Observers of the electronic funds transfer industry know how long it takes for a "new" development to deliver on its promise. For years, we have been hearing about how on-line debit point-of-sale systems were going to revolutionize the industry. And before point of sale, there was the manifest destiny of automated teller machines.

However, three long-time developments in electronic funds transfer networks are beginning to realize their promise and influence the course of the industry -- and, more important, the direction of regional shared networks.

The first development is the true acceptance of on-line debit point of sale. In 1992, the Explore point-of-sale network, which is owned by Star System Inc., switched some 35 million transactions.

During the past two years, it has experienced 106% growth in transaction volume. Explore is adding 300 retailers to the service monthly.

Consumer Acceptance

Clearly, the rush by Interlink and Maestro to establish national debit point-of-sale networks is aiding the maturation of on-line debit point of sale. But the explosive growth of Explore, has really been driven by retailers, who are increasingly attracted to the ease, convenience, and guaranteed payment benefits of point of sale.

The real potential of point of sale is found in the second development -- the maturation of the consumer of electronic funds transfer. The barriers to ATM and point-of-sale usage, which used to be clearly delineated by age, are starting to weaken. Baby boomers are not only at ease with ATMs, but have come to depend on them for much of their day-to-day banking. And Americans in their 20s and early 30s have used ATMs all their adult lives.

For these consumers, using an ATM card to make purchases is a logical extension of their usage of ATMs. They understand that the future of electronic funds transfer is not in the machine but in the card. This shift in consumer acceptance of ATM cards holds great promise for the development of smart cards (cards that contain a computer chip) and stored-value cards (prepaid cards with actual value that are used and then thrown away).

The Consolidation Wave

Debit point of sale and the maturation of consumers who use electronic funds transfer pose a challenge and an opportunity to regional shared networks, which raises the question of consolidation, the third industry development. The consolidation wave of the late 1980s seems to be accelerating.

The network mergers of the late 1980s were driven by the desire to build a multistate critical mass of ATMs. The consolidations that will occur in the 1990s will have more to do with delivering greater electronic funds transfer services to financial institutions, retailers, and consumers.

This is the challenge and opportunity facing regional shared networks. Networks that do not offer successful debit point of sale may be forced into mergers with networks that do. Networks that have regional point-of-sale franchises will find that point of sale may be a door to delivering other electronic funds transfer services.

The direction of the electronic funds transfer industry toward greater services calls into question the original premise upon which most regional shared networks were established -- linking the ATMs of different financial institutions. The very success of the regional networks in linking ATMs is the foundation upon which debit point of sale and other electronic funds transfer services are being built.

While some have called the formation of Electronic Payment Services Inc., a superregional joint venture, a wake-up call to the network industry, its creation actually makes a strong case for regional shared networks. The regional approach to networking puts more control of the development and delivery of electronic funds transfer services in the hands of financial institutions that serve those markets.

The up-time performance of regional networks significantly exceeds that of national networks. Regional networks have been at the forefront of not only new products and services, but of service quality, developing technical and operational standards that ensure better performance and greater security.

The outlook for those regional shared networks that are shaping the developments of the electronic funds transfer industry -- delivery of point of sale and other electronic funds transfer services, maturation of the electronic funds transfer consumer, and consolidation -- remains bright, to the benefit of financial institutions, retailers, and consumers.

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