The increasing popularity of prepaid cards, and especially payroll and government benefits cards, is driving up transaction volume at two of the biggest surcharge-free automated teller machine networks.

The use of payroll cards to replace paychecks and debit cards to replace unemployment checks, coupled with the widespread use of general-purpose reloadable debit cards by consumers, has expanded the universe of potential ATM users, said Ben Psillas, the president of Allpoint Network, a Bethesda, Md., unit of Cardtronics Inc. that operates 35,000 surcharge-free ATMs nationwide.

Cardtronics, a Houston ATM network operator, said last month that growing withdrawals with prepaid cards had boosted its third-quarter results.

Rick Updyke, Cardtronics' president of global development, attributed the company's stronger financial performance to other factors as well.

"We believe transaction counts also are being driven by a shift in consumer preferences away from paying with credit cards and toward paying with debit cards and cash," he said during a conference call with analysts to discuss the quarterly results. "A significant portion of our U.S. withdrawal-transaction count gain this year is the result of increasing withdrawal transactions from" prepaid "cards utilized through Allpoint — specifically, general-purpose payroll and electronic benefits transfer, or EBT, cards."

Updyke said that a big part of this trend is due to Wal-Mart Stores Inc., which in September began issuing MasterCard Inc.-branded payroll cards instead of checks to employees who do not get paid through direct deposits to their bank accounts.

Cardtronics reported a $6.4 million profit for the third quarter, up 146% from the previous quarter.

Douglas P. Miraglia, the president of U.S. Bancorp's MoneyPass unit, has also observed increased ATM volume coming from prepaid cards.

"We are seeing improvements in transactions because of payroll cards, EBT, Social Security and Aid to Families with Dependent Children," Miraglia said. "I have not seen a groundswell yet, but we are awfully close to hitting it big. If more retailers follow Wal-Mart's example, then I will say this is a great time to be in the business."

The MoneyPass network has 17,000 ATMs.

Numerous other retailers, including Best Buy Co. Inc. and Abercrombie & Fitch, pay employees with payroll cards, but Bob Meara, a senior analyst at the Boston market research company Celent LLC, said that Wal-Mart's decision to do so would have much more impact.

"Wal-Mart's recent move with MasterCard is a harbinger of things to come," Meara said. "As more employers offer workers choices, payroll card usage will continue to grow."

Wal-Mart, the world's largest retailer, employs more than 2.1 million workers worldwide. The Bentonville, Ark., company has distributed about 700,000 payroll cards to employees, according to the Center for Financial Services Innovation, an affiliate of Shorebank Corp. in Chicago.

The transition to payroll cards has created an opportunity for Allpoint and other ATM networks. "Before companies began paying employees with payroll cards, we never got their business," Updyke said. "They would go to a check-cashing service with their paper checks."

Miraglia said that government benefits cards are producing the same result. "We see an increase in our transactions at certain times of the month when EBT, Social Security and unemployment compensation payments are being made," he said.

Twenty-five states now deliver unemployment benefits on prepaid debit cards instead of checks, according to the 2010 edition of the "EFT Data Book" published by ATM&Debit News; some states are also putting other benefits, such as child-support payments, into card accounts.

"We agree that [prepaid card] growth is spurring ATM transaction growth," said Meara. "It is a good thing for ATM deployers."

And Allpoint's Psillas is happy to see it. "The industry has been pondering, 'Where is the new volume for ATMs?' There also has been a lot of talk that [the] ATM industry had seen its best days, but prepaid cards have brought the ATM industry new volume," he said. "We're in the right place at the right time."

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