Picture this...you take your car to the auto garage for a simple service and after they ask you, "how has it been running?" and you reply, "I've had no problems at all," they say they want to run some diagnostics, pull the fuel tank off to inspect a gasket, and remove the manifold to make sure it isn't cracked. None of it is complimentary, but instead rather costly and it will take all day.

A consumer who agrees to move forward in this scenario would not make a wise investment of their time or money. If you have time and money to burn, it would be great to know your car is in tip-top shape; but on the other hand you could save the money and use it toward your next car or invest those dollars.

As ATM business owners, we are forced to similarly choose how we will invest our time and money, and we often fall prey to countless activities and distractions which waste our precious resources.

In our industry, it is extremely common and easy to spend resources studying and analyzing interchange, for example. Many organizations jump right into transaction detail and think they will find a mistake that will pay off in tens of thousands of dollars in savings. While this has happened occasionally, it is definitely not the norm. Furthermore, when one independent ATM deployer brings a mistake to a processor's attention you can certainly bet it is fixed on all accounts moving forward.

Analyzing transactions, interchange

We are asked by clients frequently if we can help them analyze transactions and/or interchange detail. In my opinion, analyzing interchange should be compared to herding cats. I don't have first-hand experience herding cats, but I do have some experience analyzing transaction and interchange detail. If done correctly, analyzing transactions can provide nice safeguards with minimal ongoing expense. Maybe this is where my analogy of herding cats breaks down...is there ever a need to herd cats?

On the other hand, transaction analysis can be a dark abyss where time and money are thrown with fruitless return. With this in mind, what do we tell our clients to better position them and keep their focus in the money?

Looking at numbers globally

Our internal processes involve looking at numbers more globally and holistically. We look at total net interchange divided by total transactions. This allows us to set a benchmark and track historical trends from month to month, and from processor to processor. If you are large enough to work with multiple processors this strategy works out very nicely.

Comparing processors

Drilling down on individual networks and comparing them across processor lines is something we used to do more of, but candidly, it nearly always provided little to no return on investment. The bigger picture to me is not whether Processor A gateways a connection to a network or networks. Gatewaying can be effective for a processor if it helps them streamline and focus on better ways to add value to their clients. In the end what is your total net interchange per total transaction and what are your total expenses to support those transactions?

What does your processor do on both sides of this equation (i.e. net interchange per total transaction-to-value added services to keep your support expenses down)? This ratio is where you win or lose.

Dos and don'ts

To provide a bigger picture, here are some dos and don'ts for analyzing transactions:

Do: Establish a monthly benchmark for your total net interchange per total transaction summary ratio. Analyze it monthly.

Don't: Aimlessly look at transaction detail in an effort to "catch" your processor doing something wrong...otherwise, congratulations...you might find a penny or two.

Do: Be prepared to drill down into transaction detail if necessary (i.e. if your total net interchange per total transaction ratio is out of whack based on trends), but keep in mind the dollar value you are chasing based on your volume.

Don't: Consider your actual cost per total transaction from the processor as an end-all, be-all. Instead, combine this with other expenses you have to support your transactions to get a total net expense per transaction.

Do: Look at your total net interchange per total transaction directly from the processor and your net expense ratio on a regular basis (you can call it your triple net ratio).

Do: Focus on continued improvement of your triple net ratio.

In this game of analyzing transactions, volume is a huge factor. For example, a mega-IAD can make a legitimate business case to employ a transaction analyst, where a smaller IAD really cannot. If a smaller IAD spends limited resources simply tracking the monthly summaries mentioned above and uses the majority of their resources selling, they will find it's a much better use of their time and resources.

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