STRATEGIC PARTNERS
Didn't get to attend the recent Advanced ATM Conference '99 in Chicago? Here's some of what you missed from the keynote address.by Ann All, editor
March 11, 2002
Alanna Kellogg, president of the Kellogg Group and chairperson of Faulkner & Gray's Advanced ATM Conference '99 in Chicago, finds three things to like about today's ATM industry.
Speaking to the movers, shakers and just-glad-to-be-heres in attendance at the conference Oct. 14-15, she lauded the industry's new players, "increasingly innovative" partnerships and focus on hardware simplification.
Yet Kellogg, who is leaving the Kellogg Group to become vice president of marketing for a software provider called PaylinX, had a longer list of concerns.
What's not to like?
Noting that the closed, proprietary systems of networks and processors are "unnecessarily complex," she described an instance where she tried -- unsuccessfully -- to work with a processor to facilitate software distribution to a network of machines. Six years later, she discovered a friend of hers was wrangling with the very same problem.
Kellogg asked, "How can anyone be innovative with a six-year delivery time frame?"
Opining that she'd like to see more flexibility and simplicity in EFT systems and architecture, she said, "The ATM world is crying out for an infrastructure overhaul."
Another of Kellogg's concerns: ownership fragmentation. "There is no critical mass," she said, pointing out that the country's top five ATM deployers possess only about a 25 percent to 30 percent share of the market.
Compare that to many other industries, where it's common for one or two companies to enjoy near-total domination and leave everyone else scrambling for single-digit market shares.
And, she commented, "We have way too many companies touching an ATM to get it up and running."
It may take a village to raise a child, but why does it take so many people to deploy an ATM? Manufacturers, networks, processors, ISOs, distributors, cash replenishment companies and service companies are all part of the deployment picture. And the more people are involved, the more the cost goes up.
Also on Kellogg's hit list: faulty financial models, not knowing enough about customers and less-than-ethical companies which create "a real credibility issue" for the ATM industry.
Following Kellogg, Card Capture Services Vice President of Sales Jay Halverson gave the keynote address in place of CCS President and CEO David Grano, who was absent because his wife was about to give birth.
Same old, same old
While Halverson touched on some of the same points as Kellogg, his biggest beef with the industry is its reliance on an old -- albeit successful to this point -- business model: build inexpensive boxes and put them in as many locations as possible.
Noting that ATMs have become "so common they're practically invisible," Halverson said that flattening growth curves could easily become declining growth curves if the industry doesn't choose to revitalize itself.
He urged the ATM industry to look to the Internet for answers. Comparing the demographics, he said that 75 percent of ATM users are between the "magic" ages of 18 and 34 and 50 percent of Internet users are in the same group.
The ATM offers two distinct advantages over the Internet, Halverson added. First, even though computer use continues to grow rapidly, not everyone has a PC. "It's still a long way from ubiquitous, especially in less affluent segments of the market," he said.
Also, the ATM is a faster and more reliable distribution point than the Internet. While consumers can order event tickets from Ticketmaster in only a few seconds online, they have to rely on the US Postal Service for delivery. An ATM with an extra cassette or, better yet, a thermal printer can immediately deliver the tickets.
From a merchant's point of view, the ATM "occupies a strategic piece of real estate that has a built-in customer base," Halverson said. "ATMs represent an already established customer access and delivery network that their customers know, trust and use."
Most ATMs are already equipped to become "Internet access points." Noting the proliferation of PC-based machines, Halverson said, "ATMs are essentially as intelligent as we're willing to make them."
Also, he added, it won't be hard to convince consumers and merchants of the benefits of ATM/Internet technology. "They will adopt new technologies quickly, as long as there's something tangible in it for them."
Turning an ATM into an Internet access point gives consumers more convenience, with the added benefit of transaction security. And merchants will get more foot traffic and more customer spending, as well as the ability to offer a much wider range of products and services.
We are the enemy
So what's the holdup? According to Halverson, the ATM industry is holding itself back.
Some companies are complacent, only seeing rising revenues while ignoring the declining rate of growth. "Complacency is coasting, and the only way to coast is downhill," he said.
Then there's the reliance on that proven business model of "building cheaper boxes and putting them in as many places as possible."
There are only two ways to make money in the ATM business: by cutting hardware costs or increasing transaction volume. With low-end machines available for as little as $3,000, hardware prices may have bottomed out. To pump up volume, the industry will have to offer its consumers something new.
"There is an inherent downward limit to hardware cost reduction," Halverson said, "but there is no inherent upward limit to transaction volume."
Harkening back to Kellogg's remarks, Halverson agreed with her assessment of a fragmented industry. He predicted a new wave of alliances, partnerships, acquisitions and mergers. "It's time to do more complementing than we do competing," he said. "If we don't do it, somebody else -- like AOL -- will."
Seven-step program
Halverson presented seven steps for change:
• Stop thinking about selling the lowest-price boxes; start thinking about selling the highest-value boxes.That means offering more functionality, for more varied transactions.
• Pay attention to your customer base.Merchants who were early adopters of ATM technology will be the early adopters of ATM/Internet technology as well. "They know a winning idea when they see one," Halverson said.
• Pay attention to the demographics of your users."They are exactly the same people who are becoming Internet literate," he pointed out.
• Start increasing functionality and adding value now.According to Halverson, increasing efforts to offer paid advertising with each transaction will get customers used to the idea of a multi-functional ATM. Apparently, the rest of the industry agrees with this one. Every machine on display in the exhibit hall showed some form of advertising functionality, from low-tech toppers to full-motion video.
• Begin educating consumers.Convince them to see ATMs as an easy way to access products and services, not just cash.
• Work to change manufacturing standards."Some of the manufacturers and processors who have worked so well with us in the past are with us here today, and I know will be with us as we go forward," Halverson said.
• Be willing to change the way you think.Especially about your relationship to other companies in the industry, he said. "Your strongest competitors may also be your strongest potential strategic allies."
While the ATM industry may have been founded on the idea that "you can make money by making it easier to get money," Halverson said there's a new formula for long-term success: "Tomorrow, this industry will make money by making it easier for people to spend their money."
