As transactions for the acquisition of some of the biggest names in the ATM industry are digested, it's uncertain what will come next as the U.S. economy continues to slow down.
In 2008, TSYS Acquiring Solutions, based in Columbus, Ga., acquired Infonox, a California-based technology firm that specializes in payment technology.
The takeover of Tranax Technologies, based in Hayward, Calif., by Korea-based Eltna Group, appears to be complete.
In Long Beach, Miss., staffers at Triton Systems await Department of Justice approval for the acquisition by Seoul, Korea-based Nautilus Hyosung Inc. And while some industry insiders have speculated about whether the deal will actually go through, Nautilus Hyosung executives say they expect the acquisition to wrap before the close of the first quarter of 2009.
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ATM consolidation
Unlike some mergers in the news, this consolidation in the ATM space seems to be driven by a desire for product growth and market penetration, not defensive posturing.
"The mergers and acquisitions that have taken place in the market in 2008 are probably a combination of defensive and offensive moves — defensive in that they know they need each other to continue to compete and offensive because they are not waiting until profitability starts to decline to make it happen," said Nicole Sturgill, research director of delivery channels for TowerGroup, a Boston-based financial consultancy.
TSYS says it expects to offer to its existing client base Infonox's "plug-and-play" platforms for debit, credit, prepaid, money transfer and checks. Infonox's interface connects multiple payment devices and channels of service delivery such as mobile phones, ATMs and bill-payment kiosks.
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"This is perhaps the first time a major processor like TSYS has executed a strategy to get closer to the end point of the device," said Dr. Safwan Shah, president and chief executive of Infonox. "TYSYS gets the ability to sell new products to their existing distribution."
TYSYS gives Infonox the ability to be a clearinghouse of multiple financial services.
"We now have the ability to push more transaction types to the self-service channel, such as check cashing, loyalty products, bill payment," Shah said. "We were doing all those things, but by merging the two entities, we're able to do it at a much larger scale."
For ATM manufacturer Tranax, becoming an independent operating company of Eltna Group in August 2008 means that it will continue to serve the lower end of the retail ATM market, which is subject to the most intense pricing pressure. As fee income for ISOs declines, the acquisition price for an ATM can make or break the profitability of a location. ISOs will look to Tranax for value-priced machines.
"Off-premise(s) ATMs are designed so that they don't need a lot of transactions to make the economics work," Sturgill said. "But ISOs have to come up with new revenue streams because I don't see how surcharge income can continue as it is."
Bill Dunn, Tranax's vice president of sales, said he expects ISOs and retail ATM buyers to consider value over brand loyalty.
"Among ISOs, brand loyalty doesn't mean a lot. As long as they can get competitive prices on machines, they don't care," he said.
Nautilus Hyosung Inc. expects Department of Justice approval for its acquisition of Triton in mid to late 2009. The merged companies expect to extend their penetration into both the financial-institution and merchant markets.
"One organization might be strong in the off-premise market, and one might be stronger in the on-premise market, and we could use the best of both worlds to push one brand into the financial market a little deeper and the other into the retail side a littler deeper," said James Phillips, Triton's director of North American sales.
However, even with consolidations among current manufacturers, Phillips points out that more options exist for merchants and financial institutions than in the days when Tidel and Triton dominated the retail market. "There will still be more options for merchants and ISOs than they used to have," Phillips said.
The Elan Financial Services unit of U.S. Bank, the lead bank of U.S. Bancorp, has integrated Palm Desert National Bank's Electronic Banking Division. The deal included California-based PDNB's ATM and kiosk-management services, as well as its cash-management and vault-cash operations, which managed nearly $1 billion in vault cash for more than 22,000 ATMs and kiosks in the United States.
Industry watchers expect other providers to take advantage of the changes under way in the dominant force in the industry. Cash Connect, the ATM division of Wilmington Savings Fund Society, has more than $225 million in vault cash circulating in ATMs nationwide, making it one of the largest vault-cash providers in the nation. John Clatworthy, senior vice president of Cash Connect, said he expects ISOs to seek stability and longevity in their cash supplies.
"Anytime there are changes in the industry, that creates opportunity," Clatworthy said. "We're now the longest-standing vault-cash operator, operating for 11 years as part of a 175-year-old bank."
Elan has worked hard to keep customers, introducing its new portfolio of services at a users' conference.
"Customers like the combination of processing and cash services," said Gary Staub, executive vice president strategic initiatives for Elan. "They can work with one group to get two services, and that makes their job easier. The ISOs can put more time into selling."
Staub said the company has begun migrating Elan's customer base to PDNB's Tracker platform, which automates back-room management, from cash forecasting and ordering to reconciliation and settlement.
Hamed Shahbazi, chairman and chief executive of TIO Networks Corp., a former PDNB customer, said the transition to Elan Financial Services has gone well.
"We don't anticipate any degradation in service at all," he said. They've signaled an intent and interest in being in this business, and from our perspective, it's all positive."
Gary Wollenhaupt is a regular contributor to ATM Marketplace. To submit a comment about this article, please e-mail the editor.
