New ATM Partnership Looks To Change Landscape Further; CUs are Early Players

ARLINGTON, Va. – A new ATM partnership that aims to sharply broaden the public’s access to surcharge free ATMs could significantly change the already rapidly shifting ATM and EFT industries, and is already having effects on credit unions. ATM National, based in Rockville, Maryland has launched its much anticipated Allpoint surcharge free ATM network, with five card issuers and two major machine deployers. Three of the five card issuers are credit unions, the firm reported, and E*Trade and Cardtronics are the first two ATM deployers. The Network opened with 23,000 machines nationwide, the firm said, and began switching transactions on April 2. New financial and payment arrangements between card issuers and deployers are key to ATM National’s strategy for becoming what the firm expects will be a dominant player in the steadily evolving ATM/EFT marketplace, according to Ben Psillas, President of the Allpoint Network/ATM National. “What we aim to do is to allow card issuers to make surcharge access more widely available to their cardholders without also losing their fee income from any machines that they might also deploy,” Psillas said. The way the arrangement works, financial institutions and other card issuers, such as payroll service companies, pay a monthly fee based on the number of enrolled cards they have to ATM National, Psillas explained. ATM National keeps a portion of that fee as a revenue stream, but passes the majority of it on to the ATM deployers according to an arranged schedule. In exchange for that fee from the financial institution, the ATM deployers make their machines fee-free to the cardholders. The deployers also collect interchange income from the withdrawals from their machines that Allpoint members make, and they can expect an increase in volume as the card issuers advertise the fee-free nature of their transactions, Psillas added. Early Emphasis on Credit Unions Psillas said it was no accident that credit unions, which are minority ATM deployers in almost all localities across the country, were three of Allpoint’s first card-issuers. The three are the $58 million Healthcare Employees FCU based in Princeton, New Jersey; the $6 million University of Pennsylvania Students FCU based in Erie, Pennsylvania; and the $5.1 billion Pentagon Federal Credit Union, based in Alexandria, Virginia. Pentagon FCU has roughly 500,000 members, Healthcare Employees 25,000 members, and the University of Pennsylvania Students 3,000. “Credit unions are among the financial institutions with the strongest desire to provide their members or customers with greater ATM access, as well as having some the biggest capital hurdles in ATM deployment,” Psillas said. Allpoint’s other card issuers include Skylight Financial, a leading payroll service company based in Atlanta, Georgia and OBA Bank, a Washington D.C. area headquartered community bank. The two larger credit unions which have decided to sign up with Allpoint said they got involved with Allpoint because their members needed the additional access to fee-free ATMs and because they needed their members to have that access. Both institutions reported that, for different reasons, their share draft or checking accounts were generally slow in penetrating their membership and both saw the increased access to fee-free ATMs as a way of boosting share-draft participation. “Our credit union has a very fluid membership, in terms of geography,” said Mary Lynn Stevens, executive vice president for external relations for Pentagon. “Because of their military associations our members move a lot and tend to open and close their checking accounts when they move or to not even use us much for checking,” Stevens explained. “We hope a nationwide fee-free ATM network will really help us convince our members that keeping their share draft relationship with us, even when they move, makes more sense,” she said. Jon Dawidowski, CEO of Healthcare EFCU expressed a similar rationale for the decision to join Allpoint. In his credit union’s case, the share draft relationship has also been slow to penetrate the membership and surveys of the membership have shown an active interest among members in greater access to fee-free ATMs, he reported. ATM National’s Allpoint offered 700 machines across his smaller, highly urbanized state and that was very attractive, he said. “In New Jersey we have a lot of ATM machines in a relatively small area,” Dawidowski said. “They are a commodity and our members need fee-free access to as many of these machines as possible if we are going to be competitive in our market,” he said. Healthcare Employees deploys 18 ATMs and can offer fee-free access to more than 100 through membership in the CO-OP Network and a network coordinated though the New Jersey league he said. Dawidowski reported as well that he is not sure what his credit union will do if CO-OP Network says that it cannot participate in both CO-OP Network and ATM National (see related story page 48). For its part, ATM National said that it has no problem with card issuers belonging to both Allpoint and CO-OP Network. “We think our card issuers should have as much access to fee-free ATMs as possible,” Psillas said. A Deployer’s Perspective The weakest link in ATM National’s new business model may be the deployer. Will fees generated by the card-issuers be enough to offset the loss of income from formerly surcharged transactions? What would motivate a deployer to forsake an income stream that might seem like a somewhat sure thing? Officials from E*Trade, which deploys 13,000 machines across the country, were traveling and could not be reached in time to offer their company’s perspective. But Cardtronics, which deploys 10,000 machines across the country, primarily in convenience stores, gas stations, drug stores and other small merchants, reported that surcharges were not at the heart of the decision to partner with ATM National. “For us, it’s about more than the surcharge,” explained Doug Deitel, executive vice president for corporate services for the Houston-based Cardtronics. Deitel said that a big part of the firm’s decision to participate was to raise the perceived value of its ATMs among the merchants who deploy them in their stores and pay the firm a variety of different fees and even rent to do so. “For our merchants it’s all about foot traffic, getting people in the door, and that’s why we commit to them to keep our machines clean, running well, stocked with money etc,” Deitel said. “Having them be surcharge-free to some users is just part of that,” he added. He also noted that the withdrawal interchange from the likely increased volume also figured in the calculation. “Of course, we haven’t actually seen this happen yet,” Dietel said. “But we examined the business model closely and we walked in with our eyes open,” he said. ATM National is banking that other deployers and card issuers will make some of the same calculations. [email protected]