Surcharge alliances may not be a saving grace for small financial institutions in the automated teller machine business, according to a network executive.
Though banding together with similar-size banks lets them mimic the formidable ATM bases of larger deployers, it does not necessarily prevent customer defections, said John G. Bascom, president and chief executive officer of Magic Line Inc.
"The selective surcharging alliances just don't measure up in terms of the number of terminals that they bring to the marketplace," Mr. Bascom said. "The market power is with the organizations that deploy large numbers of terminals."
Mr. Bascom, whose Dearborn, Mich.-based network connects 11,300 ATMs in seven states, warned that surcharge alliances would have a negligible effect if big banks decided to form agreements of their own. BankBoston Corp. and Fleet Financial Group struck a deal to cap surcharges at $1, for example, but abandoned the plan after Massachusetts' attorney general raised antitrust concerns.
In a selective surcharging arrangement, banks agree to waive the extra cardholder fees on one another's customers. These banks surcharge customers of nonparticipating institutions, however.
The strategy has been embraced by community banks and some regionals that fear the loss of customers to the biggest banks, which presumably can lure customers to their larger networks with a no-surcharge promise.
Though intended to help small institutions, the alliances, Mr. Bascom said, go against the grain of "equal access" within networks like his, where all participants charge the same fees. The equal access principle dates from the founding of shared ATM networks in the 1970s.
Magic Line's board will meet this month to consider whether to allow selective surcharging by members. Because most other large networks now permit it, Magic Line may have to follow suit.
Mr. Bascom also said small ATM deployers put too high a priority on the surcharge issue. Instead of looking for this kind of panacea, he said, smaller institutions need to "move to a whole new level of electronic delivery."
To retain customers, community banks, thrifts, and credit unions should devote their attention to offering top-notch remote banking services, using the Internet to "level the playing field," Mr. Bascom said.
"Those are real strategies for ubiquitous access of electronic delivery that are going to help the community bank make a difference-not selective surcharging," Mr. Bascom said.
Richard N. Garman, president of Electronic Payment Services Inc., which owns the MAC network, said banks are poised to use their ATM bases to deliver even more services electronically.
With customers becoming inured to surcharges, network executives said, members are more interested in adding functions to ATMs than in debating the surcharge issue.
"The ATM is a wonderful channel of distribution for a product," said Mr. Garman. "We look at our financial clients, and they want to have a broader geographic reach into more households."