A new marketplace for ATM services

Northwestern Financial Review, Nov 1, 1997 by Bengtson, Tom

The banking industry has collectively spent millions of dollars during the last 30 years building the infrastructure that supports automatic teller machines. The networks are in place, and the marketing has been done to encourage people to use ATMs. The usage of such machines has really taken off in the last few years.

It is interesting that now that the banking industry has made the investment in ATMs, many other non-bank players are getting into the ATM game.

Since April 1,1996, when network rules changed to permit surcharges, many nonbanks have been making money by offering ATM services. Ellen Lamb notes in a rather humorous example appearing in the newsletter for the Conference of State Bank Supervisors, that all kinds of companies are now selling ATM machines to anyone willing to pay a few thousand dollars. The incentive to buy is usually the allure of untold riches from surcharges.

Lamb, the editor of the CSBS Examiner, telephoned a company called Greenspan ATM International, which she found on the Internet. She spoke to the president of the company, Sheldon Greenspan, who told her that an ATM owner can earn five to seven dollars per transaction. Greenspan ATM International sells machines for $13,000 and a $300 per month maintenance fee.

Greenspan told Lamb all she needs to do is send in her money and his company will do the rest -select a location for a machine, put it in place, keep it in working order, and keep it loaded with cash.

Greenspan wasn't clear about where the money would come from. He told Lamb, however, that his company already has set up ATMs for many people who are on the road to riches.

I did a little surfing on the Internet myself and easily found a number of sites dedicated to companies that will sell anyone an ATM, or more accurately, a cash dispensing machine. Most promise riches for virtually no work.

One web site that caught my eye is operated by a company called Untronix. The web site at www.untronix.com/banque/ is aimed at people who own or manage a convenience store. "It's a fact that ATMs increase sales," the headline reads at the top of the home page.

If you click on a highlighted sentence that reads: "How can I make money with an ATM," you get the following example. It explains that if your store typically attracts 3,500 customers per week, you can reasonably expect that 70 of them will use an ATM located in your store. That works out to 303 ATM customers per month.

If the average withdrawal is $40, that's $12,120 withdrawn from the machine every month. If those customers spend 20 percent of that amount in your store, that's an additional $2,424 in monthly revenue. If your store sells products with an average mark-up of 30 percent, that's an extra $727 in monthly income.

The company also notes you can make $1 per transaction, adding another $303 to your profit. The only costs, the ad notes, are $210 per month to lease the machine, $10.50 in sales tax, $50 for a phone line and $5 for insurance. It is a believable scenario to the uninitiated.

Certainly if the convenience store owner hasn't thought about putting his own ATM in place by now, he or she likely will think about it soon.

The entry of non-bank owners into ATM services is both a blessing and a curse. It is a blessing because the more people who profit from surcharging, the less likely it will be that Congress will pass legislation banning the practice. It's also a blessing for the public which will have more ATMs available than ever before.

Banks however, could suffer if machines run by non-bankers are poorly maintained and give ATM providers a bad reputation. Also, obviously, if people use a nonbank ATM, that's lost business for a bank.

In some states, competition from non-banks on ATMs is not an issue. In Iowa, for example, only financial institutions can own and operate an ATM. In Montana, however, there are no laws regulating the ownership or maintenance of ATMs. In South Dakota, anyone can own an ATM, but it must be serviced by a financial institution. The same holds true in Nebraska.

In North Dakota, anyone can own an ATM. In fact, banks are at a disadvantage to non-banks in North Dakota because banks need to notify the state if they set up a new ATM, whereas non-banks do not need to notify the state. The opposite is true in Illinois, where anyone can own an ATM. In Illinois, banks do not have to notify the state when they set up new ATMs, but non-banks do have to provide notification.

In Minnesota, anyone can own an ATM but they must provide notification to the state. Plus, ATM owners in Minnesota must be willing to take responsibility for losses to customers that result from poor machine maintenance.

Law Not Meant To Protect Banks, Justice Says

The Credit Union National Association includes an interesting report of the oral arguments presented to the Supreme Court on Oct. 6 in the AT&T Family Federal Credit Union Case in its October newsletter.

CUNA notes that most of the questions posed by the justices concerned the issue of standing: do bankers even have the right to bring such a suit to trial?