Magazine article American Banker

ATM Networks Face Challenge by Nonbanks

Magazine article American Banker

ATM Networks Face Challenge by Nonbanks

Article excerpt

With the ranks of regional automated teller machine networks thinning like hair on the head of a middle-aged man, their bank owners, too, are confronting a mid-life crisis.

In the mid-1980s, more than 100 shared networks peacefully coexisted in adjacent markets.

But that youthful fraternity is giving way amid a more competitive environment in which the industry's largest and wealthiest ATM systems satisfy their hunger for business beyond their traditional home turf by buying or merging with smaller networks.

Fully 20% of the nation's shared networks have been acquired or forced out of business in the last two years, according to The Nilson Report. And as consolidation takes hold in electronic funds transfer, or EFT, it remains unclear whether electronic banking will be led by the financial institutions that started it or by the powerful nonbank companies that have recently entered the business.

Banks in Driver's Seat

By virtue of their ownership of most of the major regional networks, bankers clearly direct the EFT industry at present. But experts feel that control could soon be wrested from the banking industry by the likes of Electronic Data Systems Corp. and Transaction Processing Inc., a start-up company headed by Bipin Shah, former technology chief at Mellon Bank Corp. and CoreStates Financial Corp.

"Look at EDS and guys like Bipin, and you'll see a lot of nonbank money waiting to be spent," said A. Edward Gough, president of the Money Station network, based in Columbus, Ohio. "That money's going to create a lot of headaches for bankers over the next few years."

To be more pointed, Mr. Gough and the operators of other smaller networks are concerned that the nonbanks will buy large pieces of the EFT business out from under the nation's financial institutions.

86 |Survivors'

The United States now has 86 regional electronic funds transfer networks, nearly an of which are jointly owned by groups of financial institutions. At least two-thirds of these networks are expected to be acquired or merged with other networks.

Taken as a group, these smaller networks are repulsed by the idea of participating in a Iarge network scheme. The small and midsized banks that own them harbor justifiable fears that to merge with one of the big boys - such as NYCE or the Star System - would be tantamount to abdicating their say in directing their business.

However, it is clear to most observers that the smaller networks cannot continue in their present form. And given the choice between leaving the EFT business empty-handed and selling out to the highest bidder, even the least savvy businessman will take the money.

In a sellers' market such as this, the deep pockets of the nonbanking companies have aroused concern in many bank-owned networks.

Seeing a Profound Threat

"The new entrants into this business are going to have & profound effect on the finances behind the industry consolidation, and many of those effects are clearly not going to be in our best interest," said David A. …

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