When Bank One Corp. said last week that its Chicago automated teller machines would stop accepting noncustomer deposits, it was doing what most companies with large ATM networks have done all along: preventing smaller rivals from piggybacking.
"Sharing deposits," as the practice is known, had been mandated in Illinois from 1979 until the mid-1990s, when it was made optional. Chicago was the last market where Bank One was accepting outside deposits at its ATMs.
The disadvantages of accepting shared deposits far outweigh the advantages. Though there are fees to be reaped, they are not high enough to recoup the costs involved in redirecting the deposits. In addition, even though some banks view the practice as a way to attract other banks' customers, there are other problems, such as fraud.
A number of large companies' ATMs still accept foreign deposits in certain markets, usually because they have acquired a bank whose machines take them. And many community banks have shared-deposit arrangements for the same reasons that they sometimes pool their ATM networks: to make banking more convenient and to keep customers from defecting to larger banks.
Bank One, which has 1,000 machines in the Chicago area, including 465 that take deposits, concluded that convenience is no longer an issue for customers there, as it may have been when there were fewer machines. Tom Kelly, a spokesman, said few of its customers now make deposits in rival banks' ATMs.
"We recognize the reality of the market now," Mr. Kelly said. "When deposit sharing was first done, there were very few ATMs."
By refusing noncustomer deposits, Bank One will save money, he said. "We don't have to sort the deposits that are made and get them to the right place."
It had been accepting outside deposits in Chicago since 1979, when it operated as First National Bank of Chicago. Before 1979 banks in Illinois were allowed to have only one main office and two secondary facilities, which could accept deposits and give withdrawals but not extend credit. But that year the state allowed true branching and required ATMs equipped to take customer deposits to take them from noncustomers, too.
The pre-1979 laws were "probably the most archaic and parochial banking laws in the United States," said Stephen S. Cole, the former president and CEO of Cash Station, the electronic funds transfer company that Concord EFS Inc. bought in 2000 and made part of its Star Systems network. "Imagine Standard Oil being allowed to pump gas out of one location."
Until 1996 Cash Station was handling about 600,000 shared-deposit transactions a month, with most people withdrawing cash and depositing funds at the same time. But that year Visa U.S.A. and MasterCard International began letting banks charge fees to noncustomers for withdrawing cash from ATMs. The fees stopped a lot of consumers from doing business at foreign machines.
Today most large banks prefer not to accept noncustomer deposits, but some states force them to do so. Connecticut, for example, requires banks that accept deposits at off-premises ATMs to take them from customers and noncustomers alike. FleetBoston Financial Corp. has 3,425 ATMs, but the only ones accepting foreign deposits are the few that fall under the Connecticut statute.
Shared deposits are "basically a waste of time and effort for your system," said Karl Felsen, a Fleet spokesman. "It's a mess getting things that don't belong to you. It's tough enough when you're dealing with your own customers. When you start branching out to people and systems you don't know, it obviously increases the chances of fraud."
One of Fleet's predecessors, BankBoston Corp., had a number of shared-deposit contracts with smaller banks in Massachusetts, but they expired and were not renewed, he said.
Wells Fargo & Co. of San Francisco takes noncustomer deposits at its ATMs in Wisconsin, Iowa, and Nebraska, where the practice is common. Wachovia Corp. of Charlotte does so in its northern markets: New York, New Jersey, Connecticut, Pennsylvania, and Delaware.
"We will match the market. It's something that is offered in the northern markets," said Mary Beth Navarro, a spokeswoman for Wachovia.
The view is different at community banks.
Lincoln Park Savings Bank of Chicago has fewer than 10 ATMs but its participation in the Star network's shared-deposit program gives its customers far more places to make deposits.
"We have to have as many arrows in our quiver as possible," said James Kalabokis, Lincoln Park's vice president of retail banking. "It's all about convenience, and we're not going to take that away."
Randy Curtis, the senior vice president of retail banking for Chicago's Corus Bankshares Inc., says its 30 ATMs get about 2,600 deposits from noncustomers each month. Though it is no longer legally required to handle that traffic, it will continue to accept foreign deposits, he said.
"If it's convenient for someone to make a deposit at our ATM, maybe we can earn their business somewhere down the road," Mr. Curtis said.
But there are pitfalls for small banks as well. Harold Sherman, the president and chief executive officer of Pan American Bank, a unit of JD Financial Group Inc. of Chicago, said it was sued after a noncustomer made a series of deposits with forged checks. Nonetheless, it will continue to accept foreign deposits.
Some ATM networks have changed their rules to acknowledge that many banks take a dim view of shared deposits. NYCE, which is majority owned by First Data Corp., on Jan. 1 began permitting banks to surcharge noncustomers up to $2.50 per deposit.
It also made shared deposits optional across its network on July 1. Acceptance had been mandatory in some of its markets but not others. That setup "seemed arbitrary," said Susan Zawodniak, a vice president of NYCE Corp. and the network's executive director.
Visa, which is trying to gain market share for its Plus ATM network, plans to permit shared deposits among the machines sometime in September. The setup will be optional for card issuers but mandatory for merchant-acquirers that are taking shared deposits through another network, said John Brinnon, the vice president of ATM card products at Visa.
"We are positioning the network to be the sole network, if that's what our membership chooses," Mr. Brinnon said.
