Cover Story

  Windows O


f Opportunity


ISOs and ATMs

Team Together For Profits

by Phil Britt

With plenty of untapped sites and merchants trying to squeeze all of the revenue they can out of each location, now may be the time for ISOs to add to their profits by selling off-premise automated teller machines.


    ATMs, which debuted more than 20 years ago, were once the domain of financial institutions using them as night and remote location tellers. That all changed a little more than five years ago, when lawmakers allowed surcharges for transactions ó meaning a person withdrawing $50 would pay an additional surcharge (typically $1.50 to $2.50) to the ATM owner, as well as a fee to his bank for the use of the "foreign" (not owned by his bank) ATM. The fee to the bank, which differs from financial institution to financial institution, covers bank expenses.
    The surcharges have withstood numerous consumer complaints and challenges to leave significant opportunities for ISOs, particularly those who move quickly, to sell ATMs to the owners of machine-less locations.
   Truly "cash machines," many of these units are designed only to disburse cash, not to accept deposits. Others can do both and may even have some other features, but financial industry studies show that the main use of ATMs is still for consumers to obtain cash when and where they need it.
   The main advantage for ISOs and ATM owners alike is revenue. Though the opportunity is there now, ISOs that want to profit from it need to move soon, says Joseph Vu, President of Universal ATM, Sacramento, CA. "The amount of prime space is shrinking rapidly," Vu says.
   Among the prime areas for ATM machines are convenience stores, gas stations, casinos and any other place with good foot traffic where a consumer may want access to cash. Many of those already have cash machines, though with ownership changes and new retail start-ups, there are still numerous untapped potential ATM sites.
   Even though she agrees that many of the prime locations are already gone, Samantha Guthrie, President of Automated ATM Solutions, Pleasant Hill, CA., says there are still plenty of untapped sites for ATMs. In addition to the new owners of existing businesses and new business owners, there are numerous merchants who have no experience with ATMs, Guthrie said. For example, an owner of several malls recently contacted her company about placing an ATM in one of his locations as a trial. It worked out so well that now heís also planning to place ATMs in his other locations.
   There are other business owners in similar situations ó they donít know the benefits of ATMs and were approached about ATM placement when the machines were much more expensive. These merchants donít realize how affordable ATMs have become, or donít understand the relative benefits of ATMs vis-ŗ-vis POS terminals.
   Many of the new and potential locations for ATMs, such as hotels, malls, nightclubs, etc., have POS terminals and provide customers with cash along with other services. But any cash-back transaction through a POS terminal costs the merchant money, Guthrie explains. In contrast, each transaction at an ATM machine generates cash from the surcharges.
   Another reason that Vu forecasts that the window of opportunity will close quickly is that he expects to see consolidation in the industry in the next few years, meaning fewer manufacturers of and higher prices for, the machines themselves. Higher prices would push many potential customers out of the market. If consolidation does lead to increasing ATM prices, that would be a reversal from the last few years, which have seen sharp price declines.
   Those price declines have led to better opportunities for ISOs to generate revenue from ATMs. ATM revenues come from a few different areas. On average, an ISO pays about $4,000 for an ATM, down sharply from about $8,000 only a few years ago. ISOs then sell the ATMs to merchants or to third party companies that lease ATM space from merchants for $5,000 to $6,000, Vu says. At $5,000 to $6,000, thereís a much higher demand for the machines than at above $8,000, the previous cost of the machines to ISOs. Other merchants may prefer to lease the machines, generating a monthly revenue stream for the ISO.
   ATM owners like the machines because they generate significant income from each transaction. Universal ATM, for example, gets 55 cents for each transaction in fees, but in most instances, the owner keeps all of the surcharges. Vu added that there are several different ways the deal can be structured, depending on an ISOís own business model.
   ATM owners may also be willing to pay the ISO to service the machine because he may not want to go through the trouble of filling the cash every night, providing the ISO with yet another residual income opportunity. If the ISO structures the deal properly, he can outsource the cash maintenance to an armored car or other similar company and still earn a profit.
   Another possibility is a cashless ATM unit, which are among the types that Universal ATM provides. Rather than dispensing cash, these units print coupons good for use in the merchantís location. This enables the merchant to save on any cash-filling expenses, while still generating revenue from the machine. Other Universal ATM units dispense prepaid phone cards as well as cash.
   Thereís an additional opportunity for the merchant that is occasionally overlooked. According to Guthrie, industry studies show that 3 to 5 percent of a storeís daily customers will use an ATM. Studies also show that the national average withdrawal is $40, with about one quarter of all withdrawals spent at the same location. Therefore, the merchant generates not only surcharge income, but also additional revenue for the non-ATM portion of his business.
   "We explain to merchants that they canít lose; itís just basic math," Guthrie said.