Though KeyCorp's 2,400 automated teller machine network is among the industry's largest, the company thinks that it still has room to grow.

        As part of an effort to boost revenues, the Cleveland-based banking giant is betting that smaller financial institutions could become customers instead of just rivals.

        The banking company will essentially try to take ATM customers away from the area's other large banks that impose surcharges on small-bank customers who use their ATMs for convenience.

        But Key also could have a hard time cracking the local ATM market. Much of that business is now dominated by Midwest Payment Systems, the data-processing arm of Cincinnati-based Fifth Third Bancorp.

        “They (MPS) were pioneers in getting a lock on much of that business, at least when it comes to processing transactions, so depending on what kind of contracts they have with institutions, it could be tough winning some of that business,” said Bob Bollin, president of Winton Savings & Loan, one of Cincinnati's largest thrifts.

        Key will charge the smaller institutions a fee in return for allowing those institutions' customers free use of Key's ATMs.

        That's also why Greater Cincinnati, with more than 150 small banks, thrifts and credit unions, is among several U.S. cities on KeyCorp's radar screen.

        “We have a substantial ATM network that is under-utilized, and by offering it to smaller entities, that will help us add fee income,” said Dan Neistadt, executive vice president at Key Electronic Services. “Cincinnati is one of the markets where we certainly hope to grow this business.”

        Many of those entities have just a handful of ATMs, with limited ability to expand. They are competing where the city's seven largest banks already dominate the lucrative business of ATM surcharges.

        Moreover, KeyCorp's plan comes after a group of about 15 to 20 smaller financial institutions — formed two years ago to battle the Cincinnati's largest banks' extra ATM fees — quietly disbanded.

        That group offered fee-free ATM use at about 90 ATMs.

        KeyCorp's move could bring a shift in where customers use ATMs attracting them away from the bigger banks' ATMs that impose surcharges. Smaller financial players might even re-examine who handles their ATM transactions, such as Jeanie (owned by Fifth Third Bancorp) and MAC (owned by Concord EFS Inc.)

        Surcharging became a hot issue in 1996 when two of the nation's largest ATM networks lifted bans on the fees The fees are a huge source of income, accounting for $2 billion to $3 billion nationally.

        The extra fees mean that consumers get charged twice for each ATM transaction: once by the bank that owns the ATM and again by the customer's bank for using another bank's ATM. The average surcharge imposed by the city's seven largest banks, which control about 90 percent of the area's more than 1,100 ATMs, is $2, up from about 75 cents four years ago.

        Sheryl White, assistant vice president of Corporate One Federal Credit Union in Columbus, said members of her group's Alliance One unit offer selective-surcharge ATMs in 31 states including the Tristate region. The catch: Many of those entities impose surcharges to non-customers, so those customers could pay at least one fee.

        She said Key's efforts could pose a challenge for operators of ATMs that levy any surcharges.

        Though Key executives would not say how the fee structure will work, industry observers say the bank could reap extra revenue by charging a per-transaction fee and a fee to use the network. Key, which quietly launched the initiative a year ago, has since made deals with nearly 10 financial companies.

        “They mainly will try to boost fee income by trying to increase transaction volume,” said Jeff Green, editor of ATM & Debit News, a Chicago-based trade publication.

        Locally, the Alliance One's network in Greater Cincinnati includes about 38 institutions with selective surcharging at 106 ATMs.

        Fifth Third, Cincinnati's largest bank with Jeanie ATMs in Cincinnati and Northern Kentucky, said it welcomes the competition.

        “We think we're doing a pretty good job of providing highly convenient service with free access for our customers,” Stacie Haas, a Fifth Third spokeswoman, said.

        And executives at Firstar, which operates 192 ATMs locally, said Key's efforts will mean more options for consumers in the local ATM business.

        John Wagner, president of Emery Federal Credit Union in Cincinnati, said many smaller institutions slowly dropped out of the local no-surcharge network because of the chance to boost fee income. Emery Federal Credit Union, also part of the Alliance One network, imposes $1 surcharges for non-customers.

        Mr. Wagner said his credit union would consider joining the Key Bank network because it would give members access to more ATMs.

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