Australian Convenience Store News - On-site banking a must for convenience

In his keynote presentation to C-Store 2, Dr Sandro Mangosi of Bis Schrapnel emphasised the importance of modern technology to success. "Customers now want a one-stop service outlet that is convenient in the modern sense of the word," said Dr Mangosi, "The consumer has changed and time is now more valuable. The demise of small shops is partly the resistance to change to modern ways of paying."

Over 90% of stores in the branded C-Store networks have ATMs . It is becoming a core service that the customer expects to find in the store. In one US survey, ATM cards were second only to the home telephone as the most valued consumer convenience.

EFTPOS is the most widespread form of onsite banking. It is convenient for both retailer and consumer. "EFTPOS is cash-free convenience," says Phil Knizay, National Manager Merchant Services, St George Bank. "For the customer, it is quick, easy and reliable," added Phil, "And it is easier and safer for the retailer who does not have to carry as much cash."

But customers still need and want cash. Even though the EFTPOS system can be used to dispense cash, it is costly for the retailer who pays the fees, and customers prefer the speed and privacy of an ATM.

Since ATMs were permitted in locations other than financial institutions in 1994, total numbers have more than doubled. Last year, more ATMs were deployed in off-premise locations than at financial institutions. The current industry estimate of ATM numbers is 14,000, of which about 25%, or 3,500 are merchant or 'off-premise' machines.

Industry suppliers universally agree that the main reason for placing an ATM in your store is to attract customers and increase turnover. In one US survey, ATM users spent 25% more than non-users in the store. One major convenience network in Australia recorded an 11% increase in turnover after introducing ATMs. "Cash is still king," according to Peter Rumph, Managing Director, Smart Cash Australia, "ATMs attract people to the store and once there they spend more. We have had reports from some retailers of over 10% increase in turnover, including higher average sales and significant increases in impulse purchases."

Further growth is being facilitated by ongoing reform in the banking and payments system, the development of a wider variety of machines suitable to different locations, and the potential for other services to be provided through the ATM. The ATM has a strong reputation for reliability and security. Consumers trust ATMs.

As the technology progresses towards a broader delivery channel - cash, services and advertising - there is less agreement in the industry about consumer demand and commercial viability. "In particular, the fast cash concept is undermined," warns Andrew Mooney of STB Technologies, "We are more likely to see two machines, one for cash and one for all other transactions such as bill paying and pre-paid phone cards."

Global studies indicate the most popular additional service will be mobile phone recharge cards. "As new technology replaces old, other products and services can be offered - bill paying, lottery tickets, train tickets, airline tickets - even transactions in different currencies and different languages," Peter Rumph says, "It is a cost-effective distribution channel."

"When additional services are provided it is not clear that people will be prepared to wait in a queue for these other transactions to be processed. This also applies to the placement of advertising. It may work on some machines, but there would need to be significant economies of scale to make it viable," adds Herbert Few, Marketing Manager with Electronic Banking Solutions Limited.

Off-premise ATMs are supplied by independent ATM deployers through a variety of contractual arrangements. You could buy your own from anywhere between $10,000 and $30,000, but the more popular and practical arrangement is a long-term contract either with a bank, a specialist ATM deployer, or as part of a broader electronic package of POS systems.

The main revenue items are incremental sales and a share in the interchange fees. The latter depends on the contractual arrangement. The average value of transaction in 2001 for all ATMs was $147, and the industry estimate for off-premise ATMs is $100 per transaction. Similarly, the overall average volume of transactions at 4,474 per ATM machine per month is higher than for off-premise machines, where transaction volumes range from 500 to 10,000 per month, and average 2,250 per month.

Of the financial institutions, St George is the most active in deploying merchant ATMs, with a network of 2,700 branded and non-branded machines. "St George have a strategy of deploying ATM devices in their own right and also support switching for a number of approved third party deployers," adds Phil Knizay.

The largest supplier of off-premise ATMs is Electronic Banking Solutions Limited (EBS), with more than 2,000 deployed in convenience stores, service stations, clubs, hotels, and newsagents. EBS is the master reseller of NCR EasyPoint, including EasyPoint 53 introduced in January 2002, and it installs 50% of all new ATMs in Australia. EBS takes the risk out of the placement by installing the ATM rent-free. However, the retailer does not share in the transaction fees until a threshold level of transactions is reached. Overall, the proposition is only viable for EBS in locations that generate at least 500 transactions per month. All EBS machines are merchant-filled and third party funded. Where the ATM is viable, EBS pays all communication, training and installation costs.

STB Technologies tailor packages to the retailer's requirement. "Most retailers prefer a packaged lease that includes maintenance and service. We bundle the machine, switching and communications, maintenance, service and training, similar to the EFTPOS package," claims Andrew Mooney, "Some retailers prefer to use security firms, others prefer to use their own till. This can reduce costs. Retailers can also get a better rate by opting for different maintenance packages." This year, STB are also supplying the new Mini Glory machine from Japan. This machine is only 20cm wide. It fits on the counter, in a recess or on a pedestal, and suitable for small locations with high traffic and low staff levels.

Smart Cash also favours this approach. "There is no such thing as too small a store. Now we can tailor a machine and associated services to all sorts of venues. The latest machines range from counter tops with a single denomination to large floor stands and holes-in-the-wall," says Peter Rumph, "The retailer needs to consider transaction fees and overall incremental store revenue against the costs - and consider all costs."

Alistair Kildey, Director of Global Electronic Banking, agrees. "Merchant fill implies a cost for the retailer. Consider this example. If $100 is the average withdrawal and there are 250 transactions per week, this equates to $25,000 in cash required. Most of this will be withdrawn over the week-end. The working capital requirement is about $15,000," adds Alistair Kildey, "Global Electronic Banking specialises in the full range of electronic solutions including ATM, EFTPOS and POS, for stores of all sizes. We want a long-term partnership and to provide the best combination of services for the retailer."

Usually, contract terms are between five and eight years. The wrong decision is not only costly but is with you for a long time. It may be tempting to 'set and forget', but you need to take an active part in choosing and managing the ATM service, and make it work for you. There are different concepts and offerings in the market. We recommend the following:

The biggest challenge is assessing potential usage. This is not an exact science, and a range of factors will influence the number of transactions - foot traffic, customer mix, product mix, alternative sources of cash in the area including other ATMs. There have been many cases where small sites have generated thousands of transactions per months, and large sites only a few hundred. At some very small locations, the cost may not be justified and it may be better just to use the EFTPOS machine. Current EFTPOS transaction numbers are a guide.

This estimate is important because most contract terms are linked to transaction numbers. A fall in transaction numbers can turn a viable proposition into a loss-maker. Average transaction volumes have been declining steadily in the US since 1995. Here they are still growing, but as more ATMs are deployed, transaction numbers will eventually start to fall.
Average transaction per machine per month

Average transaction per machine per month

Assumes all credit card transactions made at EFTPOS terminals
Source: RBA and APCA