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In the last decade, convenience store operators have aggressively invested in ATMs as a customer convenience and new source of revenue. But as today's consumers balk at ever-higher ATM fees, they're increasingly opting to fill their wallets by asking for cash back from debit transactions — a service supermarkets, mass merchants, home-improvement and other retailers willingly offer at no charge, but c-stores have largely avoided.
Cash back is the fastest-growing point-of-sale transaction. In one survey, 82 percent of consumers said they were aware they could get cash back if they use their personal identification number (PIN) for an online debit purchase, according to Leslie Michelassi, senior vice president of debit strategy for Denver-based First Data Corp., which processes nearly 11 billion POS transactions each year.
"Cash back is becoming an expected transaction," she said, noting the average cash-back transaction is $20 to $40, "which fits right into the c-store business model."
C-store operators accepting debit cards without offering cash back may not be satisfying market demand, added Sandee Mapp, First Data's director of strategic market development. "Half of debit-card holders say they prefer to use PIN debit and 12 percent of those people say they prefer PIN debit because of the cash-back option."
Retailers in other channels cherish the cash-back option because it encourages the use of online debit, reducing the number of higher-fee credit and off-line debit-card purchases, and takes money out of the cash-handling system, reducing expenses and improving security.
At the same time, consumers are increasingly enamored of the service, said Mary Gerdts, president of the Electronic Transactions Association, based in Kansas City, Mo. "As the universe of cardholders becomes more savvy on the use of debit cards — and they have over the past few years; debit is one of the credit-card companies' highest revenue sources — they will demand through consumer purchase patterns that certain types of places provide cash back.
"It is an important issue for convenience stores to look at. If someone needs a couple of items and cash, will they pay $2 or $3 for it at a c-store ATM or go to the supermarket for cash back?"
The increasing presence of gasoline at supermarkets and other retail sites outside the channel also weigh in the equation, as consumers are more able to buy fuel and get no-fee cash back at one location.
"The dictating public — the consumer — will probably force most retailers to offer the service, but offset the loss of ATM revenues by sales made to those who want to use the cash-back service," Gerdtz said. "C-store customers who pay for their gas at the pump and want cash, but see two or three people in line, may opt to go to the store's ATM anyway or if cash-back is offered, they make an ancillary purchase they wouldn't ordinarily make to get the cash back."
The size of the impulse sales gain c-store operators can expect by offering the cash-back option remains to be seen. But in other industries, those upticks range from 2 percent to 5 percent, or even higher, First Data's Michelassi said.
What's more, some retailers, specifically quick-service restaurant operators, are charging a small fee for PIN debit transactions. "Consumers are more willing to pay a 35- to 50-cent transaction fee than a $2 fee," she noted. "The ability to charge those fees may become more widespread, depending on the outcome of the recent lawsuit settlement with MasterCard and Visa."
What's more, some banks (approximately 15 percent, according to bankrate.com; see "By the Numbers" at left) are taking a cut of the burgeoning business, charging small fees — 25 cents or 50 cents — to cardholders using the cash-back option on debit transactions, said Patti Murphy, contributing editor to The Green Sheet, a payments industry newsletter based in Rhonert, Calif.
"I bank with SunTrust and if I go to a grocery store that doesn't own the ATM, when I get cash back, I am hit by a charge," Murphy pointed out. "A few of my friends who bank with credit unions are being charged, too. These institutions are trying to capture a little bit of the lost fee revenues. As a consumer, though, I think it's silly."
Still, she admitted, that small fee was more palatable than the much larger hit banks charge when using another institution's ATM.
With more than 80 percent of c-stores equipped with ATMs and the number of transactions plateauing, many worry ATMs may soon go the way of the dodo bird.
"In the future, ATMs will offer additional services," Michelassi assured retailers, adding that c-store operators are "perfectly positioned for the future.
"Whether their hardware will do all the functions needed in the future is a question, but customers know the ATM is there and will be looking for those other services."
Operators who are focusing on cash-back's cannibalization of ATM surcharges, should consider the broader issue: the migration of electronic payments to debit, she added.
"Can you move the more expensive signature-based volume to online volume, while appealing to a group of consumers who may not otherwise take the time to walk over to the ATM or want to pay a $2 fee," Michelassi said. "Many times consumers want $20 or $40, see the $2 fee, and walk out of the store. With a limit on the cash back, customers who want larger sums will still use the store's ATM."
Still, c-store operators who strive for limited cash in the drawer and use drop safes, face transaction dynamics different from larger-store channels.
"The whole premise is based on speed of service. Giving cash back would slow down the consumer's transaction," noted Jeff Lenard, spokesperson for the National Association of Convenience Stores, Alexandria, Va. "It takes seconds, if not minutes, to get cash out of a safe."
While some operators may address this issue by using cash-counting safes or a designated cash dispenser, others may first want to review store policy. "Security is a part of the convenience store business model and those issues present a conundrum," Michelassi said. "But keeping a $60 or $80 in the drawer will move that transaction along."
Other factors discouraging c-store operators: a much smaller average ring; the percentage of customers paying at the pump without entering the store and the accessibility of ATMs.
"In other venues, a customer may have to walk 10 aisles away to get to the ATM," Leonard said. "In c-stores, ATMs are as effective as cash back and the fee is the price of convenience. It's the difference between [a service] that would be nice to have, versus needing to have."
Slow investment in PIN pads also has held up online debit transactions, Michelassi said. "Business needs in the past haven't always justified having the PIN pad."
ExxonMobil — which helped propel the use of debit transactions by allowing customers to link their SpeedPass accounts to ATM cards — isn't yet offering cash back on debit transactions, though that step may happen in the future. But another of the nation's largest c-store chains — 7-Eleven Inc. — offers customers up to $10 cash back at its company-operated stores.
"An issue for us is security," said Kathy Naumann, director of information systems, support services, for the Dallas-based chain. "We have strict limits on the amount of money kept in the register. Up to $10 is reasonable for us to give back to the customer and not make them wait while we access money from the store's drop safe."
The $10 limit is consistent with the chain's longstanding corporate store policy allowing customers to write checks for $10 more than the purchase price. "We haven't increased the dollar limit for debit cards," she noted. "We'd like to drive customers to the ATMs for larger amounts and, where our Vcom machines ['virtual commerce' electronic kiosks] are available, customers can get larger amounts of cash and even cash a check. Typically, a customer who needs cash will want more than $10. But as a convenience, we offer both."