CUs Scramble as KeyBank Plans to Shut Down Surcharge-Free ATM Program
In a February letter, the $105 billion KeyBank informed its credit union partners that it was shutting down an agent banking program through which the credit unions offered members surcharge-free access to KeyBank ATMs. As of May 1, the letter said, the bank would begin surcharging credit union members just like any other nondepositor.
The letter, which one credit union vice president called "terse," did not give a reason for the move, and came "out of the blue" according to one credit union CEO.
"I was sitting at my desk opening and reading my mail and then there came this letter just like that," explained Jim Hartman, CEO of the privately insured Cardinal Community Credit Union, headquartered in Mentor, Ohio. "We really didn't get any warning. Since surcharge-free ATMs are important for our members, including me," he said, chuckling, "we knew we had to do something to fill the gap."
KeyBank has not yet responded to questions regarding why it is abandoning the surcharge-free program, which it has operated for more than a decade. In addition, bank spokesmen could not even say how many credit unions or community banks were part of the program, but bank documents show the bank has just under 1,500 ATMs spread across 14 states, including Alaska, Colorado, Connecticut, Idaho, Indiana, Kentucky, Maine, Michigan, New York, Ohio, Oregon, Utah, Vermont and Washington.
Bank documents on its Web site (www.key.com) reported that KeyBank lost $524 million in the last quarter of last year and other documents showed it has taken $2.5 billion from the U.S. Treasury's Troubled Asset Relief Program. The bank said it will announce its first-quarter earnings on April 21.
Hartman explained that the credit union had been attracted to KeyBank because of its prevalence in the CU's local market, which includes the Cleveland metropolitan area.
"The number of ATMs nationwide didn't mean as much to us as the fact there are two KeyBank branches within minutes of our offices," Hartman observed. That had been the feedback from the CU's 19,000 members, some of whom had just finished asking for more surcharge-free ATMs in a member service survey, he explained.
KeyBank's surcharge-free ATM program used a pricing schedule that has since become more popular in the ATM industry.
KeyBank did not surcharge ATM users from participating credit unions but charged the credit unions a fee. The credit unions liked the KeyBank plan because they could still surcharge any KeyBank account holders that used their own ATMs. The bank liked the pay schedule because it still made an income from its ATMs no matter how many of the credit union's members used them each month.
Hartman said he was puzzled by the bank's move since, even in its current economic difficulty, KeyBank would still make money from the ATM program. Cardinal members alone were conducting 3,500 transactions per month at the bank's ATMs and the fee the bank collected reflected that, he pointed out.
Faced with a strong demand from its members for surcharge-free, local, ATM access Cardinal signed on with the Allpoint Network.
Allpoint uses a similar pricing schedule to KeyBank's. Participating credit unions pay Allpoint a fee based on the numbers of ATM cards they have and retain surcharge income from their own ATMs.
Hartman said Cardinal members were actually getting more surcharge-free ATMs, although none of them with drive-thru access, so they would be marginally less convenient than the KeyBank ATMs. Allpoint has 35,000 ATMs nationwide compared to KeyBank's 1,500, with most of its ATMs in convenience stores, gas stations, grocery stores and similar retail sites.
Ben Psillas, CEO of Allpoint, said the firm has had about 20 inquiries from credit unions looking to replace Key. Cardinal had merely been the first of what Psillas expected to be several to come to Allpoint.
But the $166 million CME Federal Credit Union, headquartered in Columbus, Ohio, said there were enough new credit union-owned branches and ATMs in its area to justify going with a credit union-owned option for surcharge-free ATM access.
CME CEO Jim Riederer explained that the credit union had not felt there were enough credit union-owned ATMs or branches in its primary service areas when it made the initial decision to offer the KeyBank ATM program. But, now that CME and other credit unions had placed more ATMs and branches, as KeyBank backed out, the credit union decided to go with Alliance One, a surcharge-free ATM network of roughly 5,000 machines deployed by about 1,000 credit unions and community banks. Alliance One is operated by Corporate One Credit Union.
Caroline Lane, senior vice president for business development for CO-OP Financial Services, said the CUSO had also received inquiries from credit unions looking for a credit union owned alternative to KeyBank but would not predict how many would eventually join the CUSO's network.