ADA. EFTA. EMV. PCI DSS. It's an alphabet soup of mandates, rules, regulations and migrations. And for a financial institution, it's frequently a headache and a distraction.
This was the case for River City Federal Credit Union, a San Antonio, Texas-based FI with $155 million in assets. The credit union had an aging fleet of ATMs and an ADA deadline on the horizon. Seven of 10 machines weren't upgradeable, leaving no option but replacement.
Like all CUs, River City had a fixed asset limit imposed by the National Credit Union Administration. Historically, this hadn't been a problem, but because of a downward revision of the limit, River City was tapped out. And the seven machines it had to replace were also fully depreciated.
"I couldn't go out and buy seven ATMs because I was restricted as to what I could invest in fixed assets," said River City Federal Credit Union President and CEO Kim Heinze. "So this was absolutely perfect for this credit union."
A two-fold solution
"This" was the works — ADA-compliant ATMs and managed services from Absolute ATM Services Inc.
Houston-based Absolute was founded in 1999 by Troy LeBlanc, who is now president of the company. A service technician by training, LeBlanc saw the need for a third-party service provider that catered to credit unions and community banks.
The managed services side of the business developed out of LeBlanc's desire to create his own fleet of ATMs. Like a lot of IADs, he found that good locations were getting hard to find.
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"We were able to take our existing relationships with customers and work with them into [an] outsourcing model," LeBlanc said. "And it was two-fold. It enabled us to come up with more locations when locations were dwindling down and it also enabled our customers a different opportunity to provide ATMs to their customers without the capital costs and without the day-to-day management of it. Which gave them more time to focus in on what they do."
Getting back to business
The managed services model met River City's needs perfectly, Heinze said. With 70 employees, eight branches and 15,500 members to serve, focus on the core business was paramount.
"I would rather IT and operations support our staff and our members, not have to go out and support an ATM," said Heinze. "We had teller staff that would actually meet the armoured car service on our off-premise locations. [They] would have to leave the branch to go and meet the armored car service to load the offsite machine. I mean, talk about inefficient use of people."
And importantly, the decision to turn its fleet over to Absolute last September ensured that Heinze would have a fully compliant ATM fleet come March 15 of 2012.
"I didn't want to be fighting [a situation] like the Walmart Black Friday sale," she said. "Compliance has always been important to our organization and I didn't see how it was going to get it done if we didn't do something right away."
Absolute figured the current book value of the River City fleet, purchased back the machines (the three newest were actually refurbs that Absolute had previously sold to the CU), upgraded the ones they could and pulled and replaced the rest. All of this was figured into the contract with River City.
A win for everyone
The outsourcing agreement is turnkey, including machines and installation, acquiring and processing, cash replenishment, and of course, service. Absolute sets a monthly charge per ATM, then deducts the fees generated by the terminal from the CU's monthly invoice. If the fees fall short of the monthly service charge River City writes a check to Absolute. If they go over, Absolute writes the check to River City.
Heinze likes the arrangement. "Three of those [ATMs] are absolutely going above and beyond the break-even point," she said. "The fourth one is right at the breaking point. So half of our machines, roughly, are either breaking even or are on the plus side."
There's the customer service angle, too. Because Absolute maintains end-to-end control of the fleet, it's easier for them to stay on top of maintenance, LeBlanc said. "In the past, if our customers elected to go with one of the other processors, we did not have access to that processor's system for direct dispatch or direct monitoring. But now, having the whole thing in house, we can quickly get resolution of what the problem may be."
Then there's the compliance angle. River City has shifted its ADA and Reg-E liability to a company that deals with these mandates daily. And when the MasterCard liability shift for Maestro EMV transactions takes effect next April, that will fall on Absolute too, since they do the acquiring for River City.
Ensuring compliance, enabling growth
Absolute VP of Sales Alicia Lowry is already fielding questions from customers about EMV migration. "I wouldn't say it's like a panic topic yet, but it certainly is coming. I'm hearing more and more and getting some questions about 'Do the ATMs come with EMV?'"
LeBlanc said he's ready to convert the 280 or so machines in the company's managed services program. "If it's certified and available to us to do it, we'll have it done."
Lastly, there's growth potential that outsourcing affords River City. A local university has approached the CU about installing ATMs on campus. Heinze can consider the request because working with Absolute would eliminate upfront costs for hardware.
Absolute is working with another credit union to install ATMs at the University of Texas football complex and sports area. "They're a very large credit union; they still have another 50 of their own machines that they do internally, and they saw value with us doing all of their special events and offsite locations," said LeBlanc. "So we've got this program working from a $10 million credit union with one ATM all the way up to probably a $600 million credit union with 17 or 18 machines. There's no [size] bias — it's what works for them."
For more on this topic, visit the outsourcing research center.