A Brooklyn, N.Y., startup has developed a new way for consumers to pay for out-of-network ATM use: watch an ad.

FreeATM, which introduced a prototype in 2011, announced in early November the rollout of 25 ad-supported ATMs in the New York metropolitan area.

In coffee shops and delis, consumers can now look at short commercials instead of paying surcharges to withdraw cash. The tech company, which counts Everything ATM, ATM Access and ATM Money Machine as its ATM operator partners, said it expects to have 55 ATMs running its advertising technology by the end of the year. It also plans to enter Boston, Philadelphia and Washington in the coming months.

FreeATM's planned expansion comes as banks are dabbling with ways to target consumers with localized ads on ATMs and smartphones. Wintrust Financial, for example, has been piloting a feature from FIS that lets people preorder ATM cash withdrawals with a mobile app. The Rosemont, Ill.-based financial holding company's vision also includes featuring offers from nearby merchants when consumers use their smartphones to take out money at the ATM.

Capital One, for another, has been exploring a feature that lets merchants advertise offers on the mobile ad-supported web pages being viewed by nearby consumers.

Clinton Townsend, co-founder and chief executive of FreeATM, is certainly betting the ATM real estate provides what advertisers seek: location-based targeting to a wide range of demographics. Marketers would not be privy to customer transaction data, but they could choose to program campaigns tied to an ATM's location, peak hours, average withdrawal amounts or other attributes.

FreeATM works with an ad exchange network which it declined to name. The number of possible customer viewings (or "impressions") each month, according to the company, will vary based on foot traffic per venue and number of transactions. The company said it currently has 7.8 million impressions available, and that the figure will grow to 20 million impressions in December.

The company's stated goal is to get its ad rates to be roughly equivalent to common ATM surcharges; for instance, if it generated $1,000 of ad revenue per terminal with 500 transactions, the net effective ad rate would be $2 per withdrawal.

What the experience will not do, insists Townsend, is hold up the line and cause a safety risk. The roughly 10-second ads, which consumers will see in the middle of the transaction, are supposed to mirror the length of time a typical transaction takes.

"We don't hold up transaction time," Townsend said.

However, there is a very real obstacle: the bank on the other end. The startup cannot control whether the customer's bank charges a foreign-ATM fee.

Sam Ditzion, chief executive officer at the Tremont Capital Group, an investment banking firm for the ATM and payment industries, said FreeATM's business model is unique for the channel.

"It's an interesting idea. I give them a lot of credit for creativity," said Ditzion, who specializes in ATMs. "People are tired of fees. Certain local advertisers might be intrigued, although scalability will be a challenge."

His concern is whether the math adds up for ATM operators.

"It will be interesting to see how much advertisers are willing to pay…and how many they can get per location," he said. "But I am not optimistic that those fees could generate enough to justify the opportunity cost of lost surcharge revenue. ATMs are very expensive to deploy and operate."

Other independent ATM providers make available surcharge-free ATMS without requiring consumers to watch ads. Cardtronics' Allpoint Network, for example, charges banks membership fees so they do not have to pay for ATM usage at its 55,000 locations. And credit unions can, and do, band together to make available a network of surcharge-free ATMs.

"There are a range of free ATMs out there if you're willing to be resourceful, and in some cases, go out of your way to seek out ATMs," Ditzion said.

There could be more activity, too. Earlier this year the ATM Industry Association announced a new working group that is dedicated to brainstorming ways to serve so-called underbanked and unbanked consumers.

And certainly, there is some precedent for the FreeATM model.

Genie Driskell, the chief operating officer at Synergistics Research Corp., said the notion of running third-party advertisements — including on ATMs — was something talked about years go within the industry. At the time, Synergistics' research showed consumers were tentative about the idea. However, Driskell could see the business model having renewed prospects given the ubiquity of ads online and elsewhere today. "The consumer is more used to it," she said.

Like Driskell, Ditzion sees an opportunity for banks themselves to revisit the idea with a caveat: banks would have to be sensitive to consumers' reactions like whether they thought the bank was selling them out.

"It's not a no-brainer," he said. "It's very risky and potentially distasteful."

Ditzion could see banks testing pitches to noncustomers who use their ATMs on their products - so long as financial institutions used caution in their marketing practices.

"There is a lot of very valuable data out there, and it is just a question of mining the data and figuring out, 'Wow, this is interesting," Ditzion said. "You have to be careful not to invade customer privacy by connecting too many dots with data."