This year marks the tenth anniversary of a significant milestone in the
growth of the transactions industry. In June 1994, a convenience store
in Diamondhead, Mississippi installed the first bill-dispensing ATM
designed specifically for use in-retail locations, a Triton model 9500.
The transactions world probably did not take any special notice of
this event at the time. Diamondhead is hardly a major business center,
and ATMs had already been around for 25 years, since Chemical Bank
installed the first true magnetic strip card ATM in New York in 1969.
By 1994, there were more than 100,000 ATMs operating in the United
States, virtually all of them owned or operated by banks and credit
unions. That first retail ATM probably seemed like a small drop in a
very large pond.
It would take another two years and a major shift in business policy
for the full impact of the retail ATM to be felt. That shift came in
April 1996 when Cirrus and PLUS, the nation’s two largest ATM networks,
simultaneously lifted long-standing bans on ATM surcharges. The retail
ATM was suddenly transformed from a customer convenience item to a
revenue generator. That transformation, and the events that drove it,
created the ISO industry as we know it today.
According to Tremont Capital Group, there are now nearly 400,000 ATMs
deployed across the United States, almost four times as many as there
were in 1994. Some 179,000 of these units, representing approximately
46 percent of the nation’s ATM fleet, are operated by ISOs. Such a
major shift in the ownership composition of America’s ATM inventory,
coming in so short a time, qualifies as a genuine revolution in the
transaction processing sector.
New Revenues and Lower Costs
Two forces have driven this revolution. The first was the creation of a
reliable revenue stream through surcharging. For a time, there was
considerable political opposition to surcharging, and several states
and municipalities passed laws forbidding the practice. Then, in a
surprising and uncharacteristic turnaround, government decided to let
the people choose whether or not they wanted to pay for the convenience
that the new “off-premise” ATMs offered. The people immediately voted
yes with their dollars, and the revenue side of the economic equation
The second, less visible force was the shift in the fundamental
economics of ATM operation that the new retail ATMs represented. Prior
to 1994, ATMs were simply too expensive, in terms of both acquisition
and operating costs, to permit widespread distributions. The front-end
cost for a single unit was as high as $50,000. Operating these units
required expensive leased phone lines connected to the transaction
processing system on a 24-by-7 basis. Maintaining them and refilling
their cash vaults demanded rigorous preventive maintenance and cash
replenishment protocols. This top-heavy cost structure demanded traffic
volumes of thousands of transactions per month to justify installation
of a single unit, effectively limiting ATMs to high-volume locations
like bank lobbies.
The introduction of the low-cost, low-maintenance, retail ATM in 1994
revolutionized the economics of ATM operation. With purchase prices as
low as $10,000, acquisition costs were reduced to a fraction of their
former levels. Simplified design, increased reliability, and innovative
features such as dial-up connectivity generated significant reductions
in operating costs. The combination of these trends significantly
reduced the total cost of ATM ownership for the retailer.
Low total costs of ownership kept surcharges low enough for customers
to accept. Presented with a dependable stream of surcharge revenues,
the efficient new ISOs found that they could support ATM placements on
volumes as low as 300 transactions a month. (This minimum has since
dropped below 200 transactions a month for inexpensive new models in
some retail settings.)
As a result, ATMs now appear in most convenience stores, supermarkets,
and shopping malls, as well as a multitude of other locations. ISO ATM
Network has even placed ATMs in churches. With wireless technology, the
retail ATM no longer requires a phone line. It can serve almost any
location, even remote national parks, ferry boats and outdoor events.
ISOs and Retailer Options
The most important contributor to this explosive growth has been the
ability of ISOs to create a remarkable range of partnership options for
retailers. Today, retail owners may choose to buy or lease an ATM
through convenient financing packages, or simply provide space to an
independent operator in return for a percentage of revenues. Many have
taken over simple maintenance chores like cash replenishment. For many
ISOs, placement of the off-site ATM is only the first step in creating
broader relationships with these host businesses. They can subsequently
grow the accounts to include preventive maintenance and service
contracts as well as transaction processing agreements. These
comprehensive service packages have made it even easier for busy
retailers to host ATMs.
Multiple Profit Drivers
This flexible new ATM business model has created a broad range of
profit drivers for the retailer. Obviously, retailers make money by
sharing surcharges and exchange fees. Studies by organizations like
MasterCard indicate that ATM users also spend as much as 25 percent
more in the store than non-ATM users.
In addition, ATM manufacturers have collaborated with ISOs to offer an
increasing variety of revenue-generating products that supplement basic
transaction capabilities. The first round of these enhancements
leveraged the dispensing capabilities of the ATM. Retailers found they
could use ATMs with multiple cassettes to vend stamps, transit tickets,
or phone cards. A second round focused on the advertising capabilities
of the device. Retailers discovered they could sell display space on
their ATMs for advertising signage. They could also use the ATM’s
embedded thermal printer to dispense discount or customer loyalty
coupons, a strategy that was particularly successful at fast food
restaurants and convenience stores with food service. Some retailers
and ISO’s programmed terminal display screens to present customized
advertising messages, or added display devices like video “toppers” to
present animated ads and full-motion video commercials.
More recently, value-added financial products such as money transfers,
payroll-check cashing, and prepaid cellular top-up have become
available as methods to add revenue for both distributors and
retailers. For small retailers like convenience store owners, these
ATM-based financial products offer a number of unaccustomed advantages.
A Case Study in Innovation
As the history of the PC suggests, innovation is often a function of
critical mass. The more players we get involved in the game, the more
innovations and applications we are likely to see. Ten years ago, ATMs
were virtually exclusive to financial institutions. The introduction of
the retail ATM brought a host of new players to the game: convenience
store owners, ISOs, fast food franchisees independent transaction
processors, and innovative equipment manufacturers.
While the media focused on the glitz and glitter of the dot.com boom,
these important players in the ATM industry created a quiet revolution
in the world of retailing. They gave small retailers important new ways
to increase direct customer revenues, both by creating surcharge
revenues and also by putting cash into the hands of the customer at the
exact point and time of sale. They created additional revenue streams
through services such as ATM advertising and promotional couponing. In
effect, they created a whole new line of business for small retailers,
who can now offer a variety of financial transactions and products that
were formerly available only through banks. They also created an
entirely new industry sector in the form of the ISO.
I would like to think that we at Triton clearly foresaw all these
outcomes when we installed our first retail ATM model ten years ago.
The truth is we didn’t. Ten years and 100,000 ATMs later, I can
truthfully say that playing a role in creation of a whole new industry
that has created jobs and lucrative businesses for thousands while
simplifying the lives of millions of individuals throughout the world
has exceeded our wildest expectations. I could not let the 10th
anniversary go by without acknowledging the dedication and creativity
of hundreds of ISOs who have partnered with us and the other ATM
manufacturers to truly transform our culture.