Breaking the Cycle of Plastic

Retailers may have different strategies when it comes to ATMs, but with interchange fees at a record high, operators should be developing programs to get cash in customers’ hands to reduce card transactions.

By Joe Bush, Contributing Editor.

ATMs are ubiquitous in convenience stores, providing cash in a bright, secure, warm and mostly private environment, making them a destination for time-pressed customers.

Retailers enjoy ATMs because they put cash in the hands of customers at the point of purchase at a time when operators are paying an exorbitant sum on credit and debit transactions. Playing into this strategy, many operators place their cash machines in the back of the store, not just for privacy, but to maximize the consumers’ time in the store, exposed to inventory that speaks to their spontaneous sides.

Consumers, said Dennis Lane, a 7-Eleven franchisee in Quincy, Mass., enjoy the privacy, but often find something to buy as gratitude for the service. “It’s akin to stopping at a fast-food restaurant just to use the restroom; you don’t have to spend money there, but you feel that it’s the right thing to do,” Lane said. “There’s a sense of obligation.”

Lane estimated that eight of every 10 ATM users make a purchase after getting cash. Many of them buy lottery tickets, which cost from $1-$20 in Massachusetts and cannot be bought with credit cards. Lane’s top-seller for lottery is the $20 scratch card, making for high basket rings that are purchased with cash.

Enhancing Convenience
Lane has marketed ATMs for a decade, and remembers that complaints about the $2 fee were frequent in the early days. “I can’t remember the last time I had a complaint,” he said. “Consumers are becoming more savvy about fees they are charged and they are willing to accept the charge as the price of the convenience they are receiving. We have customers that use 7-Eleven stores just for cash. Just like they expect us to have Slurpees and Big Gulps, they expect us to have machines that dispense cash.”
Other chains like Sheetz, Wawa and Rutter’s report success with a no-fee ATM program.

As the immediate past president of the National Coalition of Associations of 7-Eleven Franchisees and the current president of the New England 7-11 Franchise Owners Association, Lane is more aware than most of the relationship among cash, credit and debit cards.  He has spent much of the past two years in Washington lobbying for the inclusion of an amendment, sponsored by Sen. Dick Durbin (D-Ill.), to the Dodd–Frank Wall Street Reform and Consumer Protection Act that would lower the interchange fees banks charge retailers for debit card use. There are also provisions in the amendment that allow retailers to refuse cards for small purchases, as well as offer incentives for cash payments.

President Obama signed the act—with the Durbin amendment—into law in the summer of 2010. Lane attended the ceremonial signing. Although the eventual interchange fee is still under review (see News page 14), Lane believes it will settle at no more than 12 cents per transaction, about half of the current rate. The fees are Lane’s second-biggest expense, behind labor.
For example, if a customer pays cash for a copy of USA Today, he makes six cents. If the customer pays with a debit card, Lane loses 29 cents. “I’m going to save eight to 12 thousand dollars a year,” he said. “Any responsible retailer will take that money and re-invest in their stores to benefit their customers.”

Some critics of the bill have claimed   that consumers will suffer because banks will merely raise or implement fees on other services, like checking or money orders, or eliminate rewards programs for debit cards. Others merely oppose any further federal government involvement with capitalism. Lane thinks capitalism will take care of any bank reaction to recoup lost fees.
“At the end of the day, if some banks do decide to raise fees, competition will kick in and other banks will say, ‘I’m going to continue giving free checking, I’m going to continue giving free money orders,’ because they want to steal new business,” Lane said. “Competition will sort this out.”

Navigating Legislation
Aite Group analyst Ron Shevlin said he foresees a push-pull between banks and retailers if the lower fees kick in this summer as scheduled. Banks will discourage debit card use, while retailers will encourage it. What does this mean for ATM usage? Will consumers be more likely to pay with cash if debit card rewards are no longer an incentive?

According to Shevlin, cash use has been on the decline for the past five years, while debit card usage has had a higher growth rate than credit card usage in that time. Cash accounted for 13% of dollar volume in overall retail spending in 2010, but was used in 28% of transactions.

ATM withdrawals rose each year from 2006 to 2009 in both transactions and dollar amount. According to a 2009 survey by the American Bankers Association, 17% of Americans use ATMs as their primary banking method. That number has declined over the past 24 months largely due to the prevalence of online banking.

“Even though the use of cash has declined, consumers want access to their money now and are willing to incur that ATM fee,” Shevlin said. “There’s clearly a demographic, a type of customer, that uses non-bank ATMs.”

ATM manufacturers as well as retailers will try to differentiate their machines with added services, Shevlin said. Once a card is swiped and a PIN is entered, non-personal information can be mined.As a result, he envisions ads or coupons being offered based on a consumer’s card purchasing history.

Also on the horizon is the marriage of mobile devices, like smartphones, with ATMs. For example, regardless of their location, consumers could enter all of the information on their mobile device for transactions such as deposits, cash withdrawals or transfers. The device would tell the ATM to finish the transactions, thereby saving time. “That’s where manufacturers are heading,” Shevlin said. “A world where the message can customized to a target audience.”

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