The automated teller machine version of "the sky is falling" is evident yet again in the latest industry research.

The number of machines is up, especially in the nonbank locations that have been fueling growth in recent years, but transaction numbers are down. That means "the market is saturated," which is nothing new to the ATM Chicken Littles. The industry has been growing in spite of them.

A study conducted by Dove Associates Inc. of Boston and sponsored by three regional ATM networks provides fresh data suggesting the inevitable slowdown is at hand.

Profits are dwindling, particularly for off-premises ATM deployers. Their space-rental costs are rising, and they face growing public hostility toward surcharges.

Survey respondents-representing companies that own 29% of installed ATMs in the United States-said they expect the average percentage of the surcharge shared with landlords to increase to 25% by 2001, from 16% this year.

"This confirms our view that the ATM market is nearing the end of the transition phase marked by the introduction of nationwide surcharging," said Tony Hayes, senior associate and project manager at Dove.

Thanks to surcharging, ATMs have become almost as commonplace as pay telephones.

At midyear there were 84,000 ATMs at nonbanking locations, representing 45% of the 187,000 units nationwide, according to Bank Network News. In 1997, 67,000 were off-premises, or 41% of the 165,000 total.

Nonbanks led that trend, but major banks have gotten into the act in a big way. According to an annual American Banker compilation, the top 50 increased their aggregate ATM base to 76,461 machines at midyear, up 24% since mid-1997. (Survey tabulations and a summary article appear in the "Delivering the Goods" supplement in today's paper.)

To offset the profitability squeeze, KeyCorp of Cleveland is looking for ways to make ATM site owners bear more costs.

"In the past we went in and did everything that needed to be done to keep that ATM polished and running," said Charles M. Scavelli, KeyCorp's vice president of ATM services. Now the company is considering having site owners "provide some services that otherwise we would have to pay out of pocket."

According to Dove Associates, the average number of monthly transactions per machine, at 4,973 in 1998, was down 25% from three years ago. At off- premises machines alone, transaction volumes are much lower, typically well below 1,000.

Not all deployers view the situation with gloom. Bankers say the entry of start-up companies into the market gives them a chance to shine.

"We're taking a good many sites away from other deployers because of poor service quality," said Dennis Wyss, a spokesman for BankAmerica Corp., the biggest ATM owner."A lot of inexperienced ATM deployers jumped into the market very aggressively in recent years thinking that ATMs were simply a license to make money. It's not that simple."

The Dove survey was commissioned by Pulse EFT Association of Houston, Star System Inc. of San Diego, and NYCE Corp. of Woodcliff Lake, N.J.

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