Executives in charge of bank-owned automated teller machine networks say 2003 was the year that surcharge-free networks came into their own.
Time was when banks viewed surcharging as the best way to squeeze extra revenue from their ATMs. Many still do, but some large banks - including KeyCorp, U.S. Bancorp, Wells Fargo & Co., and Fifth Third Bancorp. - have found a way to harness smaller ones' desire to give customers more access points and use it to supplement surcharging revenue.
These banks have been contracting with smaller banks, often to handle the issuing of debit cards for them, and have been throwing surcharge-free access to their own ATMs into the deal. That differs from the coalition approach some smaller banks and their electronic funds transfer processors have taken, in which a group of banks agree not to surcharge one another's customers. In the big-bank/small-bank model, the larger bank's customers do not get access to the client banks' ATMs.
Executives with the larger banks say that for the first time they are seeing competition to sign up smaller banks and credit unions.
"In the last four or five months we went from having very little competition to having an awful lot of competition," said Brian Sismour, the national sales manager for consumer payment sales at KeyCorp, which has been in the surcharge-free business for about three years.
It started as a request from a small institution, Third Federal Savings and Loan of Cleveland, which asked KeyBank to issue its debit and ATM cards. Third Federal owned no ATMs, so Key threw the use of its ATM network into the deal.
Those who worked on the program thought it would be a one-time deal, but senior management liked what it saw and felt it could be replicated, Mr. Sismour said. In its first year, 2001, Key brought nine financial institutions into its surcharge-free network. It added 25 in 2002 and 60 in 2003.
A year or two ago, when Key went out to sign up other banks for similar deals, its sales representatives encountered a lot of skepticism and concern that customers would jump to Key. Mr. Sismour said that when his employees followed up with prospective clients, they would hear comments like "We're talking about it. We're still not sure."
Today, though, the sales representatives are hearing something different: "Yes, you've got a great program, but we've got a couple other presentations and proposals here too, so we're trying to compare them all," Mr. Sismour said. "We'd never heard that, because there just weren't that many [competitors]. That's why we're saying to ourselves, 'Ah, the competition has really heated up.' "
He said KeyCorp has not cut prices for the program but will consider doing so if sales drop.
The surcharge-free market has also had its share of newcomers this year, including ATM National Inc.'s Allpoint network, Genpass Inc.'s MoneyPass, and Visa U.S.A.'s Plus network. Executives involved cited two reasons for the heightened activity: the ongoing needs of smaller financial institutions to give customers access to ATMs, and the needs of ATM network owners - including banks - to wring more transactions and money out of the machines.
"It seems to be chic to be in surcharge-free networks these days," said Ben Psillas, the president and founder of ATM National, of Bethesda, Md.
His company's system constitutes yet a third model in the no-surcharge business. The company has signed up two major ATM deployers that together have more than 25,000 ATMs - Cardtronics LP and E-Trade Group Inc. - and considers those machines "universal" ones that customers of all its bank clients can use at no charge.
Just as in the KeyCorp model, customers of one bank client cannot use the machines that belong to another bank client without incurring a fee. As Mr. Psillas prefers to put it: "Under the Allpoint model, members join as card issuers only, as opposed to where both your cards and your ATMs participate." This too differentiates the program from those run by funds transfer networks such as Pulse EFT Association, First Data Corp.'s NYCE Corp., Concord EFS Inc., and Shazam Inc.
Under Shazam's Privileged Status program, all participating banks' customers have free access to one another's ATMs, which are identified with the Privileged Status logo, said Richard Jenkins, senior vice president and corporate counsel for Shazam, of Johnston, Iowa. The program was started up in 1996 after Visa and MasterCard International lifted their surcharge bans; it now includes about 1,000 financial institutions and 2,800 ATMs.
Genpass, of Fort Washington, Pa., which owns the MoneyMaker network in Texas and MoneyBelt in Tennessee, threw its hat in the ring in November with its announcement that it planned to merge MoneyMaker and MoneyBelt into one surcharge-free network, to be called MoneyPass.
Surcharging "defeats the whole purpose for why the networks were created," said Bipin C. Shah, Genpass' chief executive and a longtime EFT executive. "They're called shared networks - 'I'm going to share the network with you - you treat my customers, I'll treat your customers.' It lasted for almost 15 years, until a couple of guys got the crazy idea that they're going to charge it."
Tony Hayes, the managing director of Dove Consulting Inc.'s financial services practice, said that with so many companies running surcharge-free ATM networks "it's no longer a point of differentiation - it's now the price of entry."
One recent addition to KeyCorp's Agent Bank Club is Denver's Native American Bank NA. It owns only five ATMs, yet it aims to serve the Native American population around the country.
"Indian people carry most of the financial wealth in their billfold," said John Beirise, the bank's president and chief executive. "We are trying to find ways to make it more convenient for our customers to use the bank as a depository, as opposed to banks to cash their checks."
Mr. Beirise said he does not fear losing customers to KeyBank. "It's sort of a classic big-bank/small-bank dilemma," he said. "Our customers really need the personal touch of a community bank, but their economic interests are not just in the local community. They travel; they make a lot of their consumer expenditures in other places."
