Dove Consulting
For Immediate Release
March 4, 2002
For More Information
Denise LeGrow
617/482-2100

New Study Details an Industry Returning to Equilibrium
Analysis of banks, credit unions and ISOs provides the most comprehensive assessment of the state of the U.S. ATM industry

BOSTON, March 4—With ATMs now on almost every street corner, banks, credit unions and independent deployers are shifting strategies to reflect the changing marketplace. According to a new survey conducted by Dove Consulting on behalf of the nation's four largest EFT networks - STAR, PULSE, NYCE and CO-OP Network - the ATM industry is returning to a state of equilibrium. ATM deployers are re-emphasizing the customer service benefits of ATMs, while continuing to promote transaction migration and cost reduction strategies.

A Return to Equilibrium
Following the national introduction of surcharging in 1996, banks and credit unions rushed to place more ATMs. New players - Independent Sales Organizations (ISOs) - also entered the market. Surcharging single-handedly changed the ATM industry. Now, almost six years later, the industry is returning to equilibrium. "After the surcharge boom years, the industry experienced a period of transition with declining volumes per ATM, increased competition and declining profitability," said study author Tony Hayes, a director with Boston-based Dove Consulting. "Now we are seeing the industry come full circle: from customer service based to profit center back to customer service focused."

What Deployers are Doing
Large ISOs remain optimistic about new deployment opportunities and expect to nearly double their ATM fleets in the next two years. Gas stations/convenience stores will remain the most popular channel for retail ATM placements, followed by supermarkets, schools and malls. Many smaller ISOs, on the other hand, are in the process of exiting the business now that the surcharge 'bubble' has burst.

Banks plan to rationalize their ATM fleets over the next two years, either by relocating poor performing terminals or by removing the ATM altogether. Credit unions, meanwhile, will continue to place incremental ATMs at a steady pace.

The 2002 ATM Deployer Study examines the industry's key performance metrics including transaction volumes, transaction mix, surcharge rates, deployer cost structures, and deployers' overall strategies.

1. Transaction Volumes. Location is the single most important determinant of a particular ATM's usage. In 2001, on-premises ATMs attracted 4,479 transactions per month (on average) while off-premises ATMs operated by a financial institution yielded 1,918 transactions per ATM per month. ISO terminals, on the other hand, generated an average of 600 transactions per month. Deployers expect these volumes to grow modestly over the next two years.

2. Transaction Mix. To a greater or lesser extent, ATMs still remain cash dispensers. Of the total transaction base, 77% are cash withdrawals and almost all of the other transactions are for other basic banking functions (balance inquiries, transfers and deposits). In 1999, cash withdrawals also accounted for 77% of total transactions.

3. ATM Surcharge Rates. For the industry as a whole, the average surcharge for an off-premises cash withdrawal rose from $1.36 in 1998 to $1.48 in 2001, or about 9%. Hayes said some deployers can be expected to increase fees again in an attempt to produce greater income to offset their costs. "Consumers are relatively insensitive to changes in ATM fees. Based on deployers surveyed, a fee increase of $.50 caused only a modest decrease in transaction volumes."

The primary sources of revenue for ATM deployers are surcharge income and interchange income, both driven by foreign transactions. Other potential sources of income - banking services (e.g., mini-statements), non-banking services (e.g., stamps and ticketing) and third-party advertising - produce nominal revenues for all but a few deployers. Hayes pointed out, however, that despite these fees, many deployers continue to operate their ATMs at a loss.

4. ATM Operating Expenses. In 1998, the average monthly cost to own and operate an off-premises ATM was $1,090. In 2001, it was $1,016. Once rent expenses and an allocation for back-office operations are factored in, the fully loaded cost per off-premises ATM increases by $282, to $1,298 per month.

For off-premises ATMs, large credit unions have the highest cost structure, incurring a cost of $1,624 per ATM per month. ISOs with fewer than 1,000 ATMs tend to have the lowest costs, averaging $732 per terminal per month.

Large ISOs appear to have similar total operating expenses as their financial institution counterparts. "Scale is not a panacea for containing ATM operating expenses," said Hayes. "The areas for leverage are merchant contracts and retooled cash management and replenishment strategies."

5. Deployer Strategies. With the industry's evolution comes a shift in deployers' objectives. No longer viewed primarily as profit centers, ATMs are managed as an integral component of a financial institution's delivery system. With customers making fewer branch visits, ATMs now provide the most visible touchpoint for interactions with a financial institution, and need to be managed to attract and retain customers.

The study found that 50% of large financial institutions want to apply their investment in Customer Relationship Management (CRM) technology to their ATM channel in order to provide a more personalized experience.

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About the 2002 ATM Deployer Study
Building on the 1999 Study, the 2002 ATM Deployer Study was conducted in Fall 2001 by Dove Consulting to provide a comprehensive analysis on the state of the ATM industry in the US The 2002 ATM Deployer Study was sponsored by STAR, PULSE, NYCE and CO-OP Network—the four largest EFT networks in the U.S.—as part of their ongoing commitment to industry research. One hundred and twenty-seven deployers in all geographic regions of the United States were surveyed. Respondents included 22 of the top 50 bank deployers, 8 of the top 10 credit union deployers, and 6 of the top 10 ISO deployers. As of August 2001, these respondents had a combined ATM base of 82,188 terminals. These 82,188 ATMs represent approximately 25% of the estimated total installed US ATM base of 324,000 (based on Cirrus and Plus data).

For more information on the study, please contact:

CO-OP NETWORK: Rick Danzey, tel: 800-782-9042 x2622, rick.danzey@co-opnetwork.org
NYCE: Lori Keyes, tel: 201-505-5423, lori_keyes@nyce.net
PULSE: Mary Brown, tel: 713-986-0111, mbrown@pulse-eft.com
STAR: Barbara Span, tel: 571-203-7300, bspan@star-systems.com

For more information on the ATM Deployer Study, contact:

CO-OP NETWORK
Rick Danzey
800-782-9042 x2622

NYCE
Lori Keyes
201-505-5423

PULSE
Mary Brown
713-986-0111

STAR
Barbara Span
571-203-7300