Electronic Data Systems Corp. is mapping plans to become the largest owner of automated teller machines in the United States.

The General Motors Corp. subsidiary, one of the largest datat processing companies in the worl, wants to amass 10,000 machines by the end of 1996, according to EDS officials.

The largest number of teller machines owned by a single entity is at present about 4,000 - the total of Bank America Corp. and its 1992 merger partner, Security Pacific Corp.

Only two regional ATM networks - which link bank-owned machines-have as many units as the system contemplated by EDS, which is based in Plano, Tex.

The computer service company - which is already about 5% along toward its goal-aims to play the role of utility, installing and operating machines in high-traffic locations such as convenience stores that will accept virtually any brand of card. EDS would collect fees four routing the transactions into various networks.

Helper or Competitor?

The ambitious strategy has many bankers and network managers uneasy at the prospect of facing a formidable nonbank competitor.

But Dale Dentlinger, the EDS executive spearheading the national ATM program, says the company is merely tryig to "fill a void in the electronic funds transfer industry that will benefit financial institutions, consumers, and ATM networks."

"Essentially, EDS is saying, |We're going to do something that needs to be done, since banks don't seem to be able to do it,'" said David O'Connor, chief executive of the Most ATM network based in Reston, Va. He views the EDS gambit as "something of a challenge to financial institutions."

Fees Are the Attraction

"I suspect some banks might feel threatened, or pressured," added D. Dale Browning, president of Plus System Inc., the Denver-based, national ATM network affiliated with Visa U.S.A.

EDS is betting that it can be more successful than banks at extracting profits from ATMs, because of the fee-generating potential of a large-scale, mass-market operation. Numerous studies have shown that banks and other finanncial institutions, which own virtually all of the 85,000 ATMs in the United States are hard-processed to prove that teller machines, in and of themselves, are profitable.

EDS' electronic financial and information technology division, know as EFIT, owns 514 machines, operates another 1,100 in a California joint venture with BankAmerica and Southland Corp., and is a leading processor of other ATM transactions as an outgrowth of its data processing services for financial institutions.

The EDS-owned machines consist of 249 in Shoppers Automatic Money, a supermarket network in the Northeast that EDS recently bought from Citicorp, plus 105 in Washington-and Philadelphia-area 7-Eleven stores, and 160 in retailing locations in Texas, Mr. Dentlinger said.

A Similar Operation

One other nonbank processor - Affiliated Computer Systems of Dallas - has gone the utility route, operating 727 ATMs as of last September and ranking 12th among ATM owners, according to Bank Network News, a Faulkner & Gary publication. EDS did not rank among the top 15.

But with $7.1 billion in revenue last year - $1.1 billion from the financial industry group, which includes EFIT - EDS' growth potential exceeds that of the much smaller Affiliated.

The unit earned tens of millions of dollars in revenue from teller-machine services, with a 20% to 30% profit margin, Mr. Dentlinger said. But with revenue growth slowing from the historical rate of more than 20%, and margins tightening, the unit is looking for new revenues. Mr. Dentlinger said EDS makes 10% to 20% margins on the ATMs it has now, and expects that to widen as it adds machines.

Based on some assumptions given by Mr. Dentlinger, a 10,000-machine network could yield well over $100 million in annual revenue.

ATM networks require card-issuing banks to pay machine owners fees ranging from 30 cents to 50 cents per transaction. Often, banks pass these fees on to their customers, with markups as high as 100%.

Mr. Dentlinger said owning, ATMs will complement EDS' other businesses, in part by reducing unit processing costs in its overall transaction processing business.

Weighing Strategies

Some observers said EDS may encounter problems getting permission to hook its machines into the regional bank-owned networks. Mr. Dentlinger said this hasn't been a problem. For example, EDS has hooked 52 machines into Most by having EDS' credit union take legal responsibility for the machines.

If EDS' venture succeeds, it could force banks to reevaluate their transaction fees, which could alter the balance of power in the ATM field.

For example, the fees that ATM card-issuing banks pay to machine operators are meant to cover costs, not generate profits as EDS intends to do.

Mr. Dentlinger said EDS was considering only hooking its machines up to national networks, like Plus and MasterCard's Cirrus system, and not to regional networks such as Mac and Most, which charge lower interchange fees.

The drawback is that the regional networks have higher visibility and name recognition among consumers. But if EDS generates high volumes, it could give the national networks a powerful boost over the regional networks.

Top Owners of ATMs

Banking company Machines 1 BankAmerica 4,032 2 Citicorp 2,112 3 First Interstate 1,703 4 NationsBank 1,644 5 Wells Fargo 1,633



12 Affiliated Computer 727


- Electronic Data

Systems 514

Ranking based on fall 1991 data from Faulker & Gray, with merged banks' totals consolidated.

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