Surcharge-free ATMs. The very phrase holds the power to frighten the bravest of cash-machine deployers.
That’s because ATM ISOs and merchants have relied on the fees for the past decade and a half, ever since the national ATM networks lifted their surcharge bans.
Still, the consumer appeal of surcharge-free ATMs is not difficult to grasp, as Americans look to save money anywhere they can during tough economic times.
It’s an appeal that translates into increased store traffic and increased sales, some merchants believe.
And financial-services fees in general have become a frequent target of consumer advocacy groups.
So, it comes as no surprise that a surcharge-free network such as the Allpoint Network, an affiliate of ATM ISO Cardtronics Inc., already operates 43,000 surcharge-free ATMs around the world.
“Many who try it out are surprised by the degree of success with it; a high percentage find happiness with it,” says Bryan Bauer, president of ATM supplier Kahuna ATM Solutions. “The concept is definitely gaining momentum.”
MoneyPass, an affiliate of Elan Financial Services, operates a network of 22,000 surcharge-free ATMs that began almost a decade ago with a realization that small banks in the Southeast needed a way to compete with the biggest banks in the region. “Off-premise” ATM locations, including gas stations, bars, convenience stores and others, “are one of our strongest growth areas,” says Doug Miraglia, MoneyPass president.
Merchants with ATMs in their stores usually negotiate to receive a percentage of the surcharge. With the beginning of the ATM surcharge era in 1996, merchants began to view on-site ATMs as a sideline revenue generator.
Playing host to an ATM was not part of their core business, but in most cases merchants did not have to manage the machine or replenish its cash and paper. All they needed to bring to the table was floor space, a power supply and connections.
Meanwhile, merchants could count on getting at least a small portion of their revenue from such machines.
But with today’s surcharge-free ATM movement, the rules of the game are changing: Take away the surcharge, and some revenue disappears.
So, why would a merchant with a reliable ATM revenue stream ever want to give it up? It comes down to increasing traffic and thus increasing sales.
“If you’re a retail merchant, and customers know you have a surcharge-free ATM in your store, the idea is that you will get more customer traffic coming in,” says Peggy Bekavac Olson, principal with Phoenix-based consulting firm Strategic Marketing. “More customer traffic to use that ATM likely means more in-store customer activity, and that means more sales.”
Not much hard data has been compiled on revenue merchants can expect from ATMs, but proponents of surcharge-free ATMs say the increase can vary widely.
“It depends on your business model, but what we hear from our merchants is that they want to have an ATM in their stores for the convenience of their customers,” Miraglia says. “They are interested in making convenience part of their business. That matters more to them than the revenue they would otherwise get from the ATM surcharge.”
Indeed, “surcharge-free is nice, but what consumers really want is surcharge-free plus convenience,” says Tom Pierce, chief marketing officer for Houston-based Cardtronics.
Merchants also can build traffic with ATMs that offer functions beyond simple cash dispensing. “You can do applications like loyalty programs, where the ATM user takes out cash and that gets a coupon they can redeem in that store,” Olson says.
The considerations differ for ATM deployers. They can’t make machines surcharge-free on a case-by-case basis because doing away with the fees requires making them part of a surcharge-free network, such as MoneyPass or Allpoint. Often, their merchants drive them to make that decision, Pierce says.
In fact, the merchant ‘housing’ an ATM may ask the deployer about getting an ATM folded into Allpoint for the purposes of driving additional transactions, Pierce says.
Before Cardtronics took over Allpoint Network in the mid-2000s, Cardtronics was one of the first deployers to place its ATMs in Allpoint Network.
Joining a surcharge-free ATM network could coax new life from a dormant merchant portfolio. “It gives ISOs a chance to expand their offerings and go to their merchants with something new,” Olson says.
“From the standpoint of revenue directly from ATM transactions, you will see that go down,” Pierce adds. “But if the ATM is part of a broader package of offerings and, for example, the ISO is also selling point-of-sale gear into that merchant, POS transactions at those locations could go up” from increased customer traffic, he says.
Surcharge-free ATMs appear to boost lackluster ATM transaction volume. “The ISOs’ transaction volumes on the ATMs they place have been flat for a while, and we have found that when you transition these machines to the surcharge-free network, they see transaction volumes go up,” MoneyPass’ Miraglia says.
Moving away from the shared revenue model could seem difficult, but the ATM industry has rewritten contracts so partners can realize revenue in other ways.
Those economic rewards vary, and the ATM industry guards the details of such contracts.
“I can’t give away trade-secrets, but there are ways,” says Kahuna’s Bauer. “It takes all parties working in harmony–all must give a little bit to gain in other areas. It can be a leap of faith to go a surcharge-free route, but there is a lot of upside and something greater to be gained versus simple surcharge revenue.”
An expanded version of this article is scheduled to appear in the April print issue of ISO&Agent.