ATMs—An Opportunity for Creating More Networked Advantage

The primary disadvantage credit unions confront in survey after survey is the lack of physical convenience. One of the primary ways credit unions are trying to overcome this perception is through increasing deployment of ATMs and joining with other credit unions to network ATMs.

 
 

The primary disadvantage credit unions confront in survey after survey is the lack of physical convenience. One of the primary ways credit unions are trying to overcome this perception is through increasing deployment of ATMs and joining with other credit unions to network ATMs.
As this strategy unfolds, recent data suggest that there may be a third component that would make ATM management even more successful. Moreover, even though credit unions own only a small fraction of ATMs, their networked approach may place them in a better position to add this capability than some of their competitors.

The State of ATMs Today
The total number of ATMs in the US today is approximately 273,000 which is up from 80,000 in 1990 according to ATM & Debit News. The credit union share of this total is approximately 18,200 machines, or 6.6% of all ATMs, based on surveys by Callahans.
However, credit unions do not individually deploy ATMs in large numbers. If a credit union owns more than 50 machines, that is sufficient to place them in the top 50 of credit union ATM owners. The five leading credit union ATM operators at yearend were:

State Employees Credit Union, North Carolina

726
Navy Federal Credit Union, Merrifield, VA 250
The Golden One, Sacramento, CA 253
Pennsylvania State Employees, Harrisburg, PA 200
San Antonio Federal Credit Union, San Antonio, TX 115

The recent Callahan survey of branch and ATM deployment intentions showed that the average number of ATMs to be added by credit unions over $30 million is under 3 machines per year (see graph, p. 4). Obviously, larger credit unions will deploy more, but the numbers suggest that ATM purchase and deployment is a very small part of day-to-day operations.


As a result, most credit unions have very little in-house expertise about ATM operations or deployment. Unlike branch decisions involving much higher levels of fixed investment, using external consultants is not practical.

Building Coop Networks
To overcome this small scale, credit unions have combined their ATMs in cooperative networks to process transactions from a credit union's members through a common switch. This networking has given each individual credit union the ability to advertise ATM access at hundreds or thousands of locations even though the credit union does not own the machines.

Credit union cooperative networks have become even more vital in the last five years as surcharges on "foreign" machines have emerged as a major source of income for ATM owners. By keeping credit union networks surcharge free for credit union members, this helps deliver value and distinctiveness to the credit union delivery system.

In addition to deploying ATMs at the credit union level, expanding credit union networks has been the primary means of enhancing credit union ATM strategy. Recently, the CO-OP Network of Ontario, CA announced an agreement to merge with the Member Access Illinois (MAI) coop to create a total network of 12,000 ATMs in 49 states. The CO-OP Network is the largest of seven or eight credit union ATM cooperatives and has used its clout to negotiate surcharge free access with other non-credit union owned networks such as Access Cash.
In New Mexico, many of the larger credit unions created a CUSO that owns, deploys, and manages ATMs on behalf of the credit unions. This CUSO, Anytime Network, takes the pooling model a step further by creating a common operational capability.

The Third Leg of Strategy
Even though credit unions own a very small share of ATMs and rarely manage large numbers, transaction volume per ATM is significantly higher than national averages.

The average transaction from the branch survey is reported as 7,888 per full service, whereas the national average is 3,833. The average transaction per cash dispensing machine is 2,948.

Even though these numbers may suggest that credit union ATM deployment is more productive, the logic may not be correct. What appears to happen is that credit union costs of operating ATMs, to the extent these can be estimated, are so high that deployment is actually limited to those situations that have the best chance of meeting the breakeven levels required.

In conducting a study of ATM management at credit unions late last year by Callahans, the best documented estimate we received from a major operator of cash dispensing machines was that the average cost per machine per month was $750. At the same time independent service operators (ISOs) were approaching credit unions offering to deploy cash dispensing machines in employer locations for surcharge free member access (non members would pay a surcharge) for $350-$450 per month. This fee covered machine lease, cash servicing, all reconciliations, complete servicing, 24-hour monitoring and communication charges.

Additional research showed that most credit unions cannot accurately track and therefore do not know the full costs of operating their ATM locations. Not only are different departments involved, often there are three or four external providers supporting the machines. The result is that there are very few operational benchmarks available to determine efficient machine management. Most credit unions rely on and manage strictly with activity indicators such as number of transactions. The assumption is often that no matter what the cost is, the electronic transaction must be less expensive and certainly more convenient than live teller service.

The Changing Role of Networks
The rate of credit union deployment continues to be high. In the Survey above, the responding credit unions indicated they would expand their networks by 24% over the next two years, down from the 40% expansion rate in the prior two years.

But the role of ATMs is changing as machines are Internet linked and technology continues to bring new transaction capabilities. Both Diebold and NCR have announced the ability to take "envelope free" cash and check deposits at ATMs in which the check images are digitized for immediate posting to the member's account.

Banks or other ATM owners with large numbers of old machines, are not anxious to convert to new technology and write off their earlier investment. Credit unions, not as heavily invested in older technology, are better positioned to add new capabilities and not write off prior equipment.
But even more crucial is the networked learning that could be provided by helping credit unions manage their existing ATM operations more efficiently. Whether the technique is outsourcing with local ISOs, operating machines under network contracts, or helping to construct operating templates for comparing costs, credit unions have a chance to operate much more efficiently

The gain is not just saving money. ATM deployment decisions are often exercises in breakeven analysis. How many transactions do I need to justify a new machine? If the costs are too high, then the number of possibilities in sponsors or other locations will be correspondingly reduced. The view will be that "all the good locations are gone."

Putting the Third Leg in Place
Credit unions will continue to buy more ATMs, that is clear. Cooperative networks will expand. The challenge is to get smarter about our operations. The information exists, the expertise is out there, the competitive benefits are clear-who will take the lead?

Larger Credit Unions Show Preference
for Full-Service ATMs

(181 responding credit unions)
Current
Additional ATMs 2002-2003
Assets
Full-Service
Cash-Dispensing
Full-Service
Cash-Dispensing
Over $250M
868
421
169
127
$100-250M
221
202
39
62
$50-100M
92
92
22
30
$30-50M
49
48
7
24
1,230
763
237
243


 

 

 

March 11, 2002


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