Merchant acceptance is critical to ATM growth � but POS-based solutions appear to be winning Off-premise ATMs are the growth engine of the ATM industry (Figure 1), but while ATM shipments and ATM transaction rates continue to grow, the number of transactions per ATM device has dropped steadily since the early 1990's (Figure 2). The long-term decline in transactions per ATM has advanced the belief that the ATM market is reaching saturation. Mercator Advisory Group research indicates that market saturation is occurring, but for reasons that are not exclusively related to ATM deployment.
   Figure 3 shows the rapid growth of EFT transactions that originate at the point-of-sale (POS), and correlates these with the total number of ATM transactions and the number of transactions per ATM (overlaid as a bar chart). This consumer adoption of debit card use at the POS competes head on with off-premise ATM usage. As consumers become more comfortable using debit cards at the point-of-sale, they no longer need to visit the ATM to withdraw cash. As more and more merchants upgrade their POS equipment to accept debit cards, their need to place an ATM on premise to supply cash drops.
   The vast majority of off-premise ATM deployments are delivered too small and medium size merchants. These merchants pay for the ATM on the assumption it will deliver profits from the surcharge fee, transaction fee, and on the up-lift in consumer spending. But merchants are now discovering that similar benefits are achieved, with a much smaller upfront cost, by updating their POS equipment to accept debit cards and to support POS activation (POSA) that is the technology used to activate prepaid card products.
   Over $20.9 Billion prepaid mobile and long distance cards were sold in 2003, and all indications are that this market will grow by up to 20% in 2004. Prepaid mobile and long distance cards are popular with merchants because they sell, require minimal shelf space, have and have low stocking fees. These attributes make prepaid cards very profitable for the merchant. Making this market even more interesting is the fact that AT&T; and CellCards, two national distributors of prepaid cards, have moved aggressively to expand the prepaid products they distribute, adding on-line internet games, mobile ring tones, and even local phone service. For the merchant, every new prepaid solution offered is a new product sales opportunity that leverages the POS upgrade.
   Prepaid cards are nothing but plastic with no value when on display. It isn't until the card is activated at the cash register that the card attains a value. This is why merchants pay little to put prepaid merchandise on display. To sell prepaid cards, merchants must update their POS equipment to support point-of-sale activation (POSA), which will likely demand an investment in the POS equipment. This investment will also likely enable the merchant to deploy loyalty programs if they desire. So merchants now have three reasons to invest in a POS upgrade; debit acceptance increases spending per customer, POSA creates new revenue opportunity through added sales of prepaid cards, and customer loyalty can be enhanced with loyalty programs.
   The market for off-premise ATMs will continue to shrink as consumers and merchants embrace debit cards and new services at the POS. To counteract this, ATM suppliers must rethink their value proposition. Today, most ATM suppliers have focused only on driving profitability for merchants at ever-lower transaction levels, but the ATM will never be able to compete with POS equipment at this game. The cost of accepting debit at the POS is dropping rapidly, and will always cost far less to implement than the ATM suppliers will ever be able to duplicate. But to extend the lead, the upgraded POS device can also enable the merchant to sell new prepaid products by supporting POSA and will almost surely also support gift and loyalty cards.
   Early ATM experiments with coupons, ticketing, advertising, and other new consumer offerings have focused primarily on driving ATM profitability rather than improving the overall value proposition to the merchant. To get merchant funding and floor space ATM suppliers must develop a better value proposition that appeals to the merchant. Momentum today is clearly on the side of the POS suppliers, and to compete, ATM suppliers must rethink the role of the ATM in retail locations. Instead of focusing on ATM profitability, ATM suppliers must determine how to deliver increased value to the merchant, and the key issues every merchant cares about include: how to acquire new customers, increase profitability, and improve loyalty.
   Of course ATM suppliers have long described ATMs as self-service devices that can deliver new products and services, implement loyalty solutions, and perform targeted advertising. But packaging is critically important. ATM suppliers expect the merchants to invest the time and money needed to create these solutions, but this kind of development is not where small and medium sized merchants want to invest. Merchants need loyalty programs, gift cards, prepaid mobile and long distance cards bundled into a single easy to deploy solution. Even better, the loyalty programs and gift cards should align benefits across multiple non-competing merchants, or better yet merchants that offer symbiotic opportunities (DVD gift cards sold at movie theaters) should be pre-packaged and implemented in the advanced function ATM.
   Offering bill payments and P2P transfers, as currently implemented in ATMs, are revenue generation efforts that fail to better align the consumer with the merchant. While these services may drive more ATM transactions and increase profitability, they do not address many of the issues that confront merchants. The merchant's battle is to acquire new customers, retain current customers and improve profitability. ATM solutions providers must solve as many of these issues as possible with the products and services they implement in the ATM.
   For ATM solutions to compete against the point-of-sale device successfully, it must improve the benefits it delivers to merchants, and these benefits should deliver new products, drive customer acquisition, and improve customer loyalty. These are the benefits being introduced at the POS, and until ATMs can deliver these with a self-service twist, they will be hard pressed to win merchant floor space.

Figure 1
Figure 2
Figure 3