Large financial institutions were the first mass deployers of automated teller machines, and their customers quickly began viewing the machines as an important part of their banking lives. Many deployers began using surcharge-free ATM fleets as part of their marketing strategy against local competitors.
Selective-surcharge groups-agglomerations of local financial institutions-have since emerged to counter the big-bank ATM marketing strategy.
Most such groups share surcharge-free use of ATMs among participants and retain the freedom to surcharge non-participating financial institutions' cardholders. Such selective-surcharge alliances usually are operated by shared ATM networks.
One network, however, Washington, D.C.-based ATM National LLC, is turning the concept of selective surcharging on its head. The network recently launched Allpoint, a for-profit surcharge-free network.
While most selective-surcharge groups typically use their own, local ATMs to offer surcharge-free access, the Allpoint network is composed of debit card issuers that pay other ATM operators for the surcharge-free service.
"We do see lots of opportunities to expand off of the surcharge-free concept," says Steve Karp, ATM National executive vice president.
Securing issuer participation in Allpoint hinges on the ability to sign up ATM operators. And no large financial-institution ATM owner has yet signed up to offer up its machines for surcharge-free access to other card issuers.
But ATM National has found willing partners in the off-premise ATM market. Two of the nation's largest ATM independent sales organizations, Houston-based Cardtronics Inc. and Menlo Park, Calif.-based E*Trade Group Inc., are offering Allpoint's cardholders access to 23,000 ATMs surcharge-free.
Karp would not say how many cardholders can use Allpoint's surcharge-free service, citing proprietary concerns. But the number probably is approaching about 600,000, considering recent issuer signups.
Washington, D.C.-based Pentagon Federal Credit Union, which has 505,000 debit card holders, recently joined the network, as did Skylight Financial Inc., an Atlanta-based payroll debit card issuer that would not disclose its card base.
Pentagon Federal is the type of client ATM National wants. Its cardholder base covers a wide area, but the credit union deploys few of its own ATMs, about 60. "(Joining Allpoint) is a home run for us," says Mary Lynn Stevens, Pentagon Federal vice president.
ATM National's 23,000 off-premise ATMs provide Pentagon Federal cardholders, most of whom live in cities away from the nation's capital, convenient surcharge-free locations in convenience stores and gas stations, says Stevens.
But getting connected to Allpoint comes at a cost. Stevens says the credit union pays ATM National an undisclosed monthly fee based on its card portfolio and, like all issuers, pays network interchange fees to ATM acquirers. Pentagon Federal is a member of the Montvale, N.J.-based NYCE network.
The credit union loses money in the short run from participating in Allpoint, but gains long-term depositors that depend on remote banking, says Stevens. "It is more expensive for us to bring in a new account than to offer free ATMs," she says.
Karp also notes that Allpoint, unlike most selective-surcharge groups, does not require its clients to offer surcharge-free ATMs to other members and clients. So they can still collect all noncustomer surcharge fees.
ATM National also has its own expenses. The company, for example, splits its revenue with the ATM suppliers, and it pays Brookfield, Wis.-based Fiserv Inc. to provide processing services.
But Karp says he believes the company is providing a product not offered by any other network. "What the network industry really lacks is a nationwide, surcharge-free network," he says.
One shared network, however, is skeptical that many credit unions will use Allpoint, given the cost to participate. Gene Polito, executive vice president of Ontario, Calif.-based Co-op Network, says he has heard that Allpoint charges up to $6 per card annually, depending on the number of debit cards issued.
Co-op Network charges its non-shareholding members a $3,000 annual fee, but that is marginal compared with the Allpoint charges, Polito contends. He says Pentagon Federal may be paying millions of dollars a year for its cardholders to use surcharge-free ATMs nationwide.
Moreover, 5,000 of the 16,000 ATMs in Co-op Network that are owned by credit unions offer deposit-taking, Polito notes. Co-op Network also provides surcharge-free access to 7,000 Access Cash-operated ATMs.
Polito, however, credits ATM National with building a nationwide ATM service for its clients.
"We may not have as high an ATM saturation point in an area as we would like," Polito says of a comparison between Co-op Network's and Allpoint's ATM availability. "But we are always looking for ways to expand."
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