SAB In the News
Select-A-Branch Branches Out -- Digital Transactions - December, 2009
by Peter Lucas
While many ATM networks are struggling to grow volume, Select-ABranch has been working feverishly to buck that trend by signing some sizable deals.
It's been a busy year for Select-ABranch ATM Network LLC. The privately held network distinguishes itself with multibranded machines that nonetheless give the user the experience of using his or her own bank's ATM. Select-A-Branch has been signing a host of deals to expand its installed base, and more are on the way.
In July, the King of Prussia, Pa.- based surcharge-free network signed an agreement with Milwaukee-based Metavante Corp.'s NYCE electronic funds transfer network under which the 500 banks and credit unions in NYCE's SUM surcharge-free ATM network would join Select-A-Branch. Initially, SUM members will have access to an undisclosed portion of Select-A-Branch's ATMs in the Northeast, but Select-A-Branch expects to steadily expand SUM members' access to the network. (Processor Fidelity National Information Services Inc. bought Metavante in October.)
In November 2008, Select-ABranch signed an exclusive distribution agreement-in-principle pact with the Access To Money network, giving it potential access to about 3,000 ATMs in convenience stores and other retail locations throughout the country. And earlier Select-A-Branch completed installation of 10 machines in Massachusetts Bay Transportation Authority subway stations in the Boston area. Other deals in the works include a pilot with a major convenience-store chain and ongoing talks with a Top 10 bank to become a member, according to Daniel Stechow, chief operating officer for Select-A-Branch. SUM members will be participating in the pilot. "We've got about a half dozen game-changing opportunities to expand our network that we are pursuing," says Stechow.
Attractive Fees
Select-A-Branch has about 520 participating
financial institutions and 225
ATMs in its network, up from about
17 members and 200 ATMs in October
2008. Its membership includes
some sizable banks, including PNC
Financial Services Group Inc. and TD
Bank Financial Group, but is mostly
community banks and credit unions.
Many of the credit unions don't have
a single ATM. While Select-A-Branch
declines to reveal transaction volume,
it does say volume is growing
throughout all of its locations.
Select-A-Branch's expansion comes at a time when surcharge-free ATM networks are enjoying substantial growth. Networks such as Minneapolis-based U.S. Bancorp's MoneyPass, Co-Op Financial Services, and Cardtronics Inc.'s Allpoint are luring new members that want to offer ATM services and keep the business of customers trying to avoid surcharges ("No-Surcharge Networks: Back to the '80s," September, 2008). Most ATM owners impose a surcharge fee when non-customers use their machines.
The growth of no-surcharge networks contrasts with years of low growth or even per-machine transaction declines in the broader industry as ATMs battle market saturation and competition from retailers that accept PIN-debit cards and give cash back at the point of sale for no fee.
"A lot of consumers don't like paying surcharges, but they don't necessarily bank with financial institutions that have a large proprietary ATM network," says Kate Monahan, an analyst for Boston-based Aite Group LLC. "Surcharge-free networks appeal to these types of consumers, and what differentiates Select-A-Branch from other surcharge-free networks is its business model."
That business model is based on fees charged to participating banks and credit unions, and the customer experience Select-A-Branch delivers on its own machines. Unlike competing surcharge-free networks that charge an annual or monthly membership fee, participating financial institutions pay Select-A-Branch $2 per transaction when one of their debit cardholders uses a machine. Consumers who don't belong to any member institution are surcharged $2.
The fee structure is highly attractive to small banks and credit unions that want to expand their ATM footprint but don't necessarily want to pay to support ATMs across the country that their customers are unlikely to visit.
"Paying for usage spares you from having to pay to support machines that your customers don't use," says Tom Ruback, vice president of card services for Harrisburg, Pa.-based Pennsylvania State Employees Credit Union (PSECU). "With this model we can match the fees we pay [in] usage per machine, as most of our members are concentrated in and around the five counties surrounding Harrisburg."
PSECU, which has 125 stand-alone ATMs, also belongs to the Co-Op Financial Services surcharge-free network for credit unions. Rancho Cucamonga, Calif.-based Co-Op has more than 28,000 ATMs, including 9,000 deposittaking machines, across the country.
"We pay our members up to $4 per month in ATM surcharge rebates and the more we can broaden the reach of our ATMs, the more it reduces the chance our members pay a surcharge to use an ATM, and our cost to reimburse a portion of those surcharges," says Ruback.
'Foot Traffic'
From a branding perspective, Select-
A-Branch's system lets each machine
re-create the end-user experience of
each participating financial institution's
ATM screen options, logos, and
other graphics. "This is not a generic
ATM that is part of a surcharge-free
network," says Monahan. "It is an
ATM that is part of a network in which
all the participants share the brand
real estate. It is a more cost-effective
option for financial institutions to
expand their ATM footprint than a
dedicated ATM or even outsourcing
management of their ATMs."
Plans are in the works to enhance the branding opportunities for participating banks and credit unions and even merchants where Select-ABranch ATMs are deployed. Select- A-Brach is testing 10 ATMs featuring 19-inch video monitors that show advertisements for financial institutions and have a running "ticker" at the bottom naming the banks and credit unions whose services are available surcharge-free at that machine.
When a cardholder is using the machine, the entire monitor will display the logo of that user's bank. The monitors, which cost about $2,000 each, are being tested in New York City-area McDonald's Corp. restaurants. Another 100 monitors are being added to the pilot in New York.
"We expect to upgrade the entire network starting in 2010 and expect to support branding and advertising opportunities for members and merchants," Stechow adds without providing further details. "Long-term we may even look at opportunities with national marketers."
That Select-A-Branch is testing the monitors at New York City McDonald's stores is no surprise. The network completed a successful pilot at 59 McDonald's locations in August 2008 and renewed the contract.
The machines increased transaction volume over previously deployed ATMs by 35% during the pilot phase between March and August 2008. Select-A-Branch also was able to link the rise in transaction volume to a 1% increase in store sales. Stechow expects to expand the network's relationships with McDonald's to Long Island, N.Y., and New Jersey, but declines to provide a timeline for doing so.
The McDonald's machines also have proven to be magnets for customers of member banks and credit unions outside the New York City area. "We have customers that attend college in New York City and they use the machines," says Sandra Lee, senior vice president of operations for Pittsburgh- based Fidelity Bank. "Select-ABranch has placement in a lot of hightraffic locations, such as airports and along the Pennsylvania Turnpike, our customers can utilize when travelling, and they are pleasantly surprised to find our ATMs outside the Pittsburgh area."
Fidelity Bank operates 15 ATMs, two of which are located off premise. The bank also is a member of the Pittsburgh-based Freedom ATM Alliance, a surcharge-free network formed by 29 financial institutions that has 600 ATMs across New York, Maryland, Ohio, and Pennsylvania.
The increase in store sales that Select-A-Branch ATMs can produce is a marketing strategy that could help pull in high-traffic merchants and one the network is expected to play up.
"Merchants look at ATMs more as a way to increase foot traffic in their store than as a revenue generator because more foot traffic can lead to higher sales," says Richard Stern, president and chief executive of Access To Money. "Merchants either receive a flat fee or a percentage of the surcharge revenue. The [retailer's] payout from leasing the space to deploy an ATM is about a couple of hundred dollars a month. It is extra income, but increasing sales by attracting more foot traffic can yield more."
Unique Point
Access To Money is an ATM independent
sales organization that TRM Corp.,
a non-bank ATM network operator,bought last year, with TRM taking
the acquired company's name ("TRM
Gets Access to a New Life," September).
Select-A-Branch's
pact with Access To
Money involves about
3,000 ATMs in retail
locations such as convenience
stores and
gas stations. Access To
Money will own and
manage the ATMs running
on the Select-ABranch
system. Many
of these merchants
are candidates for the
Select-A-Branch platform,
though neither
Stern nor Stechow will
identify specific ones.
As of late summer, Access To Money had not begun its deployment strategy for the Select-A-Branch brand. Part of the delay was due to certifying Nautilus Hyosung Inc.'s ATM platform on the network. Previously, Select-ABranch deployed ATMs from Long Beach, Miss.-based Triton Systems of Delaware, a specialist in the retail ATM market. "Our decision to integrate with Hyosung was based upon price, performance, and engineering support," says Stechow. He also notes that TRM/Access to Money already had a relationship with Hyosung, a Korean-owned manufacturer, "so it made sense to explore it further."
The plan is to test and then gradually deploy an undisclosed number of Hyosung ATMs while continuing to support the Triton machines. "We are talking to all major ATM manufacturers about certifying their machines on our network," adds Stechow. "Our long-term aim is to be hardware agnostic."
Ultimately, what is expected to differentiate Select-A-Branch from competing surcharge-free networks is the customer experience it creates on its machines. Select-A-Branch's software is patented, which gives it a leg up on the competition.
"It may be just a software application, but there is nothing quite like it in the marketplace," says Aite's Monahan. "It is an application that affords small banks and credit unions a unique point of differentiation."
Indeed, Select-A-Branch has carved out a space that lies in between the power of proprietary branded ATMs and generic ATMs in a surcharge-free network, according to Access to Money's Stern. "It's a good space to be in and we are bullish about the potential uptick in transaction volume," he says.
A big question facing Select-ABranch, however, is whether it can attract multiple financial institutions with national or super-regional brand identities. While industry experts say one or two large banks may join Select- A-Branch because the cost structure is attractive enough to catch their attention, they are quick to point out that many large banks have built their ATM strategy in part on surcharge income.
"Surcharges are a good revenue source for banks with large ATM fleets, plus they want their customers to be using their machines," says Monahan.
Well-Positioned
The other question facing Select-ABranch
is whether small banks and
credit unions will join for the opportunity
to expand their ATM presence
into new markets as the network
moves beyond its base of operations
in the Northeast. Monahan says she
is uncertain whether national expansion
will be as strong a draw for these financial institutions as the fee structure
and branding opportunities.
Still, some Select-A-Branch members consider a larger network footprint to be an opportunity. "Adding more high-traffic areas where we can serve our customers is a plus, as we do have some members that live out of state and abroad and our aim is to deploy ATMs to better service our customers," says PSECU's Ruback. "But more expansion in the areas where the bulk of our customers live is always welcome."
Fidelity Bank's Lee adds that "Select-A-Branch makes it easy to join, provides good monthly reporting and allows us to maintain the consistency in our marketing message across the network. It's opened a lot of opportunities to reach customers outside our footprint."
As more financial institutions, regardless of their size, come around to that way of thinking, the network could be well-positioned to grow its volume.
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