ATM Growth Rates Converge

  Two key numbers that provide a glimpse of how the market for automated teller machines is faring finally seem to be getting closer together.
  Since the mid-1990s, when major electronic funds transfer networks lifted bans on ATM surcharging, the installed base of U.S. ATMs grew at a much quicker pace than ATM transactions. But now, the two indicators are growing at nearly the same rate as transaction volume, particularly at off-premise ATMs, is experiencing little or no growth and deployers are being more cautious about installing machines in new locations.
  New survey data by CCM's sister publication, ATM&Debit News, show that overall ATM volume, including on-us activity involving customers using their own banks' ATMs, grew at a flat 1.9% rate in March, to 919.2 million transactions from 902.3 million in March 2003. Between March 2002 and March 2003, ATM volume grew by 2.2% (chart, page 58).
  Comparatively, the installed base of ATMs grew by 3.2%, to an estimated 383,000 in March from 371,00 a year earlier. During the previous 12-month period the installed base of ATMs grew by 5.4%, ATM&Debit News estimates. From March 2001 to March 2002, the installed base grew by 8.6%.
  As in past years, most of the ATM deployment increase in 2004 occurred in off-premise settings, where nearly 69% of all ATMs now are deployed. There are now 263,000 off-premise ATMs and 120,000 bank-branch machines deployed nationally. The off-premise estimates also include financial-institution machines deployed away from branches.
  The ATM&Debit News survey results this year also illustrate a continuous slide in transactions per ATM. There is now an average of 2,400 transactions per machine, down from 2,432 in March 2003 and 2,509 in March 2002.
  However, the bulk of ATM transactions involve on-us activity, which is growing faster as a proportion of all transactions. All but two of the 10 top financial-institution ATM owners that responded experienced an increase in on-us volume, despite most of those same financial institutions reporting little or no deployment growth. Moreover, for all of the top ATM owners, on-us transactions grew as a proportion of their total ATM volume.
  San Francisco-based Wells Fargo & Co., which traditionally has had the highest on-us volume among the top responding deployers, says that its own customers initiated 88.6% of its 39.4 million ATM transactions in December 2003. In December 2002, on-us volume represented 86.6% of Wells' 38.9 million ATM transactions. Wells also reports having fewer ATMs, 6,184 at the end of 2003 versus 6,353 a year earlier.
  The trend toward greater on-us activity illustrates consumers' growing propensity to use their own banks' ATMs to avoid surcharges imposed by other machines' owners and foreign fees their own banks charge for using machines these institutions do not own. Ironically, the growth of on-us transactions, which financial institutions may welcome as an indication of an active customer base, provides no corresponding additional revenue to cover ATM expenses ("Plenty of Cash, Little Profit," August).
  A recent survey by Atlanta-based Dove Consulting Inc. found that financial institutions are losing at least $250 per ATM per month. And greater use of financial institutions' ATMs is sparking independent operators, whose margins are shrinking as consumers avoid paying fees at nonbank ATMs, to adjust their marketing strategies.
  Scottsdale, Ariz.-based eFunds Corp., which manages about 15,700 U.S. off-premise ATMs, recently reported declines in its second-quarter ATM transaction volumes and ATM sales. The result was a drop in revenues for its ATM management division.
  In September, eFunds announced that it would sell its 17,200 ATM contracts to Portland, Ore.-based TRM Corp. for $150 million in cash. The announcement did not detail terms of the sale. EFunds has entered into a five-year agreement with TRM to drive the ATMs, process transactions on them and manage other services for TRM, which itself has about 1,300 ATMs under contract in the U.S. and 3,000 in the United Kingdom.
  David McCrary, vice president of eFunds' ATM division, says eFunds over the past year has been discussing with numerous financial institutions the possibility of managing their ATM fleets. EFunds, he says, is trying to show financial institutions that it can operate their ATMs at a lower cost while at the same time serve more users.
  "The ATM channel is going to be one of the most important channels they are going to have," says McCrary. "We know the transactions are there."
  Banks' ATM transaction growth as well as technological advances and new regulatory requirements are spurring financial institutions to invest in their ATMs, says Jerry Silva, senior analyst at TowerGroup Inc., a Needham, Mass.-based consultancy owned by MasterCard International. A recent report by Silva estimates that large financial institutions will invest about $1.8 billion in ATMs this year, 12% more than in 2003.
  Banks appear to be "tuning up" their ATMs, mostly through replacement, in anticipation of higher use caused by the advent of the so-called Check 21 law that went into effect in Oct. 28 ("What's Next for Electronic Checks?" page 38). They also must comply with stricter personal identification number encryption requirements and are looking to install ATMs that can be integrated into back-office and front-office systems more efficiently, says Silva.