With Surcharge-Free Networks on the Rise, Will Surcharging go Extinct?
ARLINGTON, Va. - Since roughly 1996, surcharging cardholders has helped provide the income ATMs generate. But the advent of more surcharge-free networks and other factors have many believing the era of milking the cardholder may be coming to an end. "I think we have passed the point of consumer patience with fees," said Stan Paur, CEO of the Houston-based Pulse EFT Association and an experienced EFT industry watcher. Paur, who has long been known for defending the practice of surcharging from consumer groups' attacks, pointed out that a cardholder who uses a "foreign" ATM pays at least $1.50 in surcharge fees to the deployer of the ATM and then often a fee to their own institution. These fees can total, in many cases, up to $2.50 or $3.00 per transaction Paur said, adding, "consumers just have other places to go to access their money." He noted that consumers get cash back at point of sale terminals or avoid cash altogether by using their debit cards, no matter how small the transaction. "I was in a gift shop in an airport the other day," Paur said, "and I saw someone in line ahead of me use their debit card for a transaction and the amount of the bill was about six bucks," he said. Consumers are just going to other ways of getting their money, he said, not necessarily ATMs and that means that they are just not going to use ATMs with surcharges as much any longer. Paur agreed that this loss of consumer patience with fees has coincided with an increasing shift from seeing the ATM primarily as a service financial institutions provide their customers to one in which the ATM has become a financial commodity, a staple service in the retail marketplace. The majority of the nation's roughly 324,000 ATMs deployed last year were deployed not by credit unions or even banks, but by so-called Independent Sales Organizations, often associated with retailers or aimed at serving a retail marketplace. Admittedly, these machines are most often not the full-service tellers that can take deposits for banking users or do much more than offer cash, but the advent of so many cash-dispensing machines into the marketplace has highlighted another role for the ATM. Now the machines themselves have become an asset and resource in their own right, not merely a conduit for banking services but as a source of foot traffic and transaction volume. This changing reality is what ATM National has tapped into with its Allpoint Network. ATM National was able to convince two large nationwide ATM deployers, E*Trade and Cardtronics, that they stood to make more money from machines that would draw more consumers by not charging them surcharges than they would from the machines' surcharge income. Under ATM National's model, a card issuing institution pays a monthly flat fee, based on the number of cardholders it has enrolled, to ATM National. The firm takes a portion of the fee for itself and distributes the majority of it to the Allpoint Network deployers, thus ensuring them some income even though, from the cardholders' perspective, their machines are now fee-free. "As the number of machines has risen, the number of really high value sites to deploy them and the transaction volume that the machines generate have declined," said Brian Sismour, national sales manager for Key Bank's Agent Bank Program. "That means that there is real competition to increase the volume from the machines that have been deployed and how to draw consumers to them from among all the options they have." That competition, Sismour said, has been the force driving the push toward fee-free; a movement which he believes will eventually make ATM surcharges obsolete. As the value of traffic and transaction volume per machine continues to rise, Sismour predicted, the inclination to surcharge users for their transactions has to fall. Sismour contended that the announcement that ATM National's Allpoint Network was up and running vindicated Key's own fee-free ATM model. Key's fee-free network uses a model similar to ATM National's, but instead of collecting a flat fee from card issuing institutions, the card issuing institutions pay a small fee to the machine deployer, for sake of example Sismour used $.50, for each transaction. This income, plus the roughly $.50 cents the transaction generates in withdrawal interchange, helps offset the surcharge income lost by making the machines fee-free. But even as ATM National has begun collecting money for his Allpoint Network, Ben Psillas, president of Allpoint, would not predict the complete death of the surcharged transaction. Psillas pointed out that not all ATMs were going to draw the volume or have the other sources of income that a fee-fee machine might have. Machines that are going to be fee-free are going to have to gain, on average, three times the volume that they had as surcharged machines, Psillas explained. "If you consider that the average surcharge in the country is $1.50 per transaction, and if the withdrawal surcharge is roughly $.50, then you are going to need more than three fee-free transactions to make up for the lost surcharge income from one surcharged transaction," he said. Unless, of course, the deployer has a relationship with the card issuer or the merchant in whose store the machine is deployed that offsets that income, he said. Jim Park, CEO of the Florida-based Credit Union 24 Network, also questioned just how new the fee-free model really is. He pointed out that the surcharged transaction model has only been really dominant for the last five years and said that, from his perspective, the rising attraction of fee-free machines represented opinion on the issue swinging back more towards the center. He pointed out that the Publix food chain, popular in Florida, has kept its fee-free access from the beginning and has resisted surcharging transactions, preferring the foot traffic the fee-free machines provides. Credit Union 24 recently signed an agreement with Cardtronics, one of Allpoint's deployers, which would give Credit Union 24 cardholders access to Cardtronics' machines nationwide. Not all the access would necessarily be free of surcharges, the network has said, but Park has predicted that fee-free access overall would become generally more common even if it did not become dominant. CO-OP Network, which runs the nation's largest credit union owned fee-free ATM Network was also skeptical about whether the surcharged ATM would ever entirely disappear. Surcharge income is very hard to move off a budget, noted Jim Hanisch, EVP for corporate development.He also said that CO-OP Network was cautioning credit unions that were interested in a fee-free model, such as Allpoint's, to carefully weigh the cost of the program versus their volume of card usage. Paying a flat fee on all the cards enrolled can translate into a very high per transaction cost for the cards used, he pointed out. -firstname.lastname@example.org