As anyone who has visited a convenience store lately knows, off- premises automated teller machines have spread widely in recent years.

In fact, from 1996 to 1998, off-premises ATM deployment grew from 51,200 to 89,000. During the same period, ATMs on bank premises increased at a comparative snail's pace-about 14%-from 87,000 to 99,000.

So many off-premises ATMs have become available that some people in the industry are wondering whether all the best sites are taken.

By far the most popular location for off-premises ATMs has been convenience stores. According to recent figures, 62% of the 96,000 convenience stores in the United States have ATMs. To put that number in perspective, convenience stores have more ATMs than all other off-premises sites put together.

The second most popular category of off-premises site is supermarkets. Eight-nine percent of the largest stores have ATMs, according to recent data from a supermarket census by Trade Dimensions, a Wilton, Conn., publisher of directories.

Is it really true that most of the best sites have been claimed? And, if so, what are the implications for ATM deployers-particularly those that want to expand their ATM bases?

Many of the best sites are indeed gone. However, a number of sites remain that either can do well in terms of volume or could support more ATMs-if one is willing to look for them.

What's more, relationships can be fickle, so "gone" does not necessarily mean "gone forever."

In the past, only a few sites could support ATMs on a fee-income basis. These sites typically included convenience stores, supermarkets, airports, work sites, and casinos. However, with the advent of surcharging, many smaller stores and new site types now have the economics to support ATMs.

Interestingly enough, in many industries, ATMs are starting to be a requirement for staying competitive-much as banks saw in the late 1980s with ATMs. Thus, though many stores may want an ATM to increase sales, others feel they need an ATM as a defensive measure.

Today, the economic equation includes not only fee income from interchange and surcharges but also the additional sales generated by providing easy access to cash.

Many nonbank deployers and service providers have developed models to help retailers evaluate the potential benefits of having an ATM.

At a recent conference, Kurt Schusterman, executive vice president of XtraCash of San Diego-a leading supplier of this technology-demonstrated that additional gross margin for sales generated by an ATM in a store can be around $3,465 per month, depending on certain variables. This model shows a significant income from the dollars taken from the machine. Taking this potential into account expands the list of viable ATM sites far beyond the number that can be supported by fee income alone.

So how many potential ATM sites are there? If one includes all stores and sites of various categories, nearly one million locations might support ATMs. Restaurants (including table service, fast-food, and bars or taverns) make up more than half the list. Though the economic data to justify these locations are inconclusive, specific factors at individual sites can make them attractive.

These sites are referred to as "phenomenon" locations, such as fast-food restaurants near major universities and military bases, and they can do very well. Bearing this in mind, there appears to be room for an expansion of more than 100,000 units.

At the current level of deployment, what does this mean for new sites? The largest part of the market for new sites will involve low-end machines, many of which are placed by independent sales organizations and owned by retailers. Many of these are the independents-"mom and pop" stores.

These machines will probably operate at lower standards than those that banks have supported in the past. This should create demand for higher- quality ATM service that can be branded as offering greater uptime and less disappointment for cardholders. Other machines may suffer in volume but still offer value in convenient access to cash.

This has led to competition among deployers at prime sites that already have ATMs. Site owners may want to get more income than the prior deployer was willing to pay. Deployers are also "up-paying"-paying more for prime sites.

During the initial off-premises boom, most banks were attracted by potential fee income. Today, some are willing to accept minimal or no return in fee income for the privilege of giving their customers convenient and inexpensive access to cash. Banks are willing to do this because of the growing importance of the ATM delivery channel and the opportunity to expand their brands beyond the bank itself.

There can be no doubt that ATMs have become a crucial part of the service-delivery channel mix for retail banks. Many networks' surveys say ATMs are people's preferred source of cash: Pulse found 44% of consumers favor this channel; Magic Line says 49%.

Mentis Corp. says that, among 18- to 34-year-olds, ATMs are more than twice as popular as bank tellers (63% favor ATMs versus 27% for tellers). The preference ratio declines for people older than 50, but even in that group, 46% prefer ATMs versus 41% for tellers.

We are beginning to see the consequences of excesses brought about by the gold-rush mentality evident in the initial push to place ATMs. A number of deployers have begun to weed out ATM placements that do not make the grade in terms of transaction volume. In instances where the stores had potential but the location was subprime, it's likely that eventually they will have ATMs again.

As the gold fever diminishes and cold reality sets in, we will see a flurry of fine-tuning-efforts to generate transaction counts.

This would mean relocating machines to more visible locations within a store, more and better signs, adding functions such as advertising and couponing, and promotional efforts to boost volumes.

Already, deployers are boosting ATM volumes 15% to 20% and more through promotions. It has proven more difficult than anticipated, however, to generate volumes. But the results can be not only worthwhile but also a strategic necessity for banks and other deployers. Mr. Koch is senior consultant at NCR Corp. of Dayton, Ohio.

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