Cashing In on ATMs’ Popularity

Jim Sanderson stepped inside the ritzy Long Beach nightclub Jillian’s, ready to play, but without a dollar in his pocket.

The 30-year-old stockbroker, dressed in a chic dark suit, nonchalantly sauntered past the crush at the steel-and-glass bar, past the attractive brunet playing with her empty martini glass, past the pool tables, until he reached his destination: a small ATM tucked in a dark corner.

“I never worry about getting cash before I go out anymore,” said Sanderson, as he pulled $100 from the club’s electronic money box. “These machines are everywhere.”

So it seems.

Within the last couple of years, automated teller machines have started popping up in the most unlikely places: clothing stores, police stations, highway rest stops, public libraries, state capitol buildings. And they are starting to spit out things like postage stamps, prepaid phone cards and ski passes in Northern California.

One Irvine ATM manufacturer has even decided to install the cash machines in the cabins of commercial airplanes. Starting this spring, passengers on Cathay Pacific Airways will be able to walk down the aisle and get money, exchange currency or buy prepaid cards for in-flight entertainment--all for a fee, of course.

“We only notice them when they’re not around,” said John Stafford, a spokesman for the California Bankers Assn. “We have become hooked on the machine.”

Indeed, an industry of ATM manufacturers, independent salesmen and location landlords has emerged to feed off this reliance and to compete with banks for the fat revenues from service fees.

Nearly 140,000 ATMs nationwide were running last year, up from about 95,000 in 1993, according to the Durham, N.C., research firm Mentis Corp. Most of the new machines are being installed far from bank branch offices--and not by banks. A nationwide fight has erupted over who gets the remaining prime ATM locations, with scores of would-be ATM owners scouring the nation for blank walls and empty nooks.

“There’s this societal belief that we should be able to bank at any time, anywhere, and in any way,” said Rocky Clancy, executive vice president of the Bank Administration Institute, a Chicago-based research group. “So far it’s paying off, because people will pay for the convenience of getting their cash right now.”

The industry exploded last year, when the two largest national ATM networks--Cirrus and PLUS--allowed their members to tack fees onto electronic transactions.

On average, most banks charge non-customers--and occasionally their own customers--between $1 and $2 each time they use a third-party ATM, Stafford said. Several entities can take a bite from the surcharge, including the ATM owner, the customer’s bank and the landlord where the machine is located.

Banks also benefit from lower costs per transaction at ATMs. A typical teller transaction at a large bank costs $1.07, compared with 27 cents for an ATM transaction, according to Gemini Consulting, a management firm in Cambridge, Mass.

“It’s easy, easy money,” Stafford said.

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Consumers have made 11 billion ATM transactions so far in 1997, a jump from 10.7 billion dealings last year, according to the banking group. The average withdrawal was $80.

“Everyone wants that $1 or $2 in service fees per transaction,” said James Katz, social science director for Bellcore, the research arm of the regional Bells. “If someone else’s machine is in front of your consumer’s face, you lose out.”

This boom of third-party machines may also have helped alleviate the spate of bad publicity over ATM crime.

Like Steve Martin blithely handing over his cash to a thief in the movie “L.A. Story,” robberies at automated tellers became a common part of Southern California culture in the late 1980s and early ‘90s.

To combat the problem, police encouraged customers to avoid outdoor machines after dark, and to instead patronize the machines operated in well-populated areas--supermarkets, malls, even inside police stations.

Crime at ATMs in California plummeted between 1992 and 1995, from 499 to 261 reported incidents statewide, according to a survey by the California Bankers Assn. In addition to consumer savvy, law enforcement officials credit the drop to a 1993 state law that mandated minimum safety requirements for lighting, landscaping and visibility at bank machines.

Security is a serious concern for Inflight ATI, the Irvine company that wants to put ATMs in airplanes. By installing the cash machines on wide-body planes between business class and coach, Inflight hopes to create a portable vault available to everyone.

In February, Cathay Pacific Airways will introduce the ATMs on two 747 jetliners. Several other airlines, including some U.S. carriers, are interested in carrying the ATMs, said Inflight founder Thomas Lee.

The machines--4-by-4-foot boxes each weighing a few hundred pounds--will dispense cash for all major credit cards and bank debit cards. The machines also convert dollars into other currencies and set a daily exchange rate through a satellite feed.

Inflight’s system will work with a plane’s flight management controls, which rely on a series of satellites to track the craft’s position in the air.

After a customer inserts his card and punches in his password, the ATM will use this satellite network to transmit the information from the plane to a receiver on the ground. The data will then be sent to a computer server, which will route it to the appropriate financial institution for verification.

Each machine will hold 3,000 bills and carry an average of $100,000 U.S. per round trip, or $150 per passenger. Bank staffers will fill the machines once a day at the plane’s home port, but the airline will be responsible for any additional security for the machine and its cash load.

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Inflight will take a portion of the service charges, and split the remainder between the airline and the bank supplying the cash.

“All that money seems like quite an incentive for crime,” said David Fuscus, a spokesman for Air Transport Assn., a trade group representing the airlines. “You’re putting a bank in the air.”

For now, the Federal Aviation Administration says it will wait until airlines are closer to actually flying with on-board ATMs in U.S. airspace before checking their safety.

A more down-to-earth battle is shaping up in the financial world: finding new sites for ATMs.

Some companies, like Huntington Bancshares Inc., hire ATM salesmen to scour cities for inviting--but empty--walls.

Others, such as Bank of America, prefer to sign exclusive deals. The bank recently joined with Los Angeles International Airport to put one of its ATMs in every terminal and nearly all baggage claim areas.

“The code name for our project was ‘monopoly,’ because we saw this business as a game of grabbing real estate,” said Inflight’s Lee of the airborne ATMs. “The bigger the block of property, the more companies will fight to get inside.”

That was the case with Kmart.

Last spring, the retail chain decided it wanted ATMs installed in nearly 1,100 of its stores. For Electronic Data Systems, one of the largest ATM operators in the country, the news promised high visibility and a steady stream of shoppers. What a huge opportunity, the firm’s officials thought.

The competition agreed. When EDS put in its bid for the Kmart contract, it was one of 42 bidders, each offering something special--a better machine, a bolder service, a bigger cut of the profits to Kmart.

“It’s not even that great of a location,” grumbled EDS product management director Dale Dentlinger. “Of course, I’m bitter because we didn’t win.”

In truth, the group that profits most from the ATM explosion is the one that does the least work--malls and other property owners that rent space to ATM owners. To compete for customers, banks often hand over 30% to 50% of the transaction fees to landlords, according to the Mentis Corp.

“Everyone thinks you can use an ATM to get rich overnight,” Dentlinger said. “So whenever a new site comes up--and I don’t care whether it’s in the middle of the ocean or the center of a cornfield--everyone grabs at it. I’m telling you, it’s not going to be long before we see an ATM on every corner.”

That day is already here.

In Hollywood, a three-block stretch along Melrose Avenue houses five machines--none in front of a bank. Instead, they are snuggled inside clothing shops, a restaurant and a corner market.

“People are comfortable with ATMs,” said Clancy of the Bank Administration Institute. “The irony of the situation is this: How people get cash is being driven by the financial industry’s interest in getting a piece of it.”

Indeed, banks and other ATM owners now see a chance to do much more with the machines than just dispense cash.

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In 1994, consumers bought 50 million postage stamps from ATMs in the United States, according to the Mentis Corp., the North Carolina research firm. Last year, shoppers picked up a billion stamps.

Union Bank of California spits out coupons for sandwich shops in the Los Angeles region and Orange County. And First Union Bank sells prepaid debit cards that can be used for food and merchandise at home football games for Florida’s Jacksonville Jaguars.

As the technology becomes cheaper and more personalized, other industries tap these machines to blink, wink and spit cash and other products at us.

AMC Theaters uses the machines to automate its movie ticket sales at all its locations.

At the AMC Century 14 in Century City, last-minute moviegoers routinely avoid lines by calling ahead, then stopping by the automated retrieval machine. For a $1-per-ticket service fee, customers can swipe their credit cards and get tickets to coming attractions.

Even the look of ATMs is changing.

Diebold Inc., the country’s largest ATM manufacturer, regularly configures machines to handle unusual requests. One is built into an oversized robot, which stands guard at the Great Lakes Science Center in Cleveland. At the Rock and Roll Hall of Fame, customers pop in debit cards and are treated to a rousing rendition of Bachman Turner Overdrive’s “Taking Care of Business.”

ATM manufacturers are also preparing for a cashless future. Financial insiders trumpet the eventual death of paper money and predict that people will someday use smart cards--small cards equipped with tiny computer chips that can store information. That data could be a person’s medical records, employment history or an electronic currency of some sort.

Expecting these smart cards to succeed, ATM owners are already gearing up their machines to load digital cash on these cards. After all, insist the machine makers, their technology must adapt quickly or go the way of pneumatic tubes.

“We’re positioning our machines to dispense anything the customer wants that can fit into the shape of a dollar bill,” Lee said. “We are living in the age of immediate information and constant convenience. Combine the two, and you can make a tidy fortune.”