Electronic funds transfer or EFT entered into the

banking lexicon in the early 1970's, when futurists were simultaneously fascinated and alarmed by predictions of the imminent transformation of America into a cashless, checkless society. The demise of dollar bills and paper checks did not occur, but the idea of additional electronic payment media has taken hold.

EFT is not a new banking function.

delivery mechanism.

Rather, it is a new EFT offers the ability to perform

electronically the many functions of a payment system more quickly and conveniently than ever before and the means to deliver new financial products and services to meet the market demands of consumers and businesses. Although very expensive to develop, EFT technology ultimately should reduce significantly the escalating costs of providing financial services. Costs are saved when less paper flows through the system, when fewer checks go through the mails, when float is controlled or reduced, and when human labor can be directed to more productive tasks than receiving and disbursing funds.

Today's most obvious symbol of EFT is the automated teller machine or ATM. A decade ago there existed a handful of underutilized ATMs. Now consumers use ATMS to perform billions of transactions per year. There are approximately 40,000 ATMs deployed in the United States, and that number is rapidly increasing. The investment of financial institutions in ATM terminals alone exceeds one billion dollars.

At an ever increasing pace, ATM usage has been evolving into a new phase which the industry often calls "interchange." Financial institutions that own and operate ATMs have been making the use of these machines available through networks to customers of other financial institutions on a transaction fee basis. This phenomenon has reached extraordinary proportions.

Today there are as many as 200 shared regional networks of ATMS serving virtually every state and region of the United States. The 16,000 ATMS connected to shared networks process approximately 60,000,000 transactions per month, which is about one-third the total ATM transaction volume. Nearly 65 percent of the financial institutions with ATMS belong to shared ATM networks, and they have collectively issued over 50 million ATM access cards with shared network logos, representing 67 percent of all debit cards issued in the United States. Moreover, membership in shared ATM networks is common among both large and small, state- and nationally-chartered institutions. recent survey indicates that almost 40 percent of the institutions that are now planning to begin offering ATM services for the first time plan to do so through membership in a shared

system.

In fact, a

Although shared ATM systems involving all types of financial institutions exist in virtually every state, sharing in these systems has not been restricted by state boundaries. Eighty-four percent of the twenty-five largest regional shared ATM networks (all but four) include terminals in two or more states and often include an entire region such as New England or

he mid-Atlantic states. In addition to all the regional shared ATM networks, there are seven national ATM networks which have

given consumers the ability to obtain cash at ATMs nearly

anywhere in the United States.

By year-end 1983, these national

ATM networks had nearly 10,000 ATMs on-line, meaning that approximately one-fourth of all the ATMS in the United States today may be used by customers as a travel service to obtain cash away from home.

The rapid growth of regional and national shared ATM networks is the result of many factors. Ever since initial consume' sistance to this new technology was overcome in the earl' d mid-1970's, ATMs have grown increasingly popular.

Ba

lv, ATMs are popular because they are convenient. A consumer can use an ATM to perform simple financial transactions

whenever!

shes without going to his bank because the ATM, like a telepnone, is an electronic communication device that puts

him "in touch" with his bank.

By the mid 1970's financial institutions were beginning

to understand that although a single ATM, like a single telephone, is a fascinating instrument, the real value in either electronic device is in its widespread deployment and ready accessibility to consumers.

The value of a consumer's debit card

is directly related to the number of ATMs available to him and the locations of those machines. Accordingly, financial institutions were looking for ways to expand their ATM networks.

Expansion tended to occur in two ways. First, some

large institutions developed substantial proprietary ATM systems in their local areas, but when national banks tried to establish their ATMs in areas where they were not authorized to establish branches, they were met with a flurry of litigation, which culminated in 1976 with the landmark decision of Independent Bankers Association of America v. Smith, 534 F.2d 921 (D.C. Cir.), cert. denied, 429 11.S. 862 (1976), in which these banks were told that they could not own or rent an ATM where they could not establish a branch.

of ATM expansion

-

interchange

However, even before the Smith decision a second form was beginning to take shape in states such as Wisconsin and Nebraska. This type of expansion made a great deal of sense economically because it enabled banks to expand exponentially the ATMS available to their customers without incurring the substantial costs associated with establishing each ATM. It was also the most efficient form of ATM usage because it enabled a single machine to obtain high transaction volumes which would eventually provide its owner with a return on investment. Moreover, the EFT laws of approximately half the states either expressly permitted or actually required financial institutions (state and national) to make their ATMS available for sharing upon the request of other financial institutions in the state.

In a typical ATM interchange system, each participating financial institution owns a number of proprietary ATMs which are prominently identified as its own. Each institution will have

deployed those ATMS where it is authorized to deploy them. Each institution will have obtained whatever regulatory clearances are necessary and will make whatever periodic reports are required by the appropriate regulators.

Each institution will operate and

maintain its own ATMS. Each institution will supply the cash for its ATMS, will empty the deposits from its own ATMs and will balance its own machines. Moreover, each institution will

normally be responsible for the telecommunication lines

connecting its ATMs to the network.

The interchange network itself, which may be a joint venture of the participating institutions or a third-party, will provide central computer processing and transmission facilities, typically referred to as a "switch." The network usually develops operating rules to coordinate the interchange and may provide a settlement mechanism for the institutions.

Because

switch development and operation are very expensive, network members usually pay membership and operating fees to the network. In a simple interchange system a customer of one

financial institution has an access card that prominently displays the name of his institution and that much less prominently displays a small logo identifying the ATM network whose machines he may use. The cardholder may then use his card at any ATM displaying the network logo. When he uses a machine which is owned and operated by another institution, his

institution typically pays the other institution a transaction fee and may also pay a small fee to the network to defray the cost of operating the switch.