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Deployer Study
Executive Summary
Prepared by
Page i
Copyright © 2006
September 2006
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CO-OP Financial Services is the nation’s
largest credit union EFT network and
processor. Established in 1981 and located in
Ontario, CA, CO-OP Financial Services
(formerly CO-OP Network) is wholly-owned
by its credit union shareholders and provides
volume discounts on products and services
that include ATM network access, ATM
processing, debit/card services and shared
branching. With nearly 2,000 credit union
members, more than 25,000 surcharge-free
ATMs (including 6,000 deposit-taking), 100
million-plus monthly transactions and 24
million cardholders, CO-OP Financial Services
is the largest CUSO in the U.S. financial
services industry. CO-OP Financial Services
membership has access to over 800,000
ATMs worldwide through links to NYCE, STAR,
Cirrus, PULSE and Plus.
Page iii
Dove Consulting, a division of Hitachi
Consulting, is a Boston-based consulting
practice specializing in strategy and
organizational effectiveness. Dove’s value
proposition—deep expertise for immediate
value, sincere collaboration with clients, and
the delivery of clear results—has enabled the
practice to become a highly valued and
trusted advisor to leading companies and
their executive teams all over the world.
Founded in 1981, Dove offers deep expertise
in defined industry areas: financial services,
consumer broadband, consumer packaged
goods, high technology, and government.
Study Authors
Christopher D’Ambrosio
Melissa Fox
Tony Hayes
Page iv
Executive Summary
The ATM industry reached an inflection point in 1996, when the widespread
adoption of surcharging redefined the ATM business model that had existed for
almost thirty years. Ten years later, in 2006, we have reached the industry’s
second inflection point.
Over the last two years, the search for a new model has prompted many
deployers, particularly financial institutions, to re-evaluate the role of the ATM:
Is the ATM purely a cash dispenser, or is it a strategic customer delivery
channel?
How deployers choose to answer that question underpins their ATM strategy, and
determines how they manage their ATMs—from how many they deploy and
where they deploy them, to what functionality they support and what software
they run. As a result, we are now entering a third phase in the evolution of the
ATM industry, one that is characterized by the stratification of deployers’ ATM
strategies: the search for a new model has resulted not in one new model, but
many new models.
Figure 1.1
Overview of the Evolution of the ATM Industry from 1969 to 2006
ATMs emerge as a distinct and Deployment growth booms; ATMs FI deployers split along
viable channel. become P&Ls. strategic dimensions:
Proprietary ATMs New revenue sources Role of the ATM
Emergence of shared EFT networks New entrants - Cash dispenser
Deployment and usage growth Surge in deployments - Full service channel
Focus on customer service and Profitability declines. Fee-free access
convenience Declining per-ATM txn levels - Shared access
Declining revenue - Owned/branded access
Industry Stratification
Over the last few years, most of the traditional metrics for measuring ATM
performance—transactions per ATM, revenue per ATM, profit per ATM—have
been declining. As a result, many deployers have been redefining how they
assess the value of their ATM network and refocusing on customer needs and
preferences. Many are now coming full circle and returning to the historical roots
of the ATM as a customer service channel, looking at the ATM not as a stand-
alone profit center but as a critical customer touch point. At the same time,
rising costs, compliance requirements, and technology advancements have
compelled deployers to begin making decisions—either explicitly or implicitly—
regarding their ATM placements, technology investments and operations
infrastructure.
As a result of these and other strategic decisions, the ATM industry is stratifying,
with deployers bifurcating along two dimensions: ATM access and user
experience.
ATM Access
Due to declines in average transactions per ATM, most FI ATMs lose money, as
measured on a direct basis. Deployers have responded by attempting to cut
costs (through operational efficiencies or by removing unprofitable ATMs) and/or
increasing their revenues (by raising their fee levels). Although fee increases
have propped up revenues for individual deployers, rising fee levels overall are
perpetuating a ‘death spiral’ of deteriorating ATM economics—and at the same
time heightening the importance of providing fee-free ATM access.
Some FIs (primarily smaller institutions) will likely choose to reduce the size
of their individually owned ATM fleets and move to more of a ‘shared-access’
model. They will join surcharge-free alliances/networks to extend their reach,
and may reimburse surcharge fees at other deployers’ ATMs. For the ATMs
they continue to deploy, they will outsource more and more components of
their network operations to third parties in order to reduce costs and
complexity.
Other FIs, particularly large banks, will continue to expand their proprietary
ATM networks, often in conjunction with de novo branch expansion, and will
enter into branding partnerships with ISOs for ‘opportunistic expansion’ in the
off-premise space. They may turn to independent providers (rather than ATM
manufacturers) as a means of lowering ATM servicing costs.
Early indicators of this division are appearing in the marketplace, as large banks
aggressively pursue exclusive branding agreements, and selective surcharge
alliances/networks negotiate shared access to ISO ATMs on behalf of their
members.
User Experience
To date, the role of the ATM has been derivative of the technology in place: as
defined by legacy technology and systems, most ATMs today deliver a functional,
generic customer experience. As deployers upgrade to Windows operating
systems, open software, and multi-server connectivity, however, they have an
opportunity to redefine the role of the ATM and to differentiate the user
experience (should they choose to do so).
There are two schools of thought as to what the role of the ATM is and will be:
How deployers view the role of the ATM will be a primary determinant of their
future channel investment and the user experience they create.
As deployers envision the future user experience at their ATMs, their goals are
dictating their investments in ATM hardware, terminal software, and all aspects
of their network operations (servicing, terminal driving, back office operations,
etc.), as they lay the foundation for their channel strategy.
Diverging Paths
Historically, the operating model for the ATM industry has been based on
proprietary ATM networks and a generic user experience. Over the next five
years, deployers’ ATM strategies will become stratified: some deployers will
focus on minimizing the cost of owning and operating a large network of basic
cash dispensers; others will focus on providing access to a large network of basic
cash dispensers—but not necessarily on owning and operating them. Still others
will focus on leveraging their investments in technology and advanced
functionality to improve and differentiate the ATM user experience.
Figure 1.2
Illustration of Deployers’ Strategic Options
Today Tomorrow
Experience Experience
Access Access
As deployers pursue the strategies that will best meet their needs, and the needs
of their customers, the evolution of the ATM industry will no longer be a single
path, but rather an array of diverging paths.
As the ATM industry’s business model evolves and deployers’ strategies diverge,
it is increasingly important to understand deployers’ perspectives and outlooks—
since it is their needs and priorities that will shape the future direction(s) of the
ATM industry. To this end, the 2006 ATM Deployer Study provides an in-depth
The 2006 ATM Deployer Study is the fourth in a series of bi-annual studies
sponsored by the leading EFT networks that tracks the ongoing evolution of the
ATM industry. To the best of our knowledge, the 2006 ATM Deployer Study is
the definitive primary research study tracking the ongoing evolution of the U.S.
ATM industry and benchmarking ATM deployer performance. This study is
intended to provide an assessment of the ATM industry and to serve as a tool for
measuring deployers’ performance relative to the industry and their peers.
1
SourceMedia, ATM & Debit News, 2006 EFT Data Book
Figure 1.3
Segment Definitions and Number of Respondents and ATMs by Segment
# of # of
Definition Deployers % ATMs %
Large Bank Assets $10Bn or higher 28 17% 65,077 49%
Other Bank Assets less than $10Bn 57 35% 3,068 2%
Assets $500MM or
Large CU 38 24% 2,526 2%
higher
Assets less than 14 9% 237 0%
Other CU
$500MM
Large ISO 2,500 ATMs or more 7 4% 54,559 41%
Other ISO Fewer than 2,500 ATMs 17 11% 8,643 6%
Total 161 100% 134,110 100%
The data collected for the 2006 ATM Deployer Study is a nationally
representative sample that provides a comprehensive view of the ATM industry
from which meaningful inferences and conclusions can be drawn.
ATM Deployment
Over the last ten years, the base of terminals installed in the U.S. has increased
from 139,000 to 396,000—an average annual growth rate of 12%2. More
recently, however, growth in terminal deployments has slowed significantly:
between 1996 and 2001, ATM deployments grew at an average annual rate of
18%; between 2001 and 2004, deployments grew at an average annual rate of
6%; since 2004, deployments have increased only 3% per year.
Deployment Growth
Figure 1.4
Average Annual Growth of On- and Off-Premise ATMs by Deployer Segment from 2004 to
2006
On-Premise Off-Premise
Large Bank 9% 7%
Other Bank 7% 9%
Large CU 8% 2%
Other CU 5% 3%
Large ISO N/A 43%
Other ISO N/A 8%
The majority of ATM purchases over the last two years have been replacements
for existing terminals, as deployers upgrade their ATM networks to meet
compliance requirements and migrate to new technology platforms. 92% of FIs’
on-premise ATMs and 90% of their off-premise ATMs are now Triple DES
compliant, and 74% and 90% of their on-premise and off-premise ATMs,
respectively, have encrypted PIN pads. For ISOs, 65% of their ATMs are Triple
DES compliant, and 59% have encrypted PIN pads.
Hardware Features
Figure 1.5
Percentage of ATMs that Have Different Hardware Features by Type/Location
95%
Deposits 22%
92%
Triple DES 90%
65%
Encrypted PIN 74%
90%
Pads
59%
69%
Color Screen 81%
54%
53%
Audio-Enabled 53%
32%
13%
Touch Screen 13%
0%
Looking forward, almost all deployers plan to continue expanding their ATM
networks, although most of the new terminals purchased between now and 2008
are intended to replace exiting terminals; 100% of them are expected to be
Triple DES compliant, and the vast majority will have encrypted PIN pads and
ATM Transactions
For individual deployers, the single most important performance metric is the
number of monthly transactions performed at their ATMs on a per-terminal basis,
which ultimately determines the viability of an ATM placement. The number of
on-us transactions per ATM is a primary indicator of the degree to which an ATM
is meeting the needs of an FI’s customers, while the number of foreign
transactions has a direct impact on ATM revenue and the financial profitability of
an ATM.
Figure 1.6
Average Monthly Transactions per ATM and Foreign Transactions per ATM by ATM
Type/Location
The percentage of transactions that are foreign acquired (i.e., performed by non-
FI cardholders) also varies by deployer type and ATM location. At FIs’ on-
premise ATMs, 20% of transactions, on average, are foreign acquired, compared
to 49% of transactions at their off-premise ATMs. For ISOs, which do not have
cardholders, all transactions are, by definition, foreign acquired.
Among deployers of on-premise ATMs, large credit unions have the highest per-
ATM volumes, averaging 5,601 transactions per month, compared to 5,088 for
smaller credit unions, 4,500 for large banks, and 1,910 for smaller banks. Credit
unions also have the highest per-ATM volumes in the off-premise space,
averaging 2,409 transactions per ATM per month for large credit unions and
2,266 for smaller credit unions. Large banks average 1,996 transactions per ATM
and smaller banks 1,235. ISOs have the lowest average transactions per ATM,
with large ISOs averaging 328 transactions per ATM, and smaller ISOs 330.
Figure 1.7
Average Monthly Transactions per ATM by Deployer Segment
On-Premise Off-Premise
Large CU 5,601 2,409
Other CU 5,088 2,266
Large Bank 4,500 1,996
Other Bank 1,910 1,235
Other ISO N/A 330
Large ISO N/A 328
Although volumes vary among deployer segments, across almost all segments,
deployers are experiencing a decline in per-ATM transaction levels. Between
2004 and 2006, deployers’ average number of monthly transactions per on-
premise ATM fell from 4,216 to 3,651, representing an annual decline of 7%.
Similarly, per-ATM transaction volumes for off-premise ATMs decreased at an
annual rate of 8%, from 2,123 in 2004 to 1,807 in 2006. ISOs’ transaction
volumes, for the most part, have remained flat.
Figure 1.8
Total Annual Number of ATM Transactions for On-Premise, Off-Premise, and ISO ATMs
Average
Transactions Total Annual
Total ATMs per ATM Transactions
On-Premise 130,000 3,651 5.7 Bn
Off-Premise 71,000 1,807 1.5 Bn
ISO 195,000 329 0.8 Bn
Total 396,000 8.0 Bn
It is interesting to note that while ISOs account for almost half of all ATM
placements, they represent only 10% of the industry’s estimated total ATM
transaction volume.
As the number of transactions per ATM (and foreign transactions per ATM in
particular) continues to decline, deployers are redefining the role of the ATM—
and therefore will need to recalibrate how they measure ATM performance.
For those deployers that are refocusing on the ATM as a strategic customer touch
point, old metrics such as transactions per ATM and revenue per ATM will be less
relevant, and over time, these metrics may be replaced by new metrics such as
percentage of customers that use an ATM, the profitability of customers that use
ATMs, new accounts attributed to ATMs, balances and relationships saved due to
ATMs, and the percentage of customers who are cross-sold at an ATM.
ATM Functionality
Thirty years after ATMs were first deployed, their primary function—withdrawing
cash—remains the same. Cash withdrawals continue to account for the vast
majority of ATM transactions (75%), and other standard transactions (deposits,
transfers, inquiries) account for 23% of ATM transactions. Only 2% of
transactions are ‘other’ or advanced functions. However, as deployers re-
evaluate the role of the ATM, some are taking another look at advanced
functionality.
Figure 1.9
Percentage of Deployers that Offer Different Banking, Value Add, and Marketing/CRM
Functionality
Figure 1.10
Average Interest Ratings for Functionality Not Currently Offered
Note: Interest ratings are based on a scale of 1-10, where 1 = Not Interested and 10 = Extremely
Interested.
1 2 3 4 5 6 7
The Check Clearing Act for the 21st Century (Check 21) was signed into law in
October 2003, giving substitute checks the same legal status as the paper
checks, and paving the way for check imaging at the ATM. After three years of
testing and pilots, it appears as though imaging ATMs are ready to hit the
mainstream.
Figure 1.11
Percentage of Deployers that Currently Deploy or Plan to Deploy Imaging ATMs, by
Segment
100% 7%
21% 19%
21% 31%
80%
57%
60% 37%
41%
93%
40% 81%
69%
0%
Large Other Large CU Other CU Large Other
Bank Bank ISO ISO
Although a sizable number of larger FIs have begun to deploy imaging ATMs,
these terminals represent only a very small portion of their overall ATM fleets.
This dynamic is set to change, however, as FIs that currently have imaging ATMs
move from pilot to a broader roll-out within the next two years. Large banks that
already have image-enabled ATMs project that, by 2008, imaging ATMs will make
up 31% of their ATM networks; for large credit unions, imaging ATMs are
projected to constitute 45% of their ATM mix by 2008.
4 ATM & Debit News, "ATM Check Imaging May Finally Make Debut In The Mainstream", June 15, 2006.
Figure 1.12
Imaging ATMs’ Share of Deployers’ ATM Mix in 2006 and 2008
Note: Percentages are for deployers that currently have at least one imaging ATM.
2006 2008
100% 2% 100%
10%
31%
80% 80% 45%
60% 60%
98%
90%
40% 40%
69%
55%
20% 20%
0% 0%
Large Bank Large CU Large Bank Large CU
Both deployers and vendors are optimistic about the future of deposit
automation. For the last two and half years, vendors have been developing and
improving imaging capabilities, deployers have been piloting and testing imaging
ATMs, and FIs have been upgrading their back offices to be able to accept and
process images. The results of these investments are about to bear fruit, and
the next five years will be a break-out period for ATM deposit automation.
Although there are still issues to be addressed, one thing is clear: with both
deployers and vendors committed to making imaging work, the focus on ATM
deposits and deposit automation will increase—and as deposit volume at ATMs
increases, the shift in transaction mix may help change the perception of the ATM
from that of a cash dispenser to that of a full self-service terminal.
ATM Operations
Operating a network of ATMs is a complex proposition involving numerous
disparate functions: ATMs must be purchased and installed; transactions must
be processed and balances settled; paper jams must be cleared and broken parts
repaired; cash must be restocked; deposits must be picked up and processed;
software must be maintained and upgraded. How a deployer manages these
functions has significant implications for its cost structure and operational
efficiency—which have become increasingly important as ATM profit margins
deteriorate.
ATM Servicing
Some deployers have been able to reduce their expenses and/or the complexity
of servicing their ATMs by outsourcing some or all of these functions to third
party providers with greater scale and focus; others have chosen to keep these
functions in-house to ensure quality and retain greater control over their
network. How and by whom an ATM network is serviced varies from deployer to
deployer depending on their network size, terminal density, and available
resources, and may vary within a deployer’s network depending on ATM location
or ownership.
100% 100%
14% 13%
90% 23% 90%
80% 80%
29%
70% 35% 70%
% of Deployers
% of Deployers
72% 68% 73%
33% 76%
60% 60% 84%
50% 50%
40% 40%
13%
30% 58% 30%
50% 17%
20% 18% 20% 12% 15%
31%
10% 10% 12%
12% 14%
8% 9%
0% 0%
Cash Dep. FLM SLM Cash Dep. FLM SLM
Rep. Pick Up Rep. Pick Up
All Handled In-House
In-House Business Hours/3rd Party After Hours
Some In-House/Some 3rd Party
All Handled by 3rd Party
For ISOs, servicing arrangements often vary depending on which entity owns the
ATM and what kind of contract they have negotiated with the site owner. An ISO
may provide its own ATM servicing, contract with a third party, or leave servicing
to the site owner. ISOs’ servicing infrastructures for cash replenishment, first
line maintenance, and second line maintenance for their owned and merchant-
owned ATMs are depicted in Figures 1.15 and 1.16.
100% 100%
14% 14%
90% 90%
27%
80% 38% 36% 80% 38%
% of Deployers
% of Deployers
70% 9% 70%
43%
60% 60%
14% 62%
50% 50%
40% 40%
0% 0%
Cash Rep. FLM SLM Cash Rep. FLM SLM
Handled In-House
Handled by Merchant/ Site Owner
Handled by Third Party
Terminal Driving
Of those that outsource their terminal driving, 54% use one of the leading
EFT networks or their parent processing company.
For those deployers that maintain their terminal driving platforms in-house,
28% have an ACI BASE24 platform, 19% have a Mosaic platform, and 8%
have an S2 platform. In terms of their share of ATMs, however, ACI BASE24
has the strongest presence: 64% of ATMs with in-house terminal driving
systems connect to a BASE24 platform.
ATM Fraud
As a point of fraud, ATMs are the primary channel for FIs’ debit card losses. In
2004, FIs had estimated net losses of $546 million due to debit card fraud, of
which $345 million (64%) was withdrawn from ATMs. As a point of compromise,
however, ATMs are not the primary source of breaches or card/PIN compromises.
According to data from Fair Isaac’s CardAlert Fraud Manager, only 3% of
Most deployers have taken proactive steps to prevent fraud at their ATMs. In
addition to upgrading ATMs to comply with Triple DES regulations, many
deployers monitor their ATMs for false fronts and compromised parts, verify the
legitimacy of their third party servicing companies, and ensure that their
hardware and parts are certified.
ATM fraud is an issue for individual card issuers and terminal deployers—but it is
also an issue that must be addressed by the broader ATM industry. Topping
deployers’ list of industry-level initiatives to combat fraud are improving
authentication methods (moving to chip cards, biometrics, etc.), improving
transaction monitoring (through checking card verification values (CVV) and the
use of neural networks), and increased education/awareness for consumers,
merchants, and FIs.
ATM Technology
For much of their thirty-year life, ATMs have been vertically integrated devices,
combining hardware and software from one provider. The ATM technology
landscape is poised to change significantly, however, as deployers migrate from
OS/2 to Windows and from proprietary software to open standards. As hardware
and software become decoupled, deployers are no longer locked into the
proprietary software that accompanies a terminal. As a result, selecting ATM
software is becoming a strategic decision in its own right—and one that has
significant implications for deployers’ future ATM capabilities.
5
Fair Isaac, CardAlert Fraud Manager, 2006.
Figure 1.17
Percentage of ATMs Running Different Operating Systems in 2006 and 2008
2006 2008
DOS DOS
1% 1%
Other Other
15% 14%
OS/2
22%
Windows
26% OS/2
58%
Windows
63%
Figure 1.18
Percentage of ATMs Running Different Software Products for 2006 and 2008
Until recently, the role of an ATM, in terms of the customer experience, was well-
defined—an ATM was an ATM. That view, however, has been largely derivative
of the technology in place. In the new environment, deployers will be able to
differentiate the customer experience by terminal and/or by cardholder: the ATM
experience will not have to be generic.
For many deployers, ATMs will continue to deliver a purely functional user
experience. For others, however, the investments they have made (and are
making) in advanced Windows software are positioning them to provide a more
flexible and engaging ATM user experience. In the short term, this differentiated
experience is taking the form of more visually appealing ATM screens and
cardholder preferences. In the longer term, it will take the form of segment-level
and 1:1 marketing that enhances and differentiates customers’ ATM experiences
in a meaningful way.
In the ten years since surcharging was introduced at the national level, nearly all
deployers have incorporated surcharging into their ATM strategy and business
model. Across all segments, 97% of deployers impose a surcharge fee on at
least a portion of their foreign acquired transactions.
Figure 1.19
Average Surcharge Rates for On- and Off-Premise ATMs for 2001, 2003, and 2006
Note: Averages are based on number of survey respondents, not ATMs (i.e., unweighted).
$2.00
$1.79
$1.74
$1.75
$1.65
$1.57
$1.48
$1.50 $1.45
$1.25
$1.00
On-Premise ATMs Off-Premise ATMs
Combined with an average foreign fee of $1.27, consumers currently pay more
than $3.00 every time they use an ATM that is not deployed by their own FI—and
potentially much more. As the cost of using a foreign ATM increases, a
deployer’s ability to provide convenient fee-free access to ATMs is becoming
increasingly important.
One way to provide convenient fee-free ATM access is simply to deploy more
ATMs—and many FIs have historically pursued this path. In today’s environment
of declining per-ATM transaction volumes and rising costs, however, the business
case for deploying additional ATMs can be challenging. To solve this dilemma,
many deployers are pursuing one or more of the following strategies to increase
their cardholders’ ATM access:
Across deployer segments, credit unions are most likely to participate in selective
surcharge alliances, many of which are credit union-specific. 86% of smaller
credit unions and 79% of large credit unions participate in a selective surcharge
alliance, compared to 39% of smaller banks and 25% of large banks.
Credit unions and smaller banks are most likely to participate in reciprocal
sharing agreements, and by choice or by requirement, to share all of their
ATMs.
Large banks and ISOs typically share only a portion of their ATMs—and large
banks are most likely to participate in card-only agreements that expand their
cardholders’ ATM access but maintain the unique benefit provided by their
proprietary ATM network.
Surcharge Reimbursement
Reimbursing surcharge fees can be an effective tool for attracting and retaining
customers, and, for smaller FIs, can help ‘level the playing field’ in terms of ATM
access. It can also, however, be very expensive.
Currently, 48% of large banks, as well as 26% of smaller banks and 21% of large
credit unions, reimburse surcharge fees for at least some of their cardholders.
ATM branding is one of the hottest topics in the ATM industry—and may go a long
way toward redefining industry economics.
ATM branding agreements typically exist between FIs and ISO deployers. Under
these arrangements, the ISO owns and operates an ATM, but the ATM is branded
with the FI’s logo, name, and, in some cases, ATM screens. The FI usually pays
a monthly fee to the deployer in return for surcharge-free access to that ATM for
its cardholders.
To date, most branding partnerships have been limited to large banks: 41% of
large banks currently have at least one branding agreement in places, and
Figure 1.20
Current Participation/Interest in Branding Partnerships among FI Deployers
FIs currently pay between $90 and $300 per month to brand an ATM, with a
median fee of $250. The cost per ATM varies depending on the owner of the
ATM, the location of the ATM, and the number of transactions the FI’s
cardholders currently perform (which determines how much surcharge income
the ATM owner will be foregoing).
Looking forward, FIs have every reason to be optimistic about ATM branding and
the opportunities it can afford in terms of expanding their off-premise footprint
and increasing cardholders’ surcharge-free ATM access at a lower cost than
deploying ATMs. Of those FIs that have branded ATMs, three-quarters plan to
brand additional ATMs—and many of them are in the process of negotiating
additional agreements.
The fundamental economics of owning and operating ATMs are still misaligned.
Revenue is generated almost exclusively on a per-transaction basis (more
specifically, per foreign acquired transaction), while expenses are largely fixed
and incurred on a per-ATM basis.
Per-ATM Revenues
Figure 1.21
Average Monthly Revenue for On- and Off-Premise ATMs
Per-ATM Expenses
Figure 1.22
Average Monthly Expenses for On-Premise and Off-Premise ATMs
Between 2003 and 2006, per-ATM expenses have increased for both on-premise
and off-premise ATMs. Deployers of on-premise ATMs have experienced an
average increase of 10% in expenses between 2003 and 2006; deployers of off-
premise ATMs have experienced a more significant increase of 21%.
Deployers’ per-ATM expenses vary significantly depending on the size and type of
the deployer.
For on-premise ATMs, large banks have the lowest monthly expenses per ATM,
averaging $1,131 per ATM. In comparison, large credit unions incur the highest
costs, averaging $1,976 per ATM per month. For off-premise ATMs, ISOs have
by far the lowest operating costs, with large ISOs spending $680 per month to
operate an ATM, and smaller ISOs spending $522. Smaller banks, which have
the lowest operating expenses across FI deployer segments, pay around twice
that.
Figure 1.23
Average Monthly Expense for On- and Off-Premise ATMs by Segment
With a much greater transaction base over which to spread their costs, however,
FIs incur much lower per-transaction costs than ISOs. Per transaction, ISOs’
costs are almost three times higher than those of banks and credit unions—and
credit unions, which have the highest monthly expenses, have the lowest costs
per transaction.
Figure 1.24
Average Cost per Transaction for Banks, Credit Unions, and ISOs
$1.50
$1.40
$1.00
$0.53
$0.50 $0.47
$0.00
Bank Credit Union ISO
Per-ATM Profitability
As profit margins deteriorate, many FIs are recalibrating their ATM strategies,
shifting away from revenue generation and refocusing on meeting the needs of
Dove Consulting Executive Summary
Page 25
their customers. The value of FIs’ ATMs, from a customer service and delivery
standpoint, however, is not accurately reflected in measures of direct financial
profitability. As FI deployers’ focus shifts, the concept of ATM ‘profitability’—and
what that means for their distribution strategies—must be redefined.
Although an FI’s priorities will vary depending upon the role the ATM channel
plays in their broader retail banking strategy, most FIs would benefit from
looking at their ATM network as a portfolio of locations. Rather than focusing
solely on generating revenue, FIs need to assess the value of their ATMs along
two dimensions, in terms of the value derived from non-customers and the
service provided to their own customers.
Figure 1.25
Matrix of Value Provided to Customers and Derived from Non-Customers
Positive
Maintain Invest
Direct Profit
Negative
Low High
Customer Usage
Although it may not be reflected in reported averages, most FIs have a mix of
profitable and unprofitable ATMs in their networks. Those that generate high
revenues and are frequently used by customers provide the maximum value to
an FI. ATMs that are unprofitable, but that are frequently used by customers are
still critically important as part of an FI’s overall distribution delivery strategy.
ATMs that are profitable, but are not frequently used by customers, are also
important—they ‘pay for themselves’ and provide a cushion that can be used to
subsidize ATMs that are unprofitable but customer-critical. ATMs that are not
performing along either dimension should be phased out, and the cost of
operating those ATMs redeployed to better meet customers’ needs, either in the
form of new ATM placements or alternative ATM access options.
As we move into the next phase of the evolution of the ATM industry and
deployers focus on leveraging ATMs to acquire and strengthen customer
relationships, redefining the ‘profitability’ of ATM portfolios in terms of both
financial value and customer value will be critically important for ATM managers.
By balancing the costs, revenues, and customer value of their ATM networks, FIs
will put themselves in the best position to prioritize ATM channel investments.