Commerce Bank has tried lots of different ways to woo customers when it's entered new markets-in New York it purchased TV time to tell people the time and temperature during station breaks. When it moved into D.C. this summer, it decided to make a quick strike by deploying heavily branded ATMs.
Problem was, most of the good spots were already occupied by other ATMs-D.C. being the zero-sum town that it is. So the bank broke from its usual ATM strategy, and hired Cardtronics to maintain, deploy and provide functionality for cash machines in the D.C. area. The tech firm began deploying ATMs in June, when Commerce opened its first two branches in the metro area, in D.C. and Manassas, Va. By October, the bank was a little more than halfway to its goal of about 200 deployments in area CVS drug stores.
While scouting for branch locations is a tough job that most banks spend lots of energy on, ATM deployment can be almost as difficult. And many banks are finding that the real estate boom has also had an impact on ATMs, forcing arrangements with other retailers such as drug stores.
"It's hard to find locations for ATMs," says Richard Burke, svp of deposits for New Jersey-based Commerce. "And with people opening accounts in our Manassas and D.C. branches, we wanted them to be able to walk out of there with their check cards and be able to use them. The only way they would have been able to do that that for free is by using the machines at the two branches. And we also wanted people to get to know us, even when they're not driving around Dupont Circle or downtown Manassas."
Commerce had previously maintained and outfitted its own ATMs in its existing coverage areas, mostly metropolitan Philadelphia, New Jersey and New York City. The bank had previously shied away from the massive outsourcing arrangements that many banks have signed with third party firms like Cardtronics over the past few years, in part because of the heavy emphasis it places on ATMs as a means to develop the bank's brand.
As such, Burke says the bank's deployment with CVS and Cardtronics has included work to make sure the ATMs largely retain the look, feel and function of Commerce machines elsewhere. Presently, the machines are used primarily for traditional ATM functions, but the bank is discussing ramping up function with Cardtronics. "We don't just want our panel on the tops of machines. It's our brand, and we want the machines to reflect that."
There are benefits for all three parties-the bank gets its brand into a high volume location, Cardtronics grows its ATM network and CVS gets a supply of customers who have fresh cash from machines inside its own stores. Cardtronics, which also has distribution deals with retailers such as Walgreens and Duane Reade, is in the midst of a similar project with Chase, in which ATMs are being deployed in Exxon locations in Texas. "It's also a win for the retailers, because some of the money that's being taken out at the retail location is being spent there," says Madhavi Mantha, a senior analyst at Celent.
And there are also likely expense savings for the institution. Cardtronics and Commerce did not reveal spending or dollar savings, but Mantha, speaking generically, says the direct savings of such arrangements can range from 20 percent to 30 percent for banks.
The research group says ATM operational expenses for U.S. financial institutions should surpass $3.3 billion in 2005, and may increase to near $4 billion by 2008.
Celent says ATMs are becoming more expensive to maintain in part due to changes in technology, such as migration to Windows-based terminals, necessitating investment in tools such as firewalls, antivirus software and remote software distribution capabilities. The need to comply with Triple DES is also effecting cost, the research group says.
Mantha says that besides passing off some of that expense to a third party, there are other less apparent cost savings. "There's also the factor of not having operational headaches of managing the infrastructure by jobbing it out to someone who does nothing but maintain ATMs," Mantha says.
De novo branch expansion has become one of the front lines in customer acquisition strategies, with a boom of new locations. Couple that with the record high costs of real estate and similar branch expansion in other retail businesses, Cardtronics hopes there will be demand for deals that allow banks and retailers to share the same locale.
"In many cases, real estate is about location," Keith Myers, evp of financial services for Cardtronics. "Banks are often finding themselves bidding on the exact same corner where a CVS is going up. By entering into an agreement like this, the bank can move into that corner anyway, but not necessarily get a branch."
