January 1984 In-Store ATMs: Steppingstone to POS An Atlanta Fed survey found that 66 percent of major grocery and convenience stores have installed or plan to install automated teller machines. Retailers say the ATMs attract customers, reduce bad check problems and, perhaps most importantly, prepare consumers for point-of-sale terminals and debit cards. Recently, many American consumers have installation of shared off-premise ATMs. They entered their local supermarket to discover an represent a significant step in the gradual automated teller machine (ATM) installed in displacement of paper checks. the front of the store. ATMs located off bank In order to probe this subject more deeply, premises appear to be spreading throughout the Federal Reseive Bank of Atlanta surveyed 35 shopping malls, supermarkets and convenience of the largest grocery and convenience store stores across the nation. In fact, the Florida chains in the Southeast. The results clearly Interchange Group—the forerunner of Florida's demonstrate that southeastern grocery and HONOR network—estimated that by 1986, convenience stores are moving aggressively to half of Florida's predicted 3,500 ATMs will be offer banking services to their customers. The located off-premise.1 Certainly, as indicated by survey found that 66 percent of major grocery substantial transaction volumes, consumers and convenience store operators either already find these ATMs convenient Beyond increased have ATMs or have definite plans to install customer convenience, however, other far- automatic teller machines on their premises. reaching implications may be drawn from the They feel that this initiative promises distinct advantages in attracting customers, reducing problems with bad checks, and expanding '"Igniting an EFT Revolution in Florida," Bank Network News, Vol. 1 their range of customer services. Furthermore, (February 8, 1983), p. 2. 31 FEDERAL RESERVE BANK OF ATLANTA Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis January 1984 most of these organizations view the ATM as a The installation of in-store ATMs is signifi- steppingstone to the point-of-sale cash register cant beyond the spread of ATM cash dis- terminal and the debit card. pensers. ATMs in retail locations provide an Thus the survey confirms another evolutionary evolutionary steppingstone or "transition pro- step in the displacement of paper checks by duct" between cash acquisition and debit card electronic substitutes.2 Once customers accepted purchases. To the customer, it is only a small the ATM as a cash-acquisition device at their step from using a plastic card to acquire cash bank or other depository institution, banks and then groceries, in today's case, to using the began to place their proprietary ATMs in other plastic card to purchase groceries directly. locations, such as shopping centers and airports. From a technical standpoint, the ATM is trans- Another significant step involves the shift from formed into a point-of-sale terminal, the ATM proprietary to shared ATM networks, through card becomes a debit card, and the shared which account-holders at one depository insti- ATM network becomes a shared debit card tution can utilize the ATMs of other institutions. network. Yet market testing indicates that such With the formation of shared networks—cur- a transition will appear to be relatively minor in rently well under way—banks can multiply the the eyes of the consumer. convenience offered by their plastic ATM cards without having to purchase additional ATMs. Grocers and convenience store operators Typically, special service corporations estab- recognize this connection, our survey indi- lished by the participating institutions3 adminis- cates. Thus the ATMs in grocery and con- ter the shared networks. venience stores may be paving the way to widespread penetration and acceptance of debit cards, which in turn will become more prevalent in other retail establishments such as "To the customer, it is only a small gas stations and department stores.4 Potentially, step from using a plastic card to debit cards will displace a large number of acquire cash and then groceries to personal checks, because almost three times using the plastic card to purchase as many checks are written for retail purchases as are written for cash acquisition.5 groceries directly." Why are grocery and convenience stores so important in this evolution? Grocers cash a Grocery and convenience stores, meanwhile, tremendous number of checks; in many cases had been watching and waiting for a large base check value exceeds gross sales. They need a of ATM customers to develop. As long as ATMs quicker and cheaper means of negotiating were only accessible by a few people, or as long .such payments and of eliminating bad checks. as a grocer's (proprietary) ATM could only be Convenience stores are more concerned with used by customers of a single financial institution, eliminating currency in cash registers, thereby installation was not justified on anything other discouraging robberies. Both types of . stores than an experimental basis. As the ATM-cash provide a large number of widely dispersed dispenser became widely accepted, however, sites open for long hours. Furthermore, customer concurrent with the evolution of shared ATM traffic is already established and regular. The networks at the local level, grocers could install great majority of their customers are local, with ATMs with the expectation that a significant payments drawn against local financial institu- proportion of their customers would benefit. tions. Because of this combination of character- The survey described here indicates that grocers istics, grocery and convenience stores provide are indeed taking advantage of the new oppor- a good "testing ground" for retail point-of-sale tunity. transactions. 2For a more comprehensive description of this evolution, see "Displacing the Check." this Review, August 1983. See also "Payments in the Financial Services Industry of the 1980s" this Review, December 1982, "The check displacement forecasts for debit cards embodied in "Dis- especially quotes by Peter Merrill that "the financial services industry is placing the Check" are somewhat more aggressive than that of some now shifting into a second phase involving shared delivery systems." other observers because of the expected impact from retailers (p. 18-24, 41-42). 3See "Shared ATM Networks: The Nation and the Southeast," this Review, 5"Displacing the Check," Table 4, p. 32. December 1982. JANUARY 1984, ECONOMIC REVIEW 32 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis January 1984 Table 1. Stores in Some Stage of ATM Installation Hours of Operation Transaction Types Handled SUPERMARKETS ATMs Already Installed Full-Line' Bruno's Inc., Alabama 24 Hours 24 Hours/Store Full-Line/plus Food Giant, Georgia Traveler's Checks Full-Line Jitney Jungle, Mississippi 24 Hours/Store Full-Line Kroger-Atlanta Division Store Hours Full-Line Kroger-Nashville Division Store Hours Full-Line Publix, Florida 24 Hours Full-Line The Red Food Stores, Tennessee 24 Hours/Stores Full-Line Sunflower Stores, Mississippi 24 Hours/Stores Store Hours Full-Line Winn-Dixie, Florida Finalized Installations Cash Withdrawals Albertson's, Florida 24 Hours Full-Line Grand Union, Florida, Georgia 24 Hours/Store Full-Line Pantry Pride, Florida 24 Hours/Store Definite Plans to Install; Lack Final Commitment Cash Withdrawals Bi-Lo Inc., South Carolina Store Hours Undecided National Supermarkets, Louisiana Undecided Cash Withdrawals Schwegman Giant Stores, Louisiana Store Hours Vague Installation Plans Cash Withdrawals Dixieland Food Stores, Alabama Probably Store Hours Undecided Food Town Stores, North Carolina Undecided Full-Line Harris-Teeter Supermarkets, Store Hours North Carolina Sub-Total: 17 or 63% of 27 Supermarket Chains Surveyed CONVENIENCE STORES ATMs Already Installed Full-Line Fast Fare Inc., North Carolina 24 Hours Full-Line Munford Inc., Georgia 24 Hours Full-Line The Pantry Inc., North Carolina 24 Hours Finalized Installation Plans Cash Withdrawals; Little General Stores, Florida 24 Hours/Store Barnett Bank Deposits Only Full-Line Except Deposits Shop & Go Inc., Florida 24 Hours/Store Full-Line Sunshine Jr. Stores, Florida 24 Hours Pilot in Texas 24 Hours Full-Line Except Deposits; National Convenience Stores, Cash Advances on Credit Cards (Shop-N-Go), Georgia 2 Pilot in Philadelphia Full-Line Except Deposits Southland Corporation (7-11 Stores), Store Hours/ Louisiana2 Usually 24 Sub-Total: 6 or 75% of 8 Convenience Store Chains surveyed TOTAL: 23 or 66% of 35 SURVEY PARTICIPANTS 'Full-Line: Deposits, withdrawals, balance inquiries, transfers between accounts ATM installation 2These two convenience store chains are not included in survey totals because they have not commenced in their southeastern stores FEDERAL RESERVE BANK OF ATLANTA 33 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis January 1984 Survey Results While most of the supermarkets and con- venience chains intend to install only one ATM Our survey, which was conducted in August, per store, the number of ATM locations varies included eight southeastern states—Alabama, widely. Two distinct patterns of installation Florida, Georgia, Louisiana, Mississippi, North emerge. First, there are those grocery and Carolina, South Carolina, and Tennessee. The convenience store chains in which a single thirty-five corporations included in the sample bank