With no fees, convenience store ATMs are gaining ground

Mr. Kim, a 39-year-old resident of Goyang, Gyeonggi, recently moved to a new apartment and had trouble finding a branch of his bank nearby, so he called customer service for help.

He was surprised when the representative told him to just use an ATM at a convenience store, where he could withdraw cash for free.

“I can’t do anything else,” Kim said, “but at least I can take out money without paying a fee.”

With the rise of mobile and online banking, many of Korea’s big commercial banks are shutting down branches and reducing the number of ATMs. Filling the gap are non-bank ATM operators, so-called value-added network providers who install ATMs and related payment services mainly in convenience stores and subway stations. Major operators in Korea include Nautilus Hyosung and Lotte PS Net.

The number of ATMs in Korea, which hit a peak in 2013 at 124,236, fell to 120,306 by the end of last year, according to data provided by the Bank of Korea. But when breaking it down by operator, ATMs run by non-banks are on a steady rise, jumping from 36,344 in 2014 to 40,619 last year. During the same period, ATMs run by banks fell from 85,945 to 79,687.

In the past, ATMs at convenience stores were not popular because they charged an average 1,300 won ($1.13) in withdrawal fees, much higher than bank ATMs that charge around 700 to 800 won.

But with the exploding number of convenience stores - a jump of over 12 percent from 2015 to 2016 - commercial banks are signing partnerships with non-bank ATM operators to cut maintenance costs. Those in the industry say such partnerships can bring down costs by as much as 30 percent, and the savings are being passed on to consumers who no longer have to pay fees.

“We often get requests by major companies to install ATMs in their buildings, but it is much more economical for us to do so through partnerships rather than installing our own ATMs,” said a director at Hana Bank, a major commercial bank.

One of the biggest beneficiaries of such partnerships is K bank, Korea’s first internet-only bank, which launched in April.

Since the bank has no brick-and-mortar branches, it has designated convenience stores as the main transaction outlet for its clients.

In fact, one of the bank’s shareholders is GS Retail, operator of the GS25 convenience store chain. K bank account holders don’t have to pay fees when they use their debit card to withdraw cash at GS25 stores, and since they’re open 24/7, the service, too, is available whenever people need it.

Most of the machines currently only dispense cash, but GS Retail and K bank are in the process of replacing them with ATMs that can also accept deposits and perform transfers.

Kakao Bank, another internet-only bank set to launch within the next month or so, has inked partnerships with BGF finlink, which operates ATMs at CU convenience stores, and Lotte PS Net, operator of machines at 7-Eleven and Lotte Mart, to allow customers to use their machines free of charge.

Together, BGF and Lotte operate 16,644 ATMs and cash dispensers across the country, even more than KB Kookmin Bank, which has the most ATMs among commercial banks at 10,410.

“We have no plans to install ATMs of our own,” said a manager at Kakao Bank. “It’s more effective to use ATMs at convenience stores through partnerships.”

While non-bank operators are rolling in the money, commercial banks are removing ATMs due to continuous deficits. After they cut ATM fees from a range of 900 to 1,000 won down to 700 to 800 won, they have continued to suffer losses from operating the machines.

According to one study Korea Institute of Finance, running one ATM incurs a loss of 1.66 million won per year for a bank. Customers, however, are still demanding cash withdrawal and deposit service, which is now directed to convenience stores.

BY HAN AE-RAN [choi.hyungjo@joongang.co.kr]