Coupons join surcharges
to gobble your ATM dollars
By Jay MacDonald • Bankrate.com

Grassroots anti-surcharge champions have taken it on the chin again.

The Connecticut Supreme Court ruled Dec. 20 that the state couldn't ban banks from charging non-customers for using their machines. State Attorney General Richard Blumenthal said the decision was "a defeat for consumers."

So while you're waiting for your cash, the ATM still is ringing up surcharges and fees all across America. But it could also be getting set to pick your pocket a second time.

If your money comes from a machine at McDonald's, it might arrive with a discount coupon for your favorite meal right there at Mickey Dee's.

If you're collecting the cash from an ATM at a Chevron station while you gas up, out burst the bucks along with a buy-one-get-one-free deal on Pepsi.

As competition and installation saturation are lowering the profitability of the machines, banks continue to fight efforts to banish surcharges. Essentially, the Connecticut court ruled that the state's surcharge ban was based on a 24-year-old law that was not drafted with ATMs in mind.

But even with the surcharge income, ATM owners have been coming up with these new ways to make a buck from them.

Banks lose ATM ground
According to an annual survey by The American Banker, the rate of new ATM installations by the nation's top 50 banks declined sharply from June 30, 1998, to June 30, 1999. The survey showed a growth rate of only 1.6 percent during the period, compared to 26 percent in 1998, 17 percent in 1997 and 19 percent in 1996. In fiscal 1999, 77,662 new machines were installed, up only a fraction from the 76,471 the previous year.

But while banks pulled way back on their new machine installations last year, overall ATM deployment grew 22 percent to 227,000, as non-bank operators jumped in big time.

Ironically, it was big banking's 1996 victory forcing the ATM networks to allow surcharges that attracted the increased non-bank competition that now has banks grumbling about the profitability of the machines. Banks have lost much of the battle in off-premises retail locations, where increasingly savvy merchants can often close a better deal with a non-bank ATM deployer.

Banks are scurrying to find ways to hold and improve their position and keep their ATMs as profit centers. Their basic choice: increase traffic by offering new services and offset costs by adapting the ATM terminal into an advertising device.

Non-bank owners are looking at the same new revenue sources for their machines.

So here come the so-called Super ATMs. Increasing service is what the new Super ATMs are all about. They are designed not only to cash checks, but also to dispense any number of products, including postage stamps, prepaid phone cards, and concert and airline tickets. There's one big catch for banks, however: Super ATMs cost $30,000 and up, vs. $6,000 for a basic cash machine.

But the more services customers use, the more they pay -- and the more valuable the machines.

Madison Avenue wants your screen
Advertising is making banks an offer they're not likely to refuse. For starters, current ATMs can be retrofitted to handle advertising messages and to dispense retailer coupons with the cash and receipt.

Madison Avenue likes the targeting aspect of hitting consumers with advertising messages and product coupons as we stare blankly at the screen, waiting for fresh cash to pop into our hands. It's a marriage made in bottom-line heaven.

"Point-of-purchase" ATM advertising is the buzz-phrase of retailers beset by similar pressure to increase their market share.

Thus McDonald's recently partnered with a San Diego deployer to sell its Super Size meals through coupons in new ATMs installed in its 200 Southern California franchises. And Chevron and Pepsi similarly partnered on a buy-one-get-one-free Pepsi offer promoted with onscreen ATM advertising at gas stations.

In Florida, Rite Aid drug stores and a major pharmaceutical manufacturer will offer coupons through onsite ATMs, just steps away from the product shelf.

Banks have been restrained in following suit, although BankBoston has tested a program to offer civic coupons to such attractions as the city's art museum through its ATMs.

Banks want it their way
The bankers argue that the way they use ATMs and price their products, whether it's soda or surcharges, is their decision to make without restrictions, just as other businesses make similar decisions.

American Bankers Association spokesman John Hall says banks have invested considerable resources to expand their ATMs into locations where transaction volumes make them unprofitable and where rents are high, such as airports, some of which charge $1 per transaction.

Customers can use their cards in London, he says, thanks to the industry's customer-driven, if costly, approach. ATM owners, primarily banks, say they made those conveniences possible in part by surcharging.

Banks freely admit that surcharging has turned a loser into a moneymaker. But it's all about the service, not the money, they say. Nobody is forcing customers to go out of network to get their dough.

Jay MacDonald is a freelance writer based in Florida
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-- Posted: Dec. 21, 1999