TM outsourcing is a relatively new phenomenon in the United States. Historically, financial institutions (FIs) owned, operated and managed their own networks. But that's not the case anymore.

Technology advances, increasingly complex machines and a need to cut costs have left bankers scratching their heads, wondering how to temper the growth of their ATM networks with practicality.

Practicality has led many small to medium-sized FIs to outsource service, maintenance and operation of their off-premise ATMs to third-party independents. The benefit: FIs can save between 15% and 30% on network operations by working with independent third parties. And independents can help FIs extend their off-premise footprints, where they can generate more revenue.

Boston-based Dove Consulting Group Inc.'s 2004 ATM Deployer Study, which compared the average monthly revenue of on- and off-premise ATMs from 2001 to 2003, found that revenue has dropped more at on-premise locations. From 2001 to 2003, on-premise ATM revenue dropped $223 while off-premise revenue dropped $123.

The revenue drop, most experts agree, is because the number of ATMs in the marketplace increased from 2001 to 2003, spreading ATM transactions across a larger pool of machines. But industry insiders like Westley Horton, Vice President of Marketing and Financial Service for Houston-based Cardtronics LP, say the relatively low drop in off-premise revenue is promising.

However, experts disagree on what the future holds. Outsourcing may help FIs extend their reach into the off-premise market, where they can generate more revenue, but will the drawbacks outweigh the benefits?

On the Sidelines

That's one question that has kept many FIs waiting on the sidelines, said Matthew Burns, Vice President of Electronic Banking for Cleveland-based National City Corp. "We put an exceptionally high premium on service and availability, that's why we don't outsource. Today, we've felt the best way to provide top-of-the-line service for our customers was to deliver it ourselves."

Burns said National City's perspective is typical. Whether that perspective is a good one is debatable, he added.

"The key point is that when you outsource, you outsource your credibility and your customers' good will," Burns said. "And that's something we want to tread on lightly. ... As an industry, we've probably been leaning too hard toward thinking the only way to do it is to do it ourselves. ... I do think [outsourcing] will be a viable and credible option for banks to look at in the next couple of months."

Shelly Chandler, Vice President of Self-Service Banking for Pittsburgh-based PNC Bank, said FIs are reluctant to let go of their networks. That's why PNC's decision to ink a retail branding deal with Cardtronics earlier this year was something new for the $80 billion bank.

"This is the first [arrangement] of its type," Chandler said. "It's unique for us to brand a machine that we don't own and operate. ...It's hard to give up something you're used to controlling."

Under the agreement, Cardtronics branded approximately 170 ATMs for PNC in Walgreens stores in Ohio, Kentucky, Indiana, New Jersey and Pennsylvania. The ATMs look and operate like PNC branch ATMs, including offering PNC's option of seven languages.

"I would say this type of program is very beneficial in areas where you need a presence, but you don't want to spend the money to build the business there," Chandler said. "I think it's best to say it's a solution that works in certain markets."

Horton agreed, saying FIs are signing on with third parties for areas where retailers have consumed prime real estate, areas where FIs would, if they could, have brick-and-mortar branches. "These retailers are building in areas that are typical bank-branch real estate," he said. "So the banks say, 'If we can't have our own branch there, we can at least get a presence there.'"

ISOs Are the Retail Connection

And ISOs like Cardtronics and Ponte Vedra Beach, Fla.-based Nationwide Money Services (NMS) are going in and sealing deals that allow them to work as liaisons between banks and retailers. For instance, NMS, which is part of Global Axcess Corp., has been working with Tennessee-based Old Hickory Credit Union since 1998 to place branded ATMs in Food Lion grocery stores throughout middle Tennessee.

"Through branding with Nationwide, we have branched out into Food Lion, which allows our customers to use our ATMs when they shop," said Bonnette Dawson, Old Hickory's President and Chief Executive.

Working more closely with ISOs for such retail placements, Burns expects, will grow over the course of the next six months, simply because FIs want to extend their footholds in the retail space. But only time will tell if that type of growth will benefit the FIs in the long run, he said.

"I think the marketplace in the last six to nine months is a different place," Burns said. "It's changed a lot, making outsourcing more attractive. ... As more mergers take place and there are more big [ISO] companies, they can get good deals and handle larger ATM fleets [than FIs]."

"But there is a fear factor behind it," he added. "While we've done maintenance and service outsourcing, you're not beholden to anybody [under those types of arrangements]. If service levels aren't met, you've got some room. You can come up with a different arrangement.

"When you outsource the whole enchilada, you've got your name [on the ATM] and you're branded, but you really have no means of supporting it. ... It feels like you're in a little less control there."

Original article: www.atmmarketplace.com/futurearticles.htm?article_id=23419&pavilion=112&step=story