The electronic funds transfer industry is in such a state of flux, one expert at NAFCU's annual convention introduced his session with a quote from ancient Greek philosopher Heraclitus: "Nothing endures but change."
Michael Kelly, the director of business development for Fiserv, a provider of information management systems and services to the financial services and health benefits industries, said credit unions face many challenges. The overall number of non-cash payments is growing, but compliance requirements-including the US Patriot Act and Check 21-are making the task more difficult, he said.
In addition, the number of transactions per ATM per month is down. For example, ATM usage levels in 2003 were 60% less than 1996.
"An ATM is a convenience center for members," he said. "It can generate revenue via surcharge fees, interchange fees, advertising and media. But, non-surcharge networks require giving up the surcharge income to get access."
If there is no surcharge revenue, Kelly asked the audience, can a CU rely on increases in volume to recover costs? The answer, he said, depends on WATR-the weighted average terminal revenue. When WATR increases, revenue increases, adding: "Watch WATR-it drives brand strategy."
To make up for declining revenues, credit unions have three options: outsource ATM functions to a third party, depreciate costs over a five- to seven-year period and focus on efficiency.
A recent ATM owner priority survey found the No. 1 concern over the next 24 months is compliance with regulations. The second-most cited priority is deploying additional teller machines, followed by upgrading the ATM infrastructure.
"The ATM industry is a paradox," Kelly declared. "Overall, the industry is healthy. There are lots of ATMs, many transactions, and it deploys superior technology. But, individual deployers are weaker. There is less volume per ATM, and declining or negative profitability."
Part of the problem, he argued, is financial institutions are "managing for the past." Two examples of this are ATM-only card issuance, and multiple, overlapping network branding. "Some credit unions participate in four, five or even six networks. Fiserv recommends two," he said.
The electronic funds market has moved to a super-regional model, Kelly said. As a result, there are changes now and in the future that are affecting every segment of the industry.
The debit channel is the most volatile of payment segments, he said. The 2001 PIN-debit interchange increases by Interlink and STAR sparked a "tidal change."
"Consumers were confused in the fight between merchants and issuers, and PIN versus signature," he said.
The smallest merchants have been hit hard as networks moved to tiered models. One of the largest sellers in the world, Wal-Mart, is making noises about owning a network.
The outlook for the prepaid channel is strong, as Kelly foresees continued growth in gift card solutions. Two relatively untapped segments of the prepaid area are the Hispanic community, and healthcare, due to the advent of flexible spending accounts for medical expenses.
Other trends include micropayments, as people get used to spending $0.99 for a song on iTunes. Next up will be vending machines that take plastic.
One more big change: the next generation of cards will have a chip rather than a magnetic strip, so no more swiping (See related story, page 1).
"Credit unions must weigh member service versus the bottom line," Kelly said. "Credit unions can make their ATMs do whatever they want, but ATMs are not a profit center any longer. The industry is consolidating, so financial institutions must maximize cardholder usage."
