Allpoint Eyes More Surcharge-Free ATM Volume Through a New Pact with Discover

Discover Financial Services has been in the spotlight over the past year because of its high-profile effort with PayPal Inc. to bring the online-payments leader’s service to millions of physical merchants. But that’s just one iron Riverwoods, Ill.-based Discover has in the fire. On Monday, the Allpoint surcharge-free ATM network announced that it had struck a deal that enables Discover’s credit card holders and Discover Bank customers to get cash at 43,000 U.S. ATMs without paying a fee to the ATM owner.

The Allpoint deal is significant because Discover, which is in the midst of a major expansion of its direct-banking business, can now provide its customers access to the nation’s largest surcharge-free ATM network. Discover doesn’t have bank branches, but it has taken consumer deposits for years and offered savings accounts and certificates of deposit. In late February, it announced the limited availability of “Discover Cashback Checking,” a checking-account product that credits a dime to the customer’s Discover credit card account for every debit card purchase, online bill payment, and check the holder executes. A full rollout is planned for 2014.

Discover also recently  began offering student loans and mortgages. A Discover executive was unavailable for comment Monday, but in a news release, Dan Matysik, vice president for deposit products, said, “One of Discover’s top priorities is providing the best customer service in the business, which means giving cardmembers convenient surcharge-free access to cash. Allpoint’s ATM network has cash stations throughout the country that our cardmembers can easily use.”

Discover does not disclose how many credit card holders it has or how many customers use its direct-banking services. But in a May investor presentation, Discover said it has $49 billion in credit card receivables and that its card is in one in four U.S. households. The U.S. Census Bureau estimated the nation had 115 million households in 2011, so Discover apparently has a base of about 29 million cardholders to which it can sell banking services.

Ben Psillas, president of the Bethesda, Md.-based Allpoint Network, predicts Allpoint won’t get all that many transactions from Discover credit card holders taking out cash advances, but he does expect to see more cash withdrawals on the debit card side as Discover’s banking business grows. “If they can take what they’ve built on the credit card side and apply that to direct banking, we can ride along with that growth,” Psillas tells Digital Transactions News.

The pact also puts Discover in a strong position to appeal to customers, especially younger ones used to doing their banking online and at ATMs, at a time when many banks face declining foot traffic at their branches, Psillas adds. “I think all financial institutions are wondering, ‘What are we doing with this huge branch infrastructure,’” he says.

Researcher Patricia Hewitt, director of the Debit Advisory Service at Maynard, Mass.-based Mercator Advisory Group Inc., says the Allpoint deal “really shows the diversification capabilities Discover has.”

“It’s a potentially fruitful alliance on both sides,” Hewitt says. “I think it shows Discover’s continual build-out of their direct-banking product. It’s also a win for Allpoint. It shows they have a nationwide network that can deliver access.”

The deal does not apply to the small stable of banks that issue Discover-branded debit cards. Last week, Discover announced that Aurora, Ill.-based Old Second National Bank plans to convert its 50,000-card MasterCard-branded debit portfolio to the Discover brand for signature debit. The bank already uses the Discover-owned Pulse electronic funds transfer network for PIN debit. In February, Discover bagged Birmingham, Ala.-based Cadence Bank N.A., which has 100 branches in six states, as a debit card issuer.

Neither Discover nor Allpoint would disclose financial terms of their deal. Allpoint’s members typically pay the network a per-transaction fee or a fixed monthly fee per cardholder in lieu of the surcharge.