Avail Network in Georgia Steps Gingerly into Point-of-Sale
ATLANTA -- Avail, Georgia's electronic funds transfer network, will begin handling point-of-sale transactions on March 31.
Point-of-sale is not expected to make nearly the splash that Avail made 18 months ago when it linked Georgia banks, thrifts, and credit unions to most automated teller machines in the state. But within five years, Avail may process more transactions from point-of-sale than from ATMs, according to Ron Dennis, executive director of the network.
"The potential for POS is infinitely larger than ATM potential," Mr. Dennis said. "But the customer demand is not there yet."
Georgians use ATMs about four million times a month, mostly to obtain cash. The Avail computer handles nearly half of those transactions -- whenever a card-holder uses an ATM owned by an institution that did not issue the card.
Teller machines were around for more than a decade before winning widespread acceptance. Point-of-sale faces the same long-term battle here.
POS terminals allow a customer to buy merchandise without a credit card or cash. The customer runs a debit card through a slot in the terminal, enters an identification number, and the terminal subtracts the cost of the purchase from the customer's bank account.
At the end of March, Avail will allow a cardholder from one bank to use a POS terminal installed by another bank.
Customers will even be able to walk away with extra cash if a merchant is willing to keep a deep cash drawer. In such cases, POS terminals will serve the ATM's most important function.
But the directors of the Georgia Interchange Network Inc., which runs Avail, are ensuring that POS terminals won't flood the market this spring. The board, which comprises representatives of the nine banks, three thrifts, and one credit union that own equal shares of the network, can control the deployment rate of both types of terminals because they set the prices for all electronic funds transactions that pass through Avail.
The Price Scale
For example pays the owner of an ATM 40 for each transaxtion it handles from the teller machine. The network collects 60 cents from the institution that issued the card used in an Avail transaction.
That pricing has encouraged companies to install more than 300 automated teller machines in Georgia over the last 18 months. One company, Switched Transaction Services Inc. of Atlanta, sprang up just to install ATMs and collect the 40-cent fee.
The pricing for POS terminals is quite different.
The company that installs them must pay Avail 14 cents for every POS transaction. The installers are expected to get merchants to cover the expense because merchants get instant guaranteed funds in point-of-sale transactions.
"Banks are not hopping on it," Mr. Dennis noted.
Bank South Corp. of Atlanta has about 800 POS terminals in Georgia, far more than anyone else in the state. Naturally, it would like to see them earn fees rather than be charged fees. But it has found itself on the losing end of several 11-1 network board votes.
For many months, Bank South has quietly raised the question of whether network board members are using their power over Georgia's dominant electronic clearing network to control competition.
The U.S. Justice Department has been asking questions, too.
The network said the Justice Department's inquiries have been routine information-gathering and pointed out that there has not been the slightest suggesting of wrongdoing.
"To insunuate that anything pernicious is going on would be foul play," one network official said.
Questions about the role of thenetwork board in the pace of POS development here are natural, according to Noel Nation, general counsel for both Avail and Honor, Florida's electronic funds network. "It's a natural antitrust issue when competitors come together for a joint venture," he said.
Bank South's gripes with Avail go back more than a year.
In January 1985, Franklin L. Burke, president of Bank South, wrote a letter to other Georgia Interchange owners explaining that his bank's $1,600 POS terminals worked just as well as $40,000 ATMs in dispensing cash through Avail.
The letter said Bank South had proved its Buypass the System Inc. terminals could work as "cash dispensers" by using cards issued by First National Bank of Atlanta and Trust Company Bank in Atlanta to get cash back in POS transactions.
"The including of our Buypass terminals in [the Georgia Interchange Network] is of tremendous potential benefit to [the network] since it increases the number of terminals by almost 36%," Mr. Burke wrote.
"Buypass terminal costs approximately $1,600 and is inexpensive to maintain. An ATM costs approximately $40,000 and is expensive to maintain. We are confident that merchants will view the Buypass terminal as a competitive superior to an on-premise ATM."
But other network members did not regard a "cash-back" transaction on Bank South's point-of-sale terminal as the equivalent of an Avail ATM transaction. And they saw no reason to have Avail pay Bank South the 40-cent fee ATM owners were receiving.
The then-chairman of the network, A. Gordon Oliver of Citizens and Southern Georgia Corp., responded to Mr. Burke a week later by writing that the network "cannot continue to maintain a connection with any member or processor who pursues such a course of action."
At its January 1985 meeting, the network board passed a resolution allowing Mr. Dennis to unplug Bank South from Avail if the bank continued to allow its POS terminals to use Avail.
Shortly after that, Bank South complained to the Comptroller of the Currency. The comptroller, which has no jurisdiction over the S&Ls and credit unions that make up one-third of the network board, referred the issue to the Justice Department.
A Justice Department spokesman confirmed that a "preliminary investigation" at Avail was under way as of last week. He declined to say whether Avail pricing was an issue or to discuss the nature of the investigation.
Fees Are Filtering Down to Consumers
The pricing of Avail transactions can have a big impact on consumers in the form of ATM service fees. More and more, institutions such as the Atlanta-based Georgia Federal Bank and National Bank of Georgia are passing Avail ATM fees on to their customers.
Smaller institutions in particular run up big Avail bills because they must pay 60 cents whenever one of their customers uses a card in an ATM owned by another bank.
Because those fees can be offset by fees collected on their own machines, banks with lots of ATMs, including C&S, First Atlanta, and Trust Company, are net receivers of fees. Most institutions are net fee payers.
The rationale for the pricing is to reward the institutions with big investments in ATMs.
Bank South wonders why the same principal doesn't apply in POS pricing. It installed its terminals at considerable risk and expense.
Two years ago, Avail planned to reward rather than charge POS terminal owners. They were to receive 10 cents per transaction, while the network was to get 20 cents. The card-issuing institution was to pay the entire 30 cents.
That is how Florida's electronic funds network, Honor, set up its point-of-sale pricing. But sources said last week that Honor plans to eliminate the fee to the terminal owner.
Mr. Nation, the general counsel, said Avail has decided not to give incentives that will lead to rapid deployment of POS terminals. The Miami attorney said that approach in Florida bothered the card issuers, who faced a 30-cent fee.
"The retailer is the primary beneficiary from POS," Mr. Nation said.
Robert Long, president of Trust Company Bank and chairman of the Avail board, said that getting merchants to pay for point-of-sale terminals is the key to making it work.
Most of the nation's largest networks do not pay or charge POS terminal owners anything, according to John Love, editor of Bank Network News, a Chicago-based newsletter. Typically, he said, the card-issuing institutions pay the network fees.
Mr. Love added that Avail is the only network he knows of that asks the terminal owner to pay the network fees.
Without incentives to encourage terminal deployment, POS transactions will remain relatively rare in Georgia in the near term. Mr. Dennis said he expects the number of POS transactions in Avail to total about 24,000 a month at first, compared with 1.8 million ATM transactions.…