Are you using the right ATM strategy? Here's how to expand your network

Your customers want easy, convenient access to their cash without paying  fees to get it. But to offer ATM access that compares favorably with the largest financial institutions (FIs), you’ll need to consider going beyond the branch. For many FIs, the answer is adding availability either through a network shared by your competitors, one operated independently or some combination of the two types. So how can you decide which, or what mix of the two, suits your needs best?

But first, a little history

The first ATM was installed at the Enfield branch of Barclays Bank in London on June 27, 1967. As FIs around the world realized the benefits of ATMs for their customers and their businesses, they began cooperating to allow customers to share ATMs across different locations. In some areas of the world, like the UK, ATMs were primarily made free for anyone to use. In the US, banks and processors charged fees to compensate for the cost of providing shared ATM access.

Surcharge fees took off in 1996 when Mastercard’s CIRRUS and Visa’s PLUS networks amended their rules to allow for these fees. The ability to charge fees also led to a robust business for third party deployers to own and place ATMs in stores and other non-branch venues—the FDIC estimates that nearly 60% of ATMs in the US are operated by these independent businesses.

While ATM surcharge fees have powered the creation of a vast pool of ATMs, consumers hate them. According to BankRate, the average ATM surcharge fee stood at $0.89 in 1998 and has grown to $3.15 in 2023.

To help consumers deal with ATM fees, financial institutions took multiple paths. Some of the largest went on to build massive ATM estates of their own. Some institutions simply rebated fees charged to use other ATMs. Other institutions banded together to create shared ATM networks wherein they agreed to forgo fees among each other’s cardholders. Some independent ATM operators also saw an opportunity to drive use of their ATMs by creating their own independent surcharge-free ATM networks.  

Nearly 60% of ATMs are now operated by independent ATM deployers, according to the FDIC.

The increasing consumer usage of ATMs is expected to drive the growth of the ATM market going forward. Customers in many countries select cash as their preferred method of payment due to its convenience and ease of use. As technology evolves, customers are looking for ways to access cash that are faster, more dependable, safe and convenient. Customers use ATMs to bank anywhere, any time. It’s part of the self-service trend in consumer behavior. ATMs help users save time, money and effort by lowering transaction costs and increasing accuracy and speed.

60% of U.S. consumers use ATMs at least once per month.
‍- Mercator Advisory Group 2022

Now, let’s examine the comparisons between the two types of ATM networks used by FIs today to help their customers avoid ATM fees—shared ATM networks and independent ATM networks.

Shared ATM networks

Owned and operated by their member FIs, these networks use ATMs located at FI branches and satellite locations. Your customers and your competitors’ customers enjoy surcharge-free access to all the ATMs in the shared network. And in most cases, the shared network participants contribute the ATMs that each FI owns, operates and maintains.  

The advantage of a shared network is that it can offer your customers expanded surcharge-free ATM access at a large number of bank and credit union branches in your local area and around the United States. The quantity and accessibility of locations will vary by market, as will the concentration of the FIs who participate.  But many shared networks include convenient ATMs like drive-ups and through the wall locations at branches. Shared networks are typically priced attractively.

But there are caveats. The ATMs that participate in a shared network are owned by other FIs and are typically located at competing branches. There is a risk of attrition because your customers will be standing in line at your competitors’ branches and subject to their marketing messages. (Poached customers, anyone?)  

Because your ATMs must also participate in the network, you will lose the revenue earned on non-customer usage while increasing costs you incur to service the cardholders that are not your customers. You become responsible for the cash costs, maintenance and overall wear and tear that increased traffic brings to your machines, not to mention potential queuing issues, when your customers have to wait for non-customers to finish their use of the ATM.

Messaging can be a challenge in a shared network, as well. No one wants to promote visiting a competitor’s site to use the ATM. And the stability of shared networks can be challenging as FIs enter and leave the network, potentially limiting the access your customers enjoyed while shifting more costs to you. It’s particularly detrimental if a large participant leaves the network in your area. Also, the operation of the ATM differs across various owners and contributors of a shared network, resulting in a variable experience for your customers.

Independent ATM networks  

Owned and operated by independent non-bank ATM deployers, independent networks offer access to cash at non-bank locations, typically retail stores and hospitality venues.  The third-party deployer provides and maintains the ATMs and keeps them up to date. You don’t have to hire/pay/manage staffing for these ATM services or incur operational and maintenance costs. FIs pay a monthly or per transaction fee to join the independent network and the cardholders customers receive surcharge-free ATM transactions at all of the participating ATMs.  

The advantages of an independent ATM network are centered on access and neutrality. The ATMs are located in many premium stores and other places where your customers live, work, shop and play—places consumers already know, trust and visit regularly. The ATMs are not owned by another FI and your ATMs do not participate, avoiding customer attrition issues while preventing wear and tear, long lines and higher costs at your own ATMs. An institution can add access to an independent ATM network in a short period of time.

Driving customers to independent network locations is easier with messaging focused on prime retail locations that typically have more stable network participation, rather than hoping that an FI-owned ATM still offers free withdrawals. Independent networks are broad in scale, with a nationwide footprint and may include additional overseas locations for traveling consumers. At properly equipped ATMs, the customer experience may be customized for your brand. More and more independent network ATMs are also being upgraded to accept cash deposits, perform card-free transactions and more.

The caveat? While independent ATM networks are adding features and functionality that consumers demand, some shared networks may offer more transaction types today. In a shared network, your ATMs participate, essentially acting as a form of payment in addition to monetary fees. In an independent network, since your ATMs are not included in the network, payment is made only in the form of service fees, monthly or per transaction, that you would pay to the network operator. Those fees may be higher than what is required from a shared network; though, they are offset by cost savings on your proprietary ATMs, less customer attrition and the ability to charge, or raise, foreign fees for non-customers using your own ATMs.

The choice is yours

So, what’s the best network or network mix for your FI? Some use both independent and shared ATM networks, many others settle on just one. In weighing a decision, you should consider the monetary cost of the network (time-based and transaction-based fees), the maintenance costs of your own ATMs and how those costs could change, the potential loss in revenue from customer attrition to rivals, the quantity and quality of network locations where your customers need them, and the features and functions you value most on an ATM network (deposits, bill payments, etc.). As customers’ expectations for self-service banking continue to grow, both shared and independent ATM networks offer you ways to add valuable access to enhance the customer experience—ensuring stickiness with your FI.