American Express Co. is planning to join the ranks of major automated teller machine deployers.
Though American Express owns a relatively small network for its own cardholders, it is near completion of an acquisition of 2,500 machines from Electronic Data Systems Corp., according to industry sources.
The machines would be the nucleus of a network that could get larger. The sources said American Express is shopping for more ATMs, which it could use to advance its goal-expressed by its executives-of offering more services to customers in more locations. A network of Amex-owned ATMs could presumably offer travelers checks and other company products.
EDS-the nation's largest deployer of off-premises ATMs-is not getting out of the business. It would continue to run the machines on behalf of American Express, and would continue to own 4,000 or so ATMs in Southland Corp.'s 7-Eleven stores.
Neither company would confirm the sale.
"Amex believes that EDS will give them a competitive advantage both as an issuer of cards and acquirer of transactions," said one industry executive, who asked that his name not be used.
American Express would not disclose the number of machines it already owns, but a spokeswoman said they are located in airports, Amex travel offices, hotels, restaurants, and train stations.
Though American Express cards can be used in most ATMs owned by other companies, the nonbank card issuer still lags in acceptance compared with Visa U.S.A. and MasterCard International. The associations' networks, Plus and Cirrus, do not permit American Express card transactions, but Amex skirts that restriction by working with regional electronic funds transfer networks.
Visa's cards work at 172,000 ATMs, MasterCard's at 144,000, and American Express' at 120,000, according to the companies.
Getting into the ATM business "would support their strategic goal on the acquiring side" to match the acceptance of MasterCard and Visa, said Jerry D. Craft, president of Inficorp, an Atlanta-based card portfolio management company.
Developing a national base of ATMs could also help the company's cross- selling efforts and help it compete against growing giants such as Citigroup and Bank of America Corp.
"The big focus in the U.S. is to increase card usage and stress the benefits of having an American Express card," said David Hochstim, equity analyst at Bear, Stearns & Co. "Anything they can do to add value is attractive."
Observers said the ATMs may also serve as a distribution channel for future payment options such as smart cards. American Express has "plans to offer a range of new stored value and other products in the future," according to its annual report filing with the Securities and Exchange Commission.
The ATMs purchased by American Express are in sites regarded as profitable. Among the stores that house them are Target Stores Inc., Walgreens, and Giant Foods. Retailers affected by the sale recently received notification letters from EDS.
Mr. Hochstim said foot traffic to the machines was almost a secondary issue. "Even if they (the ATMs) break even, the company can add substantial value to the cardholder and generate some net income benefit," he said.
EDS is outfitting some ATMs with sophisticated video equipment, which could help American Express showcase its products and services. EDS' processing might is also considered substantial enough to support a wide product set.
Though more deals may be in the offing, a network of 2,500 ATMs in retail stores is considered fairly sizable. For example, Citibank's announcement last May that it would install up to 3,000 ATMs in Blockbuster video stores (a division of Viacom Inc.) was considered large by the industry.
The American Express deal comes on the heels of the Department of Justice's lawsuit against MasterCard International and Visa U.S.A. One charge in the complaint is that MasterCard and Visa have hampered competition from other transaction networks.
The lawsuit is not likely to be resolved for years. "American Express has to go on the assumption they have to build their business without relying on a favorable outcome of the D.O.J." lawsuit, said Mark C. Alpert, an analyst at BT Alex. Brown.