Bucking a trend, U.S. Bancorp is moving forward with its plans to develop self-serve financial kiosks, despite lingering questions in the industry about whether they can generate profits.
Elan Financial Services, the Minneapolis company's payment processing division, is expected to begin testing the machines in the next two months.
Financial kiosks are similar to traditional ATMs but offer additional functions, such as paying bills or cashing checks. The best-known example is the Vcom line, which Cardtronics Inc. bought last month from 7-Eleven Inc. Soon after that purchase Cardtronics said that the machines were barely profitable, and that if it could not find a way to keep them in the black, it would simply
U.S. Bancorp, however, says it is confident its Pass Plus kiosks will do better, mainly because they can be customized to meet the needs of a variety of users, including other banks, merchants, and ATM operators.
"Being able to customize the kiosk according to the end client is key," Janet O. Estep, Elan's president and the executive vice president for transaction services for U.S. Bancorp, said in an interview Tuesday. "That's what makes it cost-effective, and that is what raises the interest in the various client segments."
The six tests scheduled to start in September and October will involve banking companies, retailers, and independent ATM operators. The disparate group of users will evaluate a variety of functions and likely will have very different ways of measuring success.
For example, if a merchant "is interested in just adding bill pay to what was traditionally viewed as a low-volume ATM location, they may view it as a way to drive more transactions and more traffic," Ms. Estep said. "If it's a financial institution targeting the unbanked, they may be very focused on check verification and check cashing and issuing prepaid cards out of the kiosk — again, very different than adding bill pay to a low-volume ATM location."
In fact, the strategy of making the machine fit the location is similar to what Cardtronics has said it plans for the Vcom. The Houston ATM operator, which paid $135 million for 7-Eleven's fleet of 3,500 standard ATMs and 2,000 Vcoms, said that there was little logic to the placement of the Vcoms, and that it hoped matching their capabilities to the needs of local residents — for example, installing a machine with check-cashing capabilities in areas with significant numbers of underbanked residents — would boost use.
In addition to withdrawals, Vcoms let users pay bills, cash checks, and initiate money transfers, and have sold money orders.
Cardtronics said that the Vcoms were profitable when used for basic withdrawals, but not when used for the more advanced functions, and that it would shut off those capabilities if the machines generated more than $10 million of losses. The machines are built by NCR Corp.
Ms. Estep said that U.S. Bancorp does not think its machines would have the same problems, because they have been designed from the start to be customized for different users and locations.
Comparing the machines to Vcoms is "like comparing apples and oranges," she said. Vcoms use much older technology, and the Pass Plus hardware and software are "more flexible than what was originally implemented with the Vcom."
U.S. Bancorp has a long history as an ATM innovator, offering a variety of nonbanking products and services that other banking companies have tried and abandoned. For example, almost all of its 4,867 ATMs sell postage stamps and let people with prepaid mobile phone accounts buy additional airtime.
(The company does not offer phone top-ups at some machines in merchant locations if the merchant offers the same service.)
Certain ATMs also sell tickets for company-sponsored events such as the St. Louis Jazz Festival and the U.S. Bank Championship golf tournament in Milwaukee.
"The traditional wisdom in the ATM market has been that ATMs are used primarily as cash dispensers," said Tony Hayes, the managing director of the financial services practice at Dove Consulting Inc., a division of Hitachi Consulting. "Lots of people have tried to broaden the functionality of an ATM, and it really has failed to move the needle."
Many companies are leery of these nonfinancial transactions, because they "don't directly benefit the bank," he said.
Ms. Estep conceded that these capabilities do not generate substantial revenue, but she said they do benefit U.S. Bancorp, because they provide a service that customers want and use.
"We definitely don't lose money on it, but to the extent that we support a consistent set of users, it's something we're committed to do," she said. "We would love to have other institutions also support these types of transactions on their ATMs, because … if all banks offered it, everyone would assume it's there."
U.S. Bancorp is using software from ACI Worldwide Inc. to offer the phone top-up service. Rick DuVall, the New York vendor's senior product manager for ATM products, said users enter their phone number, wireless carrier, and the amount of time they wish to purchase. The money is debited from the customer's checking account, and the minutes are added to the account.
The transaction does not take much longer than a typical ATM withdrawal, he said.
Ms. Estep said that it took under a year for her company to recoup the money it spent installing the software. "From a transaction standpoint, our goal initially was … to offer phone minutes in a way that provided that conveniently to users of our ATMs."
Mr. DuVall said many wireless carriers offer prepaid plans, which are growing in popularity, particularly with young people.
"A lot of the people who use prepaid plans are younger people, and they're not going to be at all intimidated to do mobile top-up through an ATM," he said.
"It's going to be much more easy and intuitive to do it at an ATM."
