Financial institutions' increasing reliance on automated teller machine surcharges is helping sustain growth in ATM deployment nationwide, according to a recent survey.

The number of machines available to consumers increased 22%, to 167,000, in 1997 from the 1996 total, according to Speer & Associates' 13th annual ATM study. Most of the growth occurred at nonbank sites, which accounted for 42% of all ATMs, up from 33% in 1996.

The practice of surcharging persists in driving off-premises deployments, and a growing number of smaller financial institutions are starting to impose the fees.

The industry has witnessed a "snowball effect of what the big guys have been doing for a number of years," said George L. Albright, chairman of Atlanta-based Speer. "Fee-charging has moved down to the small level as well."

Speer contacted the top 250 banks, thrifts, and credit unions, and 110 responded. In 1997, 56% of the respondents surcharged, up from 48% in 1996.

The report predicted that at least 75% of banks would surcharge by 2000.

Among the largest ATM deployers-defined as those with more than 2,000 ATMs-all surcharged in 1997, up from 72% in 1996. Another sizable increase was among owners of 200 to 500 machines, 58% of which surcharged, up from 38% in 1996.

For all machines, the average surcharge rose to $1.32 by yearend 1997, from $1.29 a year earlier. The average surcharge off-premises jumped to $1.44, from $1.30.

Pointing at the popularity of surcharging among financial institutions, some banks that once championed the idea of surcharge-free alliances are reversing course. San Francisco-based Union Bank of California last month bowed out of such an alliance, of which it was the largest member. The $30.9 billion-asset bank, which is majority owned by Bank of Tokyo- Mitsubishi Ltd., is now collecting surcharges.

Smaller institutions have been lured to the practice of surcharging by the lucrative fee income and the opportunity to build a presence beyond traditional brick-and-mortar sites.

One such thrift, $85 million-asset Charter Bank of Waltham, Mass., with the help of its $1 surcharge, more than doubled its ATM base last year-to nine, with five off-site.

"We wanted to make a little bit of money on it, but we didn't want to gouge" people, said Richard Bolton Jr., president of Charter.

In April 1996, MasterCard International's Cirrus and Visa U.S.A.'s Plus networks dropped their surcharge bans, opening the floodgates to off-site deployment. Despite the Speer report, there are some signs of a slowdown in ATM deployment fervor. In May, Diebold Inc. of Canton, Ohio, announced layoffs of 600 workers. Last month, Banc One Corp. said it would scale back its plan to blanket the country with 20,000 ATMs.

Even so, Mr. Albright predicted 375,000 ATMs would be deployed nationwide by 2003, with more checking accounts and increased card use helping to sustain the expansion. Electronic benefits transfer, which involves moving welfare recipients from paper checks to plastic, will also increase demand, he said.

As long as transaction growth outpaces the rate of installation, "you are going to see more ATMs go in," Mr. Albright said.

The Speer report also predicted that skyrocketing use of ATM cards at the point of sale will drive transaction growth. From the survey, Speer estimated there will be 1.5 million POS terminals by yearend 1998 which will increase 30% a year to 5.6 million in 2003.

Nevertheless, off-line MasterCard and Visa debit cards threaten to stave off growth of ATM transactions.

"It's a healthy business," Mr. Albright said. But it "is under pressure over a longer term from the growth in point of sale in particular and other payment alternatives that reduce the need for cash."

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