Diebold banks on ATM service

Diebold banks on ATM service
Tags: Bank / Credit Union, Consulting, Diebold, Incorporated, Full Service / Turnkey Provider, Kiosks/Self-Service, Manufacturers, NCR Financial Solutions, North America, Other, Public Companies, Security, Trends / Statistics, Wincor Nixdorf International
May 5, 2008

ROSEMONT, Ill. — It was a hushed, but engaging scene in the conference room of the Hyatt Regency O'Hare just outside of Chicago. Along the walls of the room — two floors beneath the ground level of the massive and elaborately decked-out hotel — were a series of exhibits. In one corner, a Diebold Inc. representative quietly demonstrated an Opteva ATM's check-imaging feature to a group of attentive onlookers.

Greg Steffy was looking on, too. He had seen several of these small groups ushered through the exhibits at Diebold's Integrated Services Symposium this afternoon, all in the same hushed atmosphere and all of them by appointment.

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Trusted Security Solutions, Inc Developer of the A98 ATM Initial Key Establishment System and provider of secure financial transaction processing solutions for ATMs and POS devices.

Already, roughly 140 companies had been ushered through symposiums like this. These groups were made up of representatives from various financial institutions — prospective clients — and this was Steffy's chance to show them what Diebold could do.

But less than half of the exhibits consisted of ATMs. The others were digital displays and laptops showing various interfaces for software that handles ATM functions such as advertising management, security, software-upgrades and systems diagnostics. It seemed like a lot of extra window dressing for a company focused primarily on selling ATMs.

But Steffy doesn't fit the mold of a "conventional" ATM salesman. As the senior director of services at Diebold, he's not interested in just selling another ATM. He wants to provide the turnkey package: cash management, service, maintenance and security. And it's his job — and the role of the symposium — to persuade FIs that Diebold can do just that, Steffy says.

A service-based economy?

Greg Steffy

Steffy freely admits that companies like Diebold can't solely rely on income from ATM sales. Today's market just won't allow it.

"Market forces are going to force the price (of ATMs) down because demand is falling and supply is growing," he said. "If you only look at that one little piece of the delivery channel, it's going to be hard for ATM manufacturers to stay afloat."

It's an honest admission.

In recent years, the ATM industry has been feeling the heat of a saturated market and Diebold is not immune.

Last year, the ATM manufacturer agreed to revise its financial statements and its practice of recognizing certain revenue on a "bill and hold" basis after discussions between external auditors, the company's auditing committee and the Office of the Chief Accountant of the Securities and Exchange Commission. (Read these related stories: Diebold announces delay in 2007 annual-report filing; Diebold resolves revenue-recognition methods, wraps talks with OCA; and SEC investigation into Diebold's financial reporting continues. )

And just days ago, Diebold announced that it would be eliminating two of its four Opteva-production plants as part of a $100 million cost-cutting strategy.

But Steffy expects Diebold to tap a fresh revenue source. By becoming a provider of turnkey ATM-management services, as opposed to just the ATMs themselves, Steffy says Diebold can "jump the curve" and get a leg up on its competitors, many of which he says also will become more service-oriented.

"If we do that right and have enough value in the integration, then we can command some margin that we would not otherwise have obtained," Steffy said. "And now all of a sudden we have pushed our revenue opportunity to a new kind of sphere."

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â€˜A service offering'

Diebold Integrated Services is the branding umbrella used to describe Diebold's renewed emphasis on turnkey ATM services. It's not technically a division, like Diebold Premier Services, Steffy says, but giving the offering a branded name is part of Diebold's overall service strategy.

"It's really a solutions methodology — a solutions set — at Diebold," Steffy said. "It's a service offering that capitalizes on lots of different departments within the company to bring a full set of solutions to the customer."

The goal of Integrated Services is to convince FIs to transfer responsibility for certain ATM-management services – such as cash management and ATM maintenance — to Diebold. When a customer needs a service, Diebold develops the infrastructure necessary to provide it.

In essence, it's outsourcing. But Steffy winces at the mention of that word.

"It sounds like â€˜off-shoring,' which means my job is going to India or someplace like that," Steffy said.

It's an inaccurate mental picture, he said, because banks and credit unions won't be farming out their ATM fleets to a company overseas, or to an inexperienced startup in the United States.

"They always see our service guys, because not only are we doing the ATMs, but we're doing the alarm systems, the cameras, the vault, the vault door, the pneumatic system, the drive-up, the after-hour depository — there's a lot of Diebold going on at the banks and credit unions," he said. "They trust us, and when they trust us, it's easier for us to expand up the solution curve."

The strategy may not sound so unique to some. After all, competitors such as Dayton, Ohio-based NCR Corp. and Germany's Wincor-Nixdorf International also both cater to bankers and offer similar turnkey services to their customers.

But Steffy insists Diebold's turnkey offering stands apart, calling it a "complete, end-to-end solution."

"We have a proven set of integrated solutions that goes through all the major elements of a self-service channel, including the hardware, software, maintenance, remote monitoring, content distribution, cash handling, currency management, patch management, transaction processing, debit-card programs, and ongoing program management that involves a single point of contact for the customer," he said.

Growing demand

Steffy says his company first recognized a need for service-outsourcing in 2000, when banks in Brazil inquired about streamlining all of their ATM processes through Diebold. That stood in stark contrast, he said, to the way U.S. FIs structured their ATM channels at the time.

"One guy will do the processing," he said. "Another guy will issue the cards. One guy will fix it. Another guy will build the machine. That's the way we do it here."

But recently, Steffy has seen a growing demand for the same streamlining of services in the United States — attributable, in part, to more complex ATM functionalities enabled by the Windows OS, regulatory issues (such as EMV and Triple DES compliance) and a tightening economy.

He said the last factor, in particular, is weighing heavily on the minds of bankers.

"They're looking under every stone for cost reduction," he said. "Cash-flow position and their available capital to spend have changed. It's a different market than it was a year ago. Institutions are looking for alternative solutions, financially."

Even some "mega-institutions" have inquired about Diebold's ability to shoulder some of the cost-burden of their ATM channels.

"They never would have said that a year ago," Steffy said. "That's a big change."

Marilyn Kilcrease is the president of Temecula, Calif.-based Creative Card Solutions. With 25 years of experience in the banking industry, Kilcrease says she finds Diebold's emphasis on service-based solutions for FIs intriguing.

"I can see where a bank might be looking at some of their more unprofitable areas and outsourcing it, so it's probably a good idea," she said. "I think that any time that you can cover more than one area for a bank, it's going to be a good idea."

But, she says, Diebold will likely have a hard time doing it, since FIs are slow to change the way they do business.

Don't tell that to Steffy. Diebold has already held symposiums in Dublin, Calif., Sturbridge, Mass., and Chicago. And because of increased interest, Steffy says, plans are in the works to hold symposiums in 10 other cities, including Memphis, Tenn., Arlington, Va., Tucson, Ariz., St. Louis, Miami and Houston.

"I think that we're in that position where we're pioneering right now and we're pushing the market," Steffy said.