Publix Super Markets Inc., the southeastern grocery chain, has hit upon an innovative way of managing its payment expenses through financial institutions.
According to executives at institutions that have taken advantage of the new approach in the past six months, the retailer has agreed to eliminate in-store ATM surcharges to the institutions' customers. In exchange, the banking companies have dropped the interchange fees they would have gotten when those customers conduct POS debit transactions.
Publix has long shown a preference for keeping its proprietary Presto automated teller machine network surcharge-free to customers. More than 20 years old, the now 950-terminal network was surcharge-free until last July, when the merchant decided to impose a $1 fee on ATM users. The rising costs and processing fees "just became excessive," said Maria Rodamis, a spokeswoman for the Lakeland, Fla., grocer.
Since that shift, however, various financial institutions have trumpeted to their customers their new ability to withdraw cash free at Publix. Royal Bank of Canada's RBC Centura Bank Inc. of Rocky Mount, N.C., did so last spring, for example (American Banker,
It could not be determined at press time how many of these have entered into an offsetting POS/ATM fee deal with the grocer.
Ms. Rodamis said financial institutions are clearly enticed by the chance to offer their customers surcharge-free ATM access. "It doesn't cost banks to become part of that network. That's why we encourage banks to become a part of the network, because it's a win-win for their customers," she said.
She declined to discuss specific details of the retailer's relationship with the institutions.
But Publix's willingness to enter offsetting deals has become increasingly known within the banking and EFT network communities as more institutions and networks have become involved. Directly and through intermediaries, at least 1,800 credit unions and three banks are on board - and, by the accounts of some of them, happy to be there.
Glenn Bogan, vice president of electronic delivery for STAR Financial Bank of Fort Wayne, Ind., said he found out about the Presto deal at a NYCE network seminar in September, and the bank joined Presto in December.
"We were looking to offer some ATMs down in Florida for our snowbird customers where they could go and use their cards without having to pay a surcharge," Mr. Bogan said.
He said STAR had considered several options over the past year for eliminating ATM surcharge fees for its customers who want access to their money outside Indiana, where the bank has 100 ATMs. One option was joining NYCE's SUM surcharge-free network, but those machines are predominantly in the Northeast, and that is not where STAR's' customers tend to go when they hit the road.
But the Presto network was a better fit for its customers who wintered in Florida, Mr. Bogan said, and the agreement has helped the bank retain those customers.
"In previous years our customers have had to open accounts at other banks, so that they could get surcharge-free access in Florida while they were down there," he said. "And … when they walk into another bank you have a chance of losing them."
The company has publicized the new service through statement stuffers and letters to its Florida customers' addresses. So far use of the service has been modest, Mr. Bogan said. In December, the bank's first month, there were 75 transactions, "Not a lot, but it's a start," he said.
Central Florida State Bank in Marion County is another convert. Chief executive Gene Phinney said the $75 million-asset bank, which is near eight Publix stores, has no ATMs of its own; it joined Presto shortly after opening its doors in 2002.
"When we first signed up we didn't have the quid pro quo. But now we've got it, but that's OK," Mr. Phinney said. "I cannot provide the type of network that we've got with Presto at the price that it costs me to do business with Presto."
Giving up what minimal interchange his bank derived from Publix debit transactions was not an issue, Mr. Phinney said. It was "the cost of providing an ATM network at a very small fraction of the cost of me having my own ATM network."
James A. Hanisch, an executive vice president at Co-op Network of Ontario, Calif., said that the credit union debit network had joined Presto before Publix added the surcharge but was aware that the grocery chain had been contemplating such a move.
By joining Presto, Co-op made the surcharge-free service available to its entire membership of 1,800 credit unions. Again the reciprocal deal is in effect: no surcharges for its members' customers, and Publix is not charged interchange for accepting debit cards at the POS.
NYCE, which is owned by Marshall & Ilsley Corp.'s Metavante Corp., has been developing a program that can use this fee-offset model for other merchants.
Steven A. Rathgaber, NYCE's president and chief operating officer, said the network is "working with merchants that happen to have portfolios of ATMs. What we're doing is causing surcharge-free access at the ATMs for a value exchange in kind, which is interchange-free access from a PIN point of sale perspective on an elective basis for financial institutions."
Analysts, some of whom said they were familiar with Publix's approach, said that it would be a while before it was clear which participants would benefit the most financially and whether other retailers might eventually try to mimic the model.
Mr. Hanisch said Co-op Network could find itself out a bit of money if POS transactions far outstripped ATM transactions. "But in the overall scheme of things, it was a prudent risk to take and good for our membership," he said.
Tony Hayes, the managing director of Dove Consulting Inc.'s financial services practice, said ultimately, the arrangement will probably benefit Publix "because debit transactions are growing far faster than ATM transactions. And POS interchange rates are increasing, so this limits Publix's exposure" to those rate increases.
