STRATEGIC PARTNERS
After two years of aggressive deployment, Philadelphia-based Credit Card Center became the biggest ISO in the U.S. in 1999. CCC also attracted its share of controversy, with detractors accusing the company of questionable sales tactics and poor management. Yet a high-profile deal with NCR may help strengthen CCC even more and silence some of its critics.
After two years of aggressive deployment, Philadelphia-based Credit Card Center became the biggest ISO in the U.S. in 1999. CCC also attracted its share of controversy, with detractors accusing the company of questionable sales tactics and poor management.
Yet a high-profile deal with NCR may help strengthen CCC even more and silence some of its critics.
According to the 2001 EFT Databook published by Bank Network News, CCC had 9,700 machines or 4 percent of the installed base of retail ATMs. That puts them ahead of such traditionally strong players as Card Capture Services (now E*TRADE Access), Access Cash and Hanco.
CCC's network has expanded to 11,000 machines and the company is filling about 1,500 orders a month, said CEO Andy Kallok, whose goal is to sell 50,000 machines over the next three-and-a-half years.
CCC has 70 offices across the U.S., with 650 full-time employees and another 900 independent sales representatives. Kallok intends to open another dozen or so offices in the next year, primarily in the West and Midwest. All the more amazing when one considers that he started the company in 1996 with just one employee – himself.
He runs the business from a 40,000-square-foot warehouse in Philadelphia, an operation that employs 160, including some who refurbish machines at the company's own on-site shop. The refurb shop, a rarity among ISOs, is one illustration of Kallok's business philosophy.
"It's not magic. It's just different from everybody else," he said.
However, some contend that CCC's rapid growth has come at the expense of its retail customers. Merchants pay leases of upwards of $250 a month, ultimately paying $12,000 or more for ATMs that wholesale for about $6,000. CCC guarantees they will receive a portion of the payment back by agreeing to run advertisements on their machines, although critics say there is often no advertising and merchants must meet certain transaction levels to get the monthly rebates.
Other deployers say they are approached by former CCC clients who don't have enough traffic to maintain their ATMs and are at risk of defaulting on their 60-month leases. "(CCC) salesmen make so much off the units, they don't care where they put them. If it never produces any reoccurring revenue, they still make a good margin on the box," said the marketing director of a large West Coast ISO.
Kallok acknowledged that CCC's business model is based on earning a large upfront profit on hardware. "We sell at a higher price, but we take away the headaches," he said, explaining that CCC picks up the tab for processing, supplies, service and maintenance.
According to Kallok, customers understand that they pay a premium for the hardware in exchange for receiving certain services and reducing their risk.
"(A customer) can pay $2,400 up front, or pay it later when the dispenser goes out and needs to be replaced," he said. "When's the last time anybody complained at McDonald's when they had to pay two bucks for a Quarter Pounder? You can go to the store, get the stuff and make six of them for that."
The generous margins allow CCC to offer unusually high commissions, which has enabled the company to build a large sales force in record time. It also generates capital that is poured back into the business. "If you rely on transaction revenue, you can't grow as quickly," Kallok said, noting that he's "not afraid of overhead" and that "nobody has the number of offices and employees that we do."
Some other ISOs believe that CCC's sales pitch, which is being adopted by a growing number of "wannabes," is aggravating a number of problems within the industry, including an exodus of leasing companies from the ATM business.
Not true, said Richard Kallok, CCC's operations director. The company's default rate hovers around 3 percent, he said, and CCC sometimes even pays merchants for under-performing machines in danger of default and resells them.
Too big, too fast?
Don Foreman, an independent sales representative working out of the Houston office for the past six months, believes that CCC's biggest strength – its size – is also its biggest weakness. The company has focused almost exclusively on sales, he said, while making little effort to establish an effective infrastructure.
The lure of a sales commission that is three to four times the typical going rate at other ISOs attracts all kinds of potential salespeople, and CCC makes little effort to screen them, Foreman added.
"When I've gone to sales meetings, these are not guys I would hire. In the end, it's all about your character. How you prospect and close is important, but if you don't do it right you won't get referrals," he said. "Half of what the regional managers do is put out fires caused by low-lifes that shouldn't be on the payroll."
Turnover is high, Foreman said, noting that he was one of the senior sales rep at his office after only three months.
Judy Mangini, a three-year CCC veteran based in Philadelphia, agreed that an inconsistent sales force is one of CCC's most stubborn problems. "Their major strength is the 25 percent of the sales force that cares; their major weakness is the other 75 percent," she said. "It's frustrating for those who are trying when you don't get cooperation from the ones who aren't."
Acrimony between reps is another problem, Mangini said, fostered by a lack of clear-cut sales territories and ultra-competitive corporate culture. "CCC is my biggest competition. I go in and tell a client they can have the machine for $269 a month, then one of our guys goes in behind me and offers it for $249 a month and throws in free phone line installation. Ask me how many times that's happened to me."
Foreman said communication is poor between the corporate office and the regionals. He has been trying to solve a problem with a customer's lease agreement for several months. After several unsuccessful attempts to resolve it with regional manager, he sent a letter to the corporate office – but he has yet to receive a response.
"Pennsylvania is trying to control 700 sales guys, and they're relying on these 70 managers as their focal point for communication. It seems like they're trying to manage the sheep without taking a hard look at the shepherds," he said. "In my experience, (the regional manager) is only in his position because he made enough sales. What if he's one of the guys who said whatever he had to say and signed whatever he had to get signed to put in a machine? Where does that leave you?"
There have been growing pains, Andy Kallok admitted, with certain regional offices experiencing an undue amount of friction between management and sales staff. "It's hard to run a $180 million company and not have problems," he said, "but nobody is allowed to work here who doesn't at least try to do the right thing."
A little help
With an infusion of capital from its new partner, Dayton, Ohio-based manufacturer NCR, Richard Kallok said that CCC is committed to addressing any quality control and infrastructure problems. "We've developed these markets, and now we're going to make sure they're serviced properly."
Foreman has already noticed signs of a positive change, most notably a new and more professional manager in his region. "After two hours with this guy, I knew more about the product I was selling than I did after two months of asking questions and trying to get trained," he said.
NCR, which over the past two to three years has struggled to establish an effective distribution channel to crack the retail marketplace, recently inked a deal in which it became CCC's "preferred provider" of ATMs and software. CCC committed to selling 50,000 NCR machines in the next three-and-a-half years -- primarily the EasyPoint 55 (formerly the MCD) and the newly-introduced EasyPoint 53.
The NCR agreement unseated Houston-based Tidel Engineering as CCC's primary supplier. Fueled by rumors that CCC accounted for 40 percent to 60 percent of Tidel's business last year, industry tongues have been wagging about the impact on Tidel's bottom line. But Richard Kallok said that the addition of NCR won't necessarily mean a big reduction in business for Tidel, as CCC intends to buy units from both companies.
CCC has also been experimenting with advanced-function, check-cashing terminals manufactured by the Korean company Synkey. CCC has installed a number of the machines for the Philadelphia-based United Check Cashing chain, which has 100 franchisees in 12 states.
NCR decided to work with CCC after "matching our strengths with their challenges" and vice versa, said Pat Cronin, senior vice president of NCR's Financial Solutions division. He tapped CCC's aggressiveness in entering new markets, coupled with an ability to offer a packaged solution to customers, as its biggest strength.
"They put people on the ground and make very attractive offers to get new customers. They don't just offer somebody a piece of technology; they offer them the service, the media and advertising support – they make it simple," he said.
It's not uncommon for NCR to offer financial assistance to its partners, Cronin added. "Given the size of the CCC arrangement, we gave them access to probably more capital than we would for others."
In addition to capital, Cronin said NCR is offering "help across the board, from marketing to finance to human resources support to real estate logistics."
One area in which NCR can assist CCC is international expansion. After opening an office in Seattle, CCC is looking to expand a limited presence in Canada. The company is also moving into Europe.
"Where it makes sense for (Kallok's) business model and where his business model will be successful, we will help introduce (CCC) into those marketplaces and expect him to be very successful," Cronin said.
"We have the utmost confidence that Andy can run his business without us, but we believe that with us he can run it better."
