New ATM Study Reveals Evolving Business Model, Diverging Strategies; Analysis of Bank, Credit Union and ISO Deployers Provides the Most Comprehensive Assessment of the State of the U.S. ATM Industry

Stratification of the ATM Industry

In 2004, findings from the ATM Deployer Study showed an industryat a cross roads. Deployment growth was outpacing transaction growth,resulting in declining per-ATM transaction levels -- particularlyforeign acquired transactions (i.e., revenue-producing transactionsperformed by another deployer's cardholders). Declining revenues,coupled with fixed or increasing costs driven by regulatoryrequirements (e.g., Triple DES) and increased rent and cost of funds,were putting increasing pressure on ATM deployers' profitability. As aresult, the ATM industry was in search of a new model.

Over the last two years, the search for a new model has promptedmany deployers, particularly financial institutions, to re-evaluatethe role of the ATM: is the ATM purely a cash dispenser, or is it astrategic customer delivery channel?

How deployers answer that question underpins their ATM strategy,and determines how they manage their ATMs -- from how many they deployand where they deploy them, to what functionality they support andwhat software they run. As a result, we are now entering a third phasein the evolution of the ATM industry, one that is characterized by thestratification of deployers' ATM strategies: the search for a newmodel has resulted not in one new model, but many new models, withdeployers bifurcating along two dimensions: ATM access (proprietaryvs. shared) and user experience (differentiated vs. undifferentiated).

The 2006 ATM Deployer Study provides an in-depth look at theindustry's key performance metrics (including transaction volumes,surcharge rates, and operating expenses), recent industry trends anddevelopments (check imaging, ATM branding), and deployers' strategiesand priorities. It also presents an outlook for the ATM industry overthe next few years, as the industry's business model(s) evolve anddeployers' strategies diverge.

Some of the key findings from the study include:

1. ATMs and Transaction Volumes

The average number of monthly transactions per ATM, a key industrymetric, varies significantly depending on the type of ATM deployer andthe location in which an ATM is placed. Financial institutions'on-premise ATMs currently average 3,651 transactions per ATM permonth, compared to 1,807 for their off-premise ATMs and 329 for ISOATMs.
Per-ATM Transaction Profiles

FI On-Premise FI Off-Premise ISO
------------------------ ---------------- --------------- ------------
Average Txns/ATM/month 3,651 1,807 329
% Foreign Acquired 20% 49% 100%
------------------------ ---------------- --------------- ------------

Based on transaction data provided by deployers and estimatedsegment shares, the study estimates that U.S. ATMs currently perform8 billion transactions per year -- representing $600 billion indispensed cash.
Total U.S. ATM Transactions

Average
Transactions/ Total Annual
Segment Total ATMs ATM/month Transactions
----------------- ------------------ ----------------- ---------------
On-Premise 130,000 3,651 5.7 Bn
Off-Premise 71,000 1,807 1.5 Bn
ISO 195,000 329 0.8 Bn
----------------- ------------------ ----------------- ---------------
Total 396,000 8.0 Bn
----------------- ------------------ ----------------- ---------------

Of note, while ISOs account for almost half of all ATM placements,they account for only 10 percent of the industry's total ATMtransaction volume.

2. ATM Functionality - Customer Relationship Management (CRM) &Check Imaging

Most of the advanced features currently offered by deployers arebanking functions, with shared deposits, domestic account-to-accounttransfers and mini statements topping the list. Going forward,however, most deployers are focusing on advanced marketing and CRMfunctionality that will enable them to tailor the user experience toindividual cardholders and strengthen their customer relationships andcross-selling capabilities. Deployers' top three areas of interest forfuture advanced functionality are targeted marketing campaigns,product offers (e.g., credit card solicitations), and cardholderpreferences.

One of the industry's hottest topics is check imaging and ATMdeposit automation. After three years of testing and pilots, itappears as though imaging ATMs are ready to hit the mainstream.

Image-enabled ATMs currently represent a very small portion ofdeployers' ATMs, but this dynamic is set to change. Large banks thatalready have image-enabled ATMs project that, by 2008, imaging ATMswill make up 31 percent of their ATM networks; for large creditunions, imaging ATMs are projected to constitute 45 percent of theirATM mix by 2008.

3. Migration to Windows and Advanced Software

Although no longer sold, OS/2 continues to dominate the ATMlandscape, with the majority of ATMs -- 58 percent -- currentlyrunning on OS/2. The pervasiveness of OS/2 will not last much longer,however: 63 percent of ATMs in the U.S. are projected to be running onWindows by 2008.
ATM Operating System Mix, 2006 vs. 2008

Operating System 2006 2008
--------------------- --------------- -----------------
DOS 1% 1%
OS/2 58% 22%
Windows 26% 63%
Other 15% 14%
--------------------- --------------- -----------------

ATM technology is poised to change significantly as deployersmigrate from OS/2 to Windows and from proprietary software to openstandards. For much of their thirty-year life, ATMs have beenvertically integrated devices, combining hardware and software fromone provider. As hardware and software become 'decoupled', deployersare no longer locked into the proprietary software that accompanies aterminal; as a result, selecting ATM software is becoming a strategicdecision in its own right -- and one that has significant implicationsfor deployers' future ATM capabilities.

4. ATM Surcharge Rates

Deployers continue to increase the surcharge fees they charge tonon-customers, currently averaging $1.74 at an on-premise ATM and$1.79 at an off-premise ATM.
Average Surcharge Rates, 2001 - 2006

2001 2003 2006
------------------------ ----------- ----------- -------------
On-Premise ATMs $1.45 $1.57 $1.74
Off-Premise ATMs $1.48 $1.65 $1.79
------------------------ ----------- ----------- -------------

Combined with an average foreign fee of $1.27, consumers currentlycan pay more than $3.00 every time they use an ATM that is notdeployed by their own FI. As the cost of using a foreign ATMincreases, the value consumers place on having access to a largenetwork of free ATMs increases -- which means, from a competitiveperspective, that a deployer's ability to provide convenient fee-freeaccess to ATMs is becoming an increasingly important part of theirvalue proposition. To this end, many deployers are pursuing one ormore of the following strategies to increase ATM access: participatingin selective surcharge alliances, introducing surcharge reimbursementprograms, and negotiating ATM branding agreements.

5. ATM Economics

Deployers continue to face challenging ATM economics, as measuredon a direct basis. Deployers currently earn an average of $1,104 permonth at their on-premise ATMs, and $1,013 at their off-premise ATMs.

On the expense side, deployers incur average monthly expenses of$1,444 per on-premise ATM, and $1,450 per off-premise ATM, althoughthere is significant variation between deployer segments.
Monthly Per-ATM Expense by Deployer Segment

On-Premise ATMs Off-Premise ATMs
--------------- ------------------------ -------------------------
Large Bank $1,131 $1,736
Other Bank $1,313 $1,256
Large CU $1,976 $2,549
Other CU $1,912 $2,578
Large ISO N/A $680
Other ISO N/A $522
Overall $1,444 $1,450
--------------- ------------------------ -------------------------

Most segments, on average, lose money on their ATMs. As theirprofit margins deteriorate, many financial institutions arerecalibrating their ATM strategies, shifting away from revenuegeneration and refocusing on meeting the needs of their customers.

About the 2006 ATM Deployer Study

The 2006 ATM Deployer Study is the fourth in a series of bi-annualstudies sponsored by the leading EFT networks as part of their ongoingcommitment to industry research. Conducted in the spring of 2006, thisstudy tracks the ongoing evolution of the U.S. ATM industry andprovides an in-depth look at current ATM performance metrics, recentindustry trends and developments, and deployers' strategies.

The findings presented in the 2006 ATM Deployer Study are based onsurvey responses from a nationally representative sample of 161 bank,credit union, and ISO deployers. Study participants include 26 of thetop 50 retail banks (and 8 of the top 10), 12 of the top 25 creditunions, and 3 of the top 10 ISO ATM owners. As of March 2006, studyparticipants had deployed 134,110 ATMs, representing 34 percent ofATMs deployed in the U.S.

The 2006 ATM Deployer Study is available exclusively through thestudy sponsors. For more information, please contact:
CO-OP Financial Services NYCE
James Hanisch Hope Collins
909-948-2620 303-702-5662
jim.hanisch@co-opfs.org Hope_Collins@nyce.net

PULSE STAR
Mary Brown Donna Pennington
832-214-0111 402-222-6178
mbrown@pulse-eft.com donna.pennington@firstdatacorp.com

About the Study Sponsors

CO-OP Financial Services (formerly CO-OP Network) is wholly-ownedby its credit union shareholders and provides volume discounts onproducts and services that include ATM network access, ATM processing,debit/card services and shared branching. With nearly 2,000 creditunion members, more than 25,000 surcharge-free ATMs (including 6,000deposit-taking), 100 million-plus monthly transactions and 24 millioncardholders, CO-OP Financial Services is the No. 1 credit union EFTnetwork and processor in the U.S. financial services industry. CO-OPFinancial Services' membership has access to over 800,000 ATMsworldwide through links to NYCE, STAR, Cirrus, Pulse and Plus.

The NYCE(R) Network provides consumers with secure, real-timeaccess to their money, connecting the accounts of more than 74 millioncards with 275,000 ATMs, and 1.2 million point-of-sale locationsnationwide. NYCE helps its clients grow with innovative new productsand strategic alliances that enable them to capitalize on theefficiency, consumer convenience and security of electronic real-timepayments. Headquartered in Secaucus, N.J., NYCE Payments Network, LLC(www.nyce.net) is a Metavante company.

PULSE(R) is one of the nation's leading ATM/debit networks,currently serving more than 4,200 banks, credit unions and savingsinstitutions across the country. PULSE is owned by Discover FinancialServices LLC, a business unit of Morgan Stanley (NYSE:MS). The networklinks cardholders with nearly 250,000 ATMs and approximately 3.4million POS terminals at retail locations nationwide. The company isalso a valued resource for consumer research related to electronicpayments and is committed to providing its participants with educationon evolving products, services and trends in the payments industry.For more information, visit www.pulse-eft.com.

First Data Corp.'s STAR(R) Network is a coast-to-coast electronicpayments network and an expert in secure, real-time electronictransactions. Financial institutions rely on the STAR Network todeliver ATM access, PIN-secured debit purchasing, deposit sharing andsurcharge-free ATM access programs to their cardholders. The STARNetwork is a leader in developing check debit, Internet and telephonebill payments, small-value payments, deposit risk management and ATMcheck imaging products. The STAR Network serves more than 5,700financial institutions across the U.S. and provides cardholders withaccount access at approximately 1.9 million ATM and retail locations.There are approximately more than 140 million cards carrying the STARlogo. STAR has a broad footprint of distribution points across theUnited States including the acceptance of the STAR card atapproximately 5.1 million POS terminals. For more information, visitour Web sites at www.firstdata.com and www.star.com.

About Dove Consulting

Dove Consulting, a division of Hitachi Consulting, is aBoston-based consulting practice specializing in strategy andorganizational effectiveness. The practice's Financial Services Groupis a leader in developing retail payments, distribution and customerstrategies for banks, payment networks, and government entities.Dove's consulting work is supported by an ongoing commitment toindustry research spanning consumer payment preferences, ATMdeployment, and card issuers and remittance processors. For moreinformation, visit www.doveconsulting.com or call (617) 482-2100.

About Hitachi Consulting

As Hitachi, Ltd.'s (NYSE:HIT) global consulting company, withoperations in the US, Europe and Asia, Hitachi Consulting is arecognized leader in delivering proven business and IT solutions toGlobal 2000 companies across many industries. We leverage decades ofbusiness process, vertical industry, and leading-edge technologyexperience to understand each company's unique business needs. Frombusiness strategy development through application deployment, ourconsultants are committed to helping clients quickly realizemeasurable business value and achieve sustainable ROI.

Hitachi Consulting's client base includes nearly 35 percent of theFortune 100 and 25 percent of the Global 100 as well as many leadingmid-market companies. We offer a client-focused, collaborativeapproach and transfer knowledge throughout each engagement. For moreinformation, call 1.877.664.0010 or visit www.hitachiconsulting.com.

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About Hitachi

Hitachi, Ltd. (NYSE:HIT) (TOKYO:6501), headquartered in Tokyo,Japan, is a leading global electronics company, with approximately356,000 employees worldwide. Fiscal 2005 (ended March 31, 2006)consolidated sales totaled 9, 464 billion Yen ($80.9 billion). Thecompany offers a wide range of systems, products and services inmarket sectors including information systems, electronic devices,power and industrial systems, consumer products, materials andfinancial services. For more information on Hitachi, please visit thecompany's Web site at http://www.hitachi.com.

For more information on Hitachi, please visit the company'sWebsite at http://www.hitachi.com.