The implications of removing automatic teller machines from Safeway supermarkets in the Washington area go well beyond the immediate impact of an apparent failure of the limited electronic banking operation in the chain.
Development of an electronic payments system -- the next logical step in the evolution of electronic banking -- could be set back as a result of consumer uncertainty about remote teller machines.
In the meantime, failure of the ATM operation in local Safeway stores could have an undesired effect on the overall development of Internet, the region's primary ATM network, some industry officials fear.
"It's unfortunate for us because if the use of ATMs in Safeway supermarkets does fail, that reflects on us," said David A. O'Connor, president and chief executive of Internet, the giant ATM network that serves more than 120 financial institutions in the District, Maryland and Virginia. "If, indeed, it does get shut down, a lot of consumers that were using it might tend to question the use of ATMs."
Internet was formed little more than a year ago by a merger of the region's two largest ATM networks, MOST and Network Exchange. An earlier decision to merge the two networks might have averted the phaseout of the limited banking operation in Safeway supermarkets. Indeed, said one electronic banking expert, usage of ATMs in the supermarket chain would be much higher "if you started today."
In 1973, Safeway agreed to let Network Exchange install ATMs in 95 stores. Only 32 financial institutions were members of Network Exchange at the time, thus only a small percentage of the total ATM-card base in the area had access to remote teller machines in Safeway's stores.
The venture was doomed to have problems.
"It was not the best combination of factors," a banking industry official said of the ill-fated agreement between Safeway and Network Exchange. "The timing is premature."
The venture was inaugurated at a time when most major retailers in the area were unwilling to let ATM networks install the machines in their stores. Giant Food Inc., for example, explained then that it was unwilling to provide a service that would not be available to most of its customers. Less than six months after Safeway began the limited banking venture with Network Exchange, Giant and Suburban Bank announced a joint venture that allowed holders of Network Exchange and MOST bank cards to make cash withdrawals or balance inquiries at ATMs in Giant stores.
The phaseout of ATMs in Safeway supermarkets will not significantly affect the chain's sales, according to a spokesman, though he concedes that his company would like to provide the service as long as Safeway's principal competitor (Giant) offers it.
Understandably, Safeway is reluctant to concede any edge to Giant, which enjoys a bigger share (42 percent vs. 32.6 percent) of the Washington food market. While ATMs are said to be added conveniences in the one-stop shopping concept merchandised by the big food chains, they are intended to increase customer traffic and sales volume.
How the Safeway experience might affect consumer confidence generally in electronic banking is even more difficult to measure. ATM use, while heavy in certain areas, is not as widespread as financial institutions had projected. The U.S. League of Savings Institutions reported last summer that the typical household uses an ATM only once in three months.
Consumer confidence, or the lack thereof, continues to be a major hurdle for banks and savings and loan associations, eager to justify their investment in ATMs. Credit unions appear to have more success. A survey by The American Banker last year found that half of the consumers who have used ATMs still prefer human tellers.
The "strongest damper" in getting people started with the banking machines, is "convincing the customers that they need the service," according to the American Banker study. Like other studies, the survey found that the typical user of ATMs makes more money, is better educated and generally is younger than the average bank customer.
With findings such as those, it's not too difficult to understand why financial institutions would be concerned about developments that could further dampen consumer confidence.
The fallout from the Safeway experience may have little or no effect on consumers' acceptance of ATMs in this area. In the meantime, there is little evidence suggesting that local financial institutions have matched their investments in ATMs with the kind of promotional and educational effort that apparently is needed to build customer confidence.
The U.S. League has suggested that in order "to make a drastic impact on the huge amount of cash transactions it will take an enormous amount of promotional expenditures to gain a marginal increase in usage."