Over the past couple decades, perhaps no phenomenon, outside the Internet boom and subsequent bust, has so rocked the U.S. business landscape as the number of company mergers and acquisitions.

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The allure of doing more with less, of gaining market presence while cutting costs, did not escape the attention of the ATM industry. Since the mid-1980s, billions to trillions of dollars in corporate value have been rolled up behind an increasingly smaller number of logos. In the ATM space, those deals have involved more than just financial institutions, independent sales organizations and manufacturers; they also have involved third-party transaction processors.

"It's a scale business. It's commoditized," said Madhavi Mantha, a senior analyst for Celent Communications LLC, a Boston-based financial services consultancy. "The bigger your scale, the lower your cost, so scale definitely offers an advantage."

In short, mergers and acquisitions are allowing independent companies to operate ATMs for less than financial institutions. At the same time, processors can process ATM and payment transactions for less than most FIs and independent sales organizations.

"Back 20 years ago there used to be about 200 processors in the ATM space," Mantha said. "Today that has been cut tenfold."

Not everyone is saying those marriages between processors were made in heaven, nor are there scores now forever holding their peace, wishing they had spoken up when the preacher gave the invitation.

With fewer processors, FIs and ISOs have fewer companies to choose from for service. But as companies have merged, they have combined and added services, allowing FIs and ISOs one-stop access to benefits and services that would otherwise be scattered all over the phone book, if at all.

Services available from transaction processors now may include fraud monitoring, dispatch, cash replenishment, first- and second-line maintenance - even administering ATM advertising campaigns.

What's Important Since the mid-'80s, the number of processors operating in the U.S. has dwindled from 200 to about 20. Processors have become more like one-stop shops, offering a wide range of ATM service as well as overall ATM operation. Some FIs are bringing transaction processing in-house, in an effort to maintain control over their ATM networks.

"The processing world today is extending beyond traditional click processing, where the transaction is simply authorized and settled," said Jan Estep, manager of Minneapolis-based U.S. Bank's processing business, Elan Processing Services.

Elan, typical of the currently dominant processors, expanded its service offerings over the years through acquisitions. In May, Elan's parent company, U.S. Bank, completed its third major acquisition in the processing space when it bought Genpass Technologies (Genpass' sale was no big surprise), increasing the number of ATMs for which it processes transactions to 31,000.

Denver-based First Data Corp., the largest transaction processor in the country, set the precedent for growth through acquisitions. Since it started the Star Network in 1992, it's built its business and service offerings by absorbing smaller processors.

"I do think FIs are looking to processors for more," Estep said. "In the last few years, with increasing and changing ATM regulations, with money-laundering, they want to be sure security mandates are adhered to. I think financial institutions don't think they have the expertise, and they are looking to processors for more (expertise) than they had in the past."

FIs have been wooed by processors like First Data and U.S. Bank because of the multiple services they provide.

But Peter Kulik, EFT product manager for Cincinnati-based Fifth Third Bank Processing Solutions, sees a drawback when it comes to customized service.

"From an end-customer perspective, it might become more difficult with a big organization because you don't have the leverage for unique functionality that you would with a small processor."

That's why some FIs are bringing processing in-house, Mantha said.

"What has happened is that the banks have woken up and said payment, and transaction processing, is one of my core businesses," Mantha said. "They now realize that it is something they want to be focused on."

Mantha, however, is quick to point out that not all FIs share that perspective. Size plays a role. Very small and large FIs will be more likely to bring processing and other operations that affect their ATM networks in-house. Banks and credit unions that fall in the mid-sized range, with between 200 and 5,000 ATMs, on the other hand, are more likely to outsource processing and other ATM operations.

Will the shrinking number of processors force mid-sized FIs and ISOs to settle?

Kevin Gregoire, executive vice president of product development for Brookfield, Wis.-based Fiserv EFT, says no.

"We're in a very competitive market," he said. "I don't think we'll have a market so small where pricing (and services) won't be competitive."

Mike Cowart, director of operations for Atlanta-based RBS Lynk Inc.'s ATM Services division, said the already-present distinction between banking-focused and merchant-focused processors will become more defined. Cowart also expects service offerings among processors, even if only a few dominate the market, to become more specialized.

RBS Lynk, the second-largest transaction processor in the United States (processing transactions for 36,000 ATMs), has focused its business on the retail side, meeting a different set of processing needs than Fiserv and Elan, for example.

"Processors that focus on the retail segment are going to have functionality like Western Union at the ATM and cell-phone top-ups, and those are things that FI processors won't do," Cowart said. "I think there will always be some kind of difference there. Like in any industry, you focus on a particular sector."