the report. "It's a very easy process. We do it for merchants every day."
A business can either buy the ATM from Cardtronics and contract the Houston-based company to operate the machine, or it can have Cardtronics retain both ownership and operation of the automated teller. Potential ATM owners must undergo a federal background check which takes about 14 days, reported Business Press .
If Cardtronics retains ownership of the teller machine, it can be installed almost immediately. The money from the surcharges are divided between Cardtronics and the retailer, with the majority going to the ATM's owner.
Things can get tough for small operators though, especially if they are the store owners, added ATM and Debit Trade News' Gosnell. "Even paying a non-financial institution is costly if the transaction volume is weak. Some mom-and-pops may even have to pay a monthly fee to provide an ATM in their store."
Man Against Machine
Most banks deny ATMs are designed to cut down on labor costs. "That is not a reason for us when we place ATMs. We don't discourage people from coming into the bank," U.S. Bank's Henneke said in the report.
Even if a financial institution's automated teller machines only attract its own customers, banks will have made money by saving money, Gartner Group's Litan told Business Press .
"ATMs are very important because they are a fraction of the cost (for transactions). Every time you interact with a teller, it is ten times more costly," she concluded in the report, adding, "It's part of what's going on in America. Customer service has gone to hell."