The world of ATM manufacturing, particularly in the low-end retail space, is beginning to resemble an elevator in a high-rise office building.

Though it's already crowded, it seems as if one more is always trying to squeeze on. Yet no one seems certain if the elevator is headed up or down.

According to the June issue of the Nilson Report, a trade publication that produces an annual list of ATM shipment numbers, eight manufacturers shipped 24,281 retail cash dispensers in 2001, down 31 percent from 2000 shipments.   The overwhelming majority of the machines -- 20,673 of them -- were manufactured by Triton Systems, Tranax Technologies and Tidel Technologies, three companies so dominant that they are widely known as "the three Ts."

Despite the seemingly crowded market, characterized in the past few years by an intensely competitive environment and margins narrowed by falling prices, there is no shortage of new entrants.

Like the retail deployment business, ATM manufacturing -- at least on a small scale -- does not have a high barrier to entry. Many of the players use the same components, with a limited number of OEM companies supplying items like card readers, printers and dispensers.

Several ISOs have gotten into manufacturing as a way to boost their bread-and-butter processing and service revenues. In some cases, they have developed products that were not available through the more traditional manufacturers.

Midwest Bancard: Going for the niche

Brad Zerman, president of Chicago-based Midwest Bancard Corporation, said his company, which had deployed ATMs for three years, began manufacturing its own ATM last October to meet the special needs of the check-cashing outlets which were some of Midwest Bancard's best customers. Ultra-conscious of security, the outlets wanted an inexpensive through-the-wall ATM that could be accessed entirely from the rear.

The MBC1031

Check cashers are "very paranoid" about security, Zerman said, and for good reason. "It's not just the money in the machine. If they go out into the lobby, they're taking a chance that someone could put a gun to their head and say 'take me to all the money in the back.'"

At first, Midwest Bancard purchased a product called the MicroTouch 2001 from the now-defunct manufacturer Sterling Technologies. Though it was designed to be a front-load countertop machine, Midwest Bancard made some modifications, including adding a screen and keypad inside of the machine that allowed all management functions to be performed from the rear.

After a dispute with Sterling, followed by that company going out of business in 2001, Zerman said his company evaluated the other options in the marketplace, found them lacking and decided to make its own ATM. "We were confident that we could sell 100 to 200 machines a year with our existing customer base. We were getting reorders from them every month," he said.

In a scaled-down version of the eFunds business model, Midwest Bancard also hopes to increase its processing business through machine sales, Zerman said. To help convince potential distributors to utilize the company's processing services, its MBC1031 ATM -- which carries a wholesale price in the $4,000 range -- is priced lower if purchased with a processing contract included.

The company established a distributor program three months ago following the certification of the MBC1031 by EFTLogix, Core Data Resources and Concord EFS. Zerman said he'd like to recruit a dozen distributors to sell the machine to help meet his goal of deploying 1,000 of the units in the next three years.

Midwest Bancard created the MBC1031 using a component kit it purchased from Hurst, Texas-based manufacturer Greenlink Technologies (GTI). Greenlink CEO Charlie East helped Midwest Bancard tweak the design for the machine, Zerman said.

In fact, Greenlink liked the idea of a retail-oriented through-the-wall ATM so much it began producing its own version, the TTW 1000. The two machines share many features, although the MBC machine has a built-in frame that Zerman said makes it one of the easiest through-the-wall machines to install, a front panel with a built-in, backlit ATM sign and a slightly different keypad layout. A weatherized model allows for exterior installations.

Greenlink purchases the stainless-steel cabinets for its machines, which are manufactured in Chicago, from Midwest Bancard. Because of the companies' close relationship, Zerman said there is room for both ATMs in the marketplace.

"If someone is just buying hardware, it doesn't matter to me whether they come to me or to Greenlink. Either way, they make money off the components and we make money off the cabinets," Zerman said. "In a tough business, I think two companies can be better than one."

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While the design process took more than a year, Zerman found setting up a manufacturing operation was not that difficult. MBC added 600 square feet to its existing 2,200-square-foot office and used its own service technicians for assembly, bringing in students from a local technical college when it needed extra manpower.

Finding a steel fabricator to produce cabinets to his specifications was probably the toughest part, Zerman said, largely because of his requirement for a ¼-inch thick rear door. After interviewing more than 20 candidates, Zerman found a fabricator that will produce a run of 100-200 units and -- a bonus -- store them at its facility so that Midwest Bancard can maintain a small "just in time" inventory.

MBC has sold some 200 of its machines since October, most of them through its direct sales force. The company owns and operates 25 of them. It is already working on its next model, a drive-up model with a kiosk enclosure. Zerman said the company also has plans for a two-cassette version of the MBC1031.

Small companies like his are more responsive to the retail market than the "Ts," Zerman believes. "We're innovative because we have to be to survive," he said.

WRG Services: Learn by doing

Mike Stevenson, president of Euclid, Ohio based WRG Services, developed an appreciation for the reliability of ATMs powered by a point-of-sale device when it sold such machines manufactured by Ft. Walton, Fla.-based Moneytree and the now-defunct TBS First. WRG was also the exclusive distributor for the NCR 5301, a short-lived POS-based terminal.

The Vision 100

Stevenson's general manager, Jason Kuhn, and software developer Oliver Winter encouraged him to make his own machine after NCR discontinued the 5301 in 2000. While Stevenson was initially skeptical, he changed his opinion after realizing that his service technicians had become experts in POS-based ATMs through their experiences with the other machines. And Kuhn and Winter did much of the legwork in recruiting manufacturing partners, including POS terminal supplier Hypercom.

"Before we ever started making them, we knew how they ran, knew how to make them go and how to keep them running," Stevenson said. "I was reluctant to commit the time and money to the project because I didn't know anything about building a cabinet or getting a plastic fascia, but Jason and Oliver did all of the investigating. I just had to write the checks."

Initially WRG produced a reworked version of the 5301 called the Fast Cash, adding a De La Rue dispenser and Mas-Hamilton electronic lock, repositioning the power supply to keep heat off of the electronics and substituting a steel topper to replace the original plastic one.

Stevenson said the Fast Cash "is built like a tank" and thus is popular with distributors with locations at "really rough places" such as certain clubs and bars. "Sometimes we pull the machines out of these places and they have footprints all over them, but they're still running," he said.

Encouraged by the reception the Fast Cash received from its 50 or so distributors, WRG then introduced the Vision 100, a higher-function, more attractive ATM. While the Fast Cash was a "simple stretch" for WRG, Stevenson said, the design process for the Vision 100 was far more involved -- and continues today.

"It's a work in progress. We're constantly learning and adjusting to meet the needs of the market," he said, citing that flexibility as one of WRG's strengths.

Another strength, he said, is the ubiquity of the components used by WRG. "If a modem or a power strip goes bad in an NCR machine, you have to go to NCR to replace it. If a power strip in a Vision goes bad, you can go to Radio Shack to replace it."

Stevenson said the margins are "fair" on WRG's ATMs, which carry wholesale price tags in the mid-$3,000 range. But the machine sales have helped drive the company's revenues in areas like service and installation. "One really helps the other," he said, noting that WRG offers a 24-hour turnaround on repairs of components used in the Fast Cash and the Vision.

According to the Nilson Report, WRG shipped 387 machines in 2001, up from 250 in 2000. Stevenson said the company expects to shatter that number in 2002, having shipped 475 units in the first four months of the year. WRG is also expanding into foreign markets, including Vietnam, Cambodia and Russia.

He credits the international expansion to his company's relationship with Hypercom, which supplies the POS terminal used in the Vision. "We're piggybacking on Hypercom's distribution channel. They're a truly international company, with a physical presence in many parts of the world," Stevenson said.

Nextran: Another Korean contender

While WRG and the larger U.S. manufacturers are looking to enter new countries as a way to cope with eroding domestic sales, at least one foreign manufacturer -- South Korea's Chungho ComNet -- believes there is still significant market share up for grabs in the U.S. Chungho has set up a partially-owned subsidiary, Hackensack, N.J.-based Nextran, to market its machines in the U.S.

Tony Park, president of Nextran, said Chungho had been evaluating the U.S. market since 1999. The company was at least partially inspired by the success of Tranax Technologies, which has shipped approximately 30,000 units since entering the U.S. market in 1998. Tranax is a business partner of Korean manufacturer Hyosung Computer.

The Nextran ComNet 2000

Tony Park and his brother, Eric, were the owners of Money Marketing Inc., an ISO with about 2,600 ATMs under contract which at one time was Tranax's biggest U.S. distributor. The brothers are moving into new offices and phasing themselves out of the Money Marketing business, Tony Park said.

"We don't want to have any perceived competition with potential distributors," he said. "If there's ever any conflict between a Money Marketing rep and another distributor's rep, (Money Marketing) will give up the deal."

Park said that Chungho opted to take its time introducing its products -- which include a line of machines ranging from the low end to a high end unit similar to NCR's Vcom kiosk deployed by 7-Eleven -- to the U.S. Core Data certified the ComNet 4000 ATM more than a year ago, and Money Marketing then tested approximately 50 machines at beta sites in the New York City area.

The product was tweaked, Park said, with the machine's color changed from white to black, its original printer switched to an Epson and a round topper substituted for the original square one to address overheating issues. Additional RAM and other features were also added to the software.

Park claims that about 500 ComNet 2000 ATMs have been sold in the past year, 100 of them by Money Marketing and the remaining 400 by four other distributors "who do not want to disclose their names at this time," he said. According to the Nilson Report, Chungho shipped 176 ATMs to the U.S. in 2001.

Park said that all Chungho machines are PC-based and include standard features such as a color screen, electronic lock and 56K modem -- features which are normally options on similarly-priced retail ATMs.

The ComNet 2000, which runs on a Windows CE operating system, includes the aforementioned features for a wholesale price in the $3,000 range, Park said. The ComNet 3000 adds a 12-inch color touchscreen and second cassette for a wholesale price in the $5,000 range.

Nextran wants to recruit more distributors but hopes to limit its sales channel to about 30 ISOs. The idea is to give each distributor an exclusive territory, Park said, and help them build a strong service organization to support the ATMs.

Such a system would solve several issues, he said, including the vexing problem of sub-ISOs who grow so much that they eventually surpass their supplier and go direct with a manufacturer -- generally creating hard feelings all around.

Nextran also plans to impose minimum pricing levels for its ISOs in an attempt to keep them from undercutting each other and to help maintain higher profit margins, Park said. "The idea is not for them to sell these machines at a cheap price but for them to make money."

"We're not necessarily looking for quick revenue, but we want a strong relationship with our distributors," Park said. "We're taking it slowly because we didn't want to come in with no service organization and no parts. We want to be ready."

Universal ATM Network: Mangled by margins

The entry of companies like Nextran, which boast large manufacturing operations and ample funding, will make it hard on the little guys, said Joe Vu, president of Sacramento, Calif.-based Universal ATM Network. Vu was not able to sustain his small ATM manufacturing business after Tranax's 1998 entry into the market.

"That's when the price wars started," Vu said, referring to Tranax's introduction of its Mini-Bank 1000, followed by Tidel and Triton introducing lower-priced versions of their flagship ATM lines.

"It was no longer cost effective (to manufacture machines)," Vu said. "If I was making a margin of $300 to $500, I was doing real good. Every other phone call from my distributors was a grind on the price."

Hyosung Computer supplies the components for Tranax ATMs, which are then assembled at Tranax headquarters in Fremont, Calif. Vu said both Tranax and Nextran enjoy an advantage because the wages paid to Korean workers are lower than salaries in the U.S. "The biggest cost of producing a machine was the labor," he said. "The cost of the components was maybe 40 percent and the rest was labor."

While Vu still manufactures scrip terminals, he is now focusing on a card issuing business and on selling Tranax ATMs, both areas he finds more profitable than manufacturing. "If you can't beat them, join them," he said.