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Posted on the Message Boards of ATMmagazine.com:
I wanted some advise (sic) on ATM placement programs from someone who has invested in a placement program. Example: for each atm, 500 transactions, guarantee 50 cents per transaction, company finds location. Good or bad?

Another message:
Is there anywhere to go for help when you have lost everything due to dishonest ATM distributors? I ended up with 2 useless (manufacturer's name removed) machines in my garage after dealing with one distributor and a threat from his lawyer if I post anything about it on the Web.

I paid him $30,000 for the two machines. Another distributor sold me a machine I have never seen or made a cent from. I paid him $16,600. Neither will take my calls or answer my mail. It's been two years and my $45,000 savings are gone. Can anyone help?
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These messages offer proof that, despite a tightening market, there are still investors who are interested in testing the waters of the ATM business. Or, as seen in the second message, they may be in over their heads already.

Industry insiders say the best advice for a prospective investor -- whether it's a merchant who wants an ATM in his business or an individual who wants an ISO to place machines for him -- is to do a little research, use common sense and trust gut instincts.

While the majority of ATM companies are reputable, there are "bad guys" who harm the industry with shoddy business practices. Speaking at the recent Faulkner & Gray Advanced ATM Conference '99, EFT consultant Alanna Kellogg identified "liars and cheats" as one of the key problems the industry needs to address.

Saul Caprio, director of marketing for Portland, Ore.-based Card Capture Services, which drives about 8,000 ATMs, urges those who aren't familiar with the business to proceed with caution. "You can easily be smoked by somebody if you aren't careful."

Amateur historian Bryan Gray, vice president of Access Cash's Midwest Region, likens the present-day ATM industry to the gold rush in California.

"Everybody and their brother headed out West to stake their fortune in gold. Most of them were unprepared; they didn't realize that it takes time, money and energy to mine gold," Gray says. "Those who were best equipped, with the best machinery and the best people, ended up winning."

That still holds true today, Gray adds. Access Cash, based in Arden Hills, Minn., is one of the country's largest ISOs.

Check 'em out

How can investors avoid hooking up with the wrong company? Doug Falcone, CEO of Access to Money, a Chatham, N.J.-based ISO that drives about 400 machines, sums it up: "Get references, references, references."

Falcone suggests calling leasing companies, ATM manufacturers, processors, banks, money carriers and others who have professional relationships with the company in question. Don't be afraid to ask questions.

Listen for superlatives, says Bob Vanek, ATM manager at Redding, Calif. based Tehama Bank. If you don't hear any, it could mean trouble. "If I don't say anything good about a company, it's probably because I have reservations about them."

Vanek advises visiting an ISO's office, if possible. "Meet them, look at their operations, and make sure you think they're in the business for the long haul," he says.

"You're laying out thousands of dollars, and you sure as heck aren't going to get that return in a year or two. You've got to believe intuitively that the company you're contracting with will be paying your 60th month residual," Gray agrees.

Ken Paull, vice president of sales and marketing for Triton, a Long Beach, Miss.-based manufacturer, says companies like his are "an excellent source" for information. He notes that Triton has established a formal lead generation program for its approximately 75 distributors, requiring them to report on the status of all of their leads.

Word of shady deals tends to travel quickly along the grapevine and back to Triton, Paull says. "We hear right away who has ethical issues. While it's difficult to stop people from selling our equipment, we're certainly not going to direct any business their way."

Falcone thinks programs like Triton's are a step in the right direction, but he'd like to see the industry become "more proactive as opposed to reactive." He says, "Everybody needs to work together to get the industry's credibility back."

The gouge

A common scam is to charge an investor more than what an ATM is worth - sometimes as much as several thousand dollars more. A company may promise monthly revenue from an advertising or other "value-added" program. Instead, the company uses the inflated profit from the machine to, in essence, rebate the customer's own money back to him every month.

Possible result: "A company goes out of business, the leasing company has paid the dealer $12,000 for a $7,000 ATM, and the customer's on the hook for the lease payment for 60 months," Falcone says.

"If you paid 50 percent more for an ATM than you should have, you can't get out of (a deal). You'll lose your shirt," Caprio warns.

It's difficult to determine the exact value of a machine, because the asking price depends on how many ATMs are purchased (with discounts offered for volume buyers) and what services, if any, are included. However, potential investors can get an idea of an acceptable price range by doing some comparison shopping.

"Visit businesses in the community, find out what kind of machine they have and what they paid for it," suggests Don Hayes of ATM Specialties, a St. Petersburg, Fla.-based ISO that drives about 70 ATMs.

The basic cash dispensers that are most popular with independent deployers rarely break the $10,000 barrier. The price will rise, however, with the addition of features like extra cassettes, enhanced security and larger monitors.

Hayes says that leasing companies could help alleviate the problem of overpriced hardware by placing a cap on their finance packages. He notes that at least one company, Ames, Iowa-based AC Financial, has done so.

For investors who plan to lease an ATM, Caprio advises looking at the machine's final cost, not just at monthly payments. Negotiate the price of the unit first, then hammer out a payment schedule.

According to Caprio, about half of CCS clients lease ATMs as opposed to paying cash upfront. The most common lease agreement: 60 months.

Savvy investors should seek out ISOs that seem more interested in residuals -- long-term processing contracts and fee income -- rather than upfront profits. As Hayes, a distributor of Cross Technologies ATMs, points out, "I'd rather deal with the same guy for 10 years."

Service with a smile

Another important consideration is a company's reputation for service. "Find out if they're certified by a manufacturer to work on the equipment," Falcone suggests. "Do they keep parts in stock, and do they have their own service technicians?"

"I wouldn't buy a copy machine from a guy who doesn't work on (ATMs) himself," he adds. "Once the sale is gone, if I call a third party to work on a machine for me, they just don't have the same reason to get there."

Ideally, an ISO will have a 24-hour service desk, Falcone says. "That's the biggest thing. Do people return their phone calls and are they willing to work out any problems with you?"

Caprio has concerns about companies that deal in more than a few different brand names. "As any deployer can tell you, if you're offering 10 pieces of equipment that are largely comparable, it's very difficult to support that as a service organization," he says.

Like Falcone, Caprio stresses the importance of replacement parts. "Service claims are only as good as the parts situation that supports them," he says.

High ball, low ball

Investors should realize that while companies may claim to have sites that generate thousands of transactions a month, the actual numbers are likely to be far lower.

"I don't have sites doing that kind of business. If you get 500 transactions a month, that's a smoking site," says Gray. "Yet that's the low end of most prospectus sheets. I'd cut a prospectus in half."

One caveat: While pumping up the numbers is sometimes a shady sales technique, it's just as likely to be an honest mistake.

"We use probably some of the most sophisticated tools in the industry for predicting transaction volumes at retailers, but at it's not exact. If we get within 20 percent of the prediction, that's a win," Caprio says.

Contrary to what some companies promise, plum locations like shopping malls are rapidly vanishing from the landscape.

"If somebody promises you a mall, they're crazy," Hayes says. "They're mostly owned by big corporations. The individual investor is not going to get a shot at them."

Understanding how revenue is split between an investor and an ISO can be complicated for the uninitiated. Caprio offers a tip: "Ask (an ISO) to list all of the costs and all of the income for you at 200 transactions, 300 transactions, 500 transactions and 700 transactions."

Get it in writing

A contract should address whether underperforming machines can be pulled or relocated, if necessary.

"If you own five machines and one of them is a dog, it can ruin your whole program," Caprio cautions. "Make sure that you, as a private investor, have some way of getting out of a bad location."

Speaking of official documentation, Caprio tells investors to make sure they know what constitutes a breach of contract before they sign on the dotted line. An investor should be able to get out of a deal easily, for instance, if a company is consistently late with the residual checks. Caprio says there's no reason a financially stable ISO can't deliver a check to clients on the same day each month.

"Everything that's been promised to you should be spelled out. That's your way out of an agreement if something goes wrong," he says. "Put it in the original agreement, not an addendum or anything else. It should be typed in, not handwritten."

Caprio thinks individual investors can learn a lesson from CCS's biggest clients, huge retailers like Rite Aid.

"They don't buy on price, they buy on program," he says. "The cheapest is not always the best, and the most expensive may not be either. Sometimes you're better off buying in the middle."









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