Cardtronics-CU Deal Aims to Tap Value from Vcom Network

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Merchant automated teller machine deployer Cardtronics Inc. is now offering check-deposit-taking at its 7-Eleven Inc. Vcom kiosks through a deal with the credit union shared-branch network Financial Services Centers Cooperative Inc.

Vcoms are souped-up ATMs that perform unusual transactions such as check cashing, bill payment, and money transfers, but gaining adequate volume for these nontraditional transactions has been a struggle. A deal with a shared-branch network is one way to gain volume.

The Houston ATM deployer and FSCC of San Dimas, Calif., began testing the kiosks’ check-deposit-taking capabilities in July, as well as other transactions offered free to members of FSCC credit unions. FSCC announced the service last week. The credit unions pay Cardtronics for each transaction.

Members of FSCC credit unions also can make loan payments, transfer cash between accounts, obtain credit advances, make balance inquiries, and obtain copies of recent account-history statements — all typical transactions in a shared-branch network — at no charge using the Vcom kiosks.

Shared branching is a popular way for credit unions to increase the size of their networks. Members can go into any branch in the shared network (not only those owned by their credit unions) for a variety of transactions, most frequently check deposit.

Sarah Canepa Bang, the chief executive of FSCC, said the cooperative, which has 321 credit union member, signed a deal about three years ago with 7-Eleven but began processing transactions only in July because of the time it took to develop a Vcom interface.

Cardtronics bought the FSCC contract in June when it bought the Vcoms, along with 7-Eleven’s 3,500 other ATMs, for $135 million.

"I can tell you our credit unions are delighted with 2,000 deposit-taking locations," Ms. Bang said, "and the fact that they are much more than simple ATM transactions."

The pilot test began in late July with about 10 Vcoms. On the test’s first day, the network sent out people to test the machines, and within a few hours other credit union members were using them to deposit checks.

"All of a sudden somebody said, ‘Wait a minute, who is that?’ " Ms. Bangs said. "We’re already seeing hundreds of transactions going through," even before promotion of the service begins.

Cardtronics said it could not discuss the deal with FSCC because it is in a quiet period as it prepares for its initial public stock offering.

In a regulatory filing in July, Cardtronics said that it expects operating losses on the Vcoms for the next year or so.

The 7-Eleven deal brought Cardtronics’ ATM total in the United States, Mexico, and the United Kingdom to about 31,000.

But the main transactions that had been offered on the machines — check cashing, bill payment, and money transfers — have not done well in terms of volume or revenue. Cardtronics warned that if these transactions continued to have poor returns it would be forced to shut them down, though not necessarily the machines themselves, which remain profitable as cash dispensers.

Members of FSCC credit unions also get free check cashing but not bill payment or money transfers.

Ms. Bangs said the most frequent users of this technology will probably be Generation Y credit union members, who are somewhat younger, and more comfortable with using new technology to gain access to their funds. But she also said that older members would use the machines in a pinch.

"When your credit union is closed and you need a cashier’s check or need to make a deposit, you might try new technology," she said.

Gwenn Bezard, a research director at Aite Group LLC in Boston, said that for Cardtronics, "it’s a volume game."

The Vcom is "a very high fixed-cost asset, and it makes sense to sell the product and services to multiple institutions," he said. "If you have enough institutions participating you may build enough scale to make the economics of the Vcom viable."

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