Fraud, Security Raise Cost Concerns for ATM Managers, Report Says

Fraud control and data security rank at the top of bank ATM executives' concerns as they try to keep their networks competitive, according to results of an Aite Group LLC survey. A separate survey by Bankrate Inc., meanwhile, shows that ATM surcharges rose over the past year but foreign fees declined. Bounced-check fees are up. Sixty-one percent of Aite's respondents said they were “concerned” or “extremely concerned” about fraud management, and 57% were concerned or extremely concerned about data security. Those two issues ranked at the top of nine cost concerns in the next two years that Aite presented to the respondents, with regulatory compliance coming in third at 50%. Security-related worries ranked high even at banks that have never suffered ATM-related data breaches. “The concern here is about the cost,” says Kate Monahan, an analyst at Boston-based Aite Group. “I think they're anticipating needing to keep the channel as secure as possible is going to be costly for them. The fact that fraudsters are getting more and more sophisticated every day, that is driving it.” The results reported this week were gathered in a survey of 23 of the top 80 U.S. banks by number of checking accounts last February to April. The executives were asked about their plans for their ATM channels through 2014. Aite released some study results late in the spring, including findings that 20% of ATMs are 10 years old or older (Digital Transactions News, June 2). While enhancing the customer experience at ATMs is a priority for many banks, Aite estimates that only 8% of the surveyed banks' ATMs offer single-check, envelope-free deposit functionality this year. The respondents indicated 14% of their ATMs would have that capability by 2010. The low deployment of what many bankers trumpet as one of the most consumer-friendly ATM technological advances in recent years is partly explained by Aite's survey base. Respondents included a number of banks well below the top tier technology-oriented institutions such as Bank of America Corp. and JPMorgan Chase & Co., both of which are making heavy investments in envelope-free ATMs. Another factor, however, is that wave after wave of bank mergers means more ATM fleets to integrate and upgrade, and that takes time. “Through each acquisition, there are ATMs that are outdated,” says Monahan. “The ATMs sometimes are the things left that change last.” Asked about their ATM channel strategies, 37% of respondents rated “create differentiated ATM experience through customer personalization” as important to extremely important in 2009, but 91% believe personalization will be important or extremely important in five years. That indicates a still-strong market for technology that gives ATMs more features, especially the Microsoft Windows operating system, according to Monahan. Regarding surcharging, the fees banks charge non-customers for using their ATMs, 70% of respondents said they reimburse some of their customers' costs for using another company's ATM. Twenty-six percent of responding banks belong to surcharge-free networks, with participation especially low among large banks that have extensive proprietary ATM networks, Monahan says. Another research firm, Bankrate, reported this week that the average ATM surcharge grew 12.6% over the past year to $2.22 from $1.98 in 2008. Nearly 99% of banks surcharge, according to North Palm Beach, Fla.-based Bankrate. Surcharges have risen at an annual rate of about 7% over the past decade, Bankrate says. In contrast, Bankrate found that the average foreign fee, the fee banks charge their customers for using somebody else's ATM, fell 9.6% to $1.32 from $1.46 a year ago. Bankrate estimates that 72% of banks assess foreign fees. Bankrate's results also say that non-sufficient funds fees, or bounced-check fees, rose 2.1% in the past year to another record, averaging $29.58. Such fees have been growing by an average of 2.7% annually over the past 10 years, the firm reports. Some 26% of banks have now implemented tiered structures to their overdraft fee schedules, with two or more overdrafts in a rolling 12-month period incurring higher fees than the first, according to Bankrate. “The average cost for the second through fourth overdrafts under the tiered-fee structure is $33.88 while the average cost for banks that have a third tier, which typically kicks in after the fifth overdraft, came in at $36.19,” a Bankrate release says. Next year's survey is likely to show dramatically different results as banks rapidly drop overdraft fees in the face of growing political and market resistance (Digital Transactions News, Sept. 23). Bankrate surveyed the five largest banks and five largest thrifts based on deposits in the nation's 25 largest metropolitan areas in August. The firm obtained information about 245 interest-bearing accounts and 228 non-interest accounts from 248 institutions. It also obtained data from 17 online banks.