Article
Fuel prices spur new ATM strategies
U.S. ATM deployers work to optimize cash and service.
July 21, 2008 by Tracy Kitten — Editor, AMC
Rising fuels costs are taking a toll on U.S. ATM deployers and service providers, yet many remain reluctant to respond to the increasing economic pressures.
In a recent survey conducted by the Financial and Security Products Association, an organization made up of ATM manufacturers and ATM service and sales providers, FSPA found that most of its members have not taken any actionable steps toward dealing with inflating fuel prices.
"Our members say that for contract customers they have not done anything yet, but they know they'll have to do something eventually," said John Vrabec, executive director of FSPA. "The problem is that our members have had contracts with the same customers for multiple years, and fuel surcharging has never been a part of their business model."
Around 17 percent of FSPA's 200 or so ATM sales and service member companies responded to the survey, Vrabec said, and most said they have contracts with financial institutions and independent sales organizations that span three-to-five-year time periods.
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But ATM service providers can start thinking about changing the way they service, Vrabec said. For instance, rather than sending a staff technician out to a site more than 150 or 200 miles away, the service provider could use a remote technician. And limiting the number of replacement parts technicians carry with them on runs also could help cut fuel costs, since reducing the weight and size of the vehicle will have a positive impact.
Portland, Ore.-based Solvport LLC is one ATM-service provider that is making changes along those lines.
Wayne Vandekraak, Solvport's president and chief executive, says Solvport is focusing on getting as many miles for the dollar as it can, by investing in smaller, more fuel-efficient vehicles, relying on fuel-expense-management software, and implementing intelligent dispatching processes that limit the number of miles technicians travel from one site to the next.
"It has forced all of us to work a lot smarter, and overall that is good for the industry," Vandekraak said. "In the last year, we've had to service ATMs more efficiently, by doing things like watching mileage to maximize our routes and reviewing more closely the types of vehicles we buy for our technicians."
Since last year, Solvport's costs have increased 20 percent. Rather than pass those increases on to its contracted customers, Solvport is working to trim expenses.
"A lot of the decisions we've made have depended on what we think our customers' ability to pay is," he said. "For ISOs, the business margins are already so tight there is little room to pass expenses on to them."
Solvport has 2,500 ATMs under contract for service, Vandekraak says.
"Another big change we've made is that we don't lug as much equipment with us. We are relying much more on just-in-time, overnighted parts," he said. "We have 17 vehicles on the road, and we're replacing them with Ford Focuses, which get between 21 and 27 miles per gallon. I'd say we'll probably purchase 10 Ford Focuses over the next year.
"The days of driving a fully loaded van that only gets 12 to 14 miles to the gallon are over."
Mileage has also quickly become an "imperative" part of how Solvport does business.
"Now, instead of having a tech go 70 miles in one direction and then another 75 miles in another direction, we've become more strategic about how we dispatch," Vandekraak said.
Vandekraak also is working to educate his ISO customers about ways they can help keep their servicing costs down.
"We advise, when you're buying a portfolio, that you make sure you have an action plan in place for the ATMs that tend to break down, especially if they are located in areas that are hard to reach," he said. "So you have to have a plan in mind for when you will need to replace those ATMs with more reliable terminals."
In remote locations, ISOs pay about $400 per service call, and that does not include the price of parts and labor, Vandekraak said. Since the average ATM needs to be serviced 1.7 times per year, servicing costs can add up quickly.
"We tell them they should do some site analysis before they place the ATM — just to make sure it's worth putting an ATM in that area. We all have to be more strategic."
In the end, Vandekraak says rising fuel costs are just another industry pressure pushing ISOs to consolidate.
"Like Triple DES was, the fuel prices are making it more and more difficult for ISOs to manage portfolios that are dispersed," he said. "So you either have a company like Cardtronics and PAI, which can manage the cost of large portfolios, or you have the very small regional ISO that keeps his portfolio close to the vest, and doesn't place ATMs 70 miles away from his home office."
From service to cash, new tech on the way
Of the estimated 400,000 to 450,000 ATMs operating in the United States, approximately 30,000 use vault-cash services. For some ATM owners, the expense associated with paying a third-party provider for vault-cash replenishment isn't always worth it.
Nicole Sturgill, delivery-channels research director for Boston-based TowerGroup, a financial-services consultancy, says there's little doubt that U.S. ATM-service and cash providers are getting squeezed.
"I think the rising fuel costs are making a good argument for remote management, where cash management and maintenance are concerned," she said. "I think the cash services will be more impacted than the maintenance service, since banks have to pay for service to ensure their ATMs are up and running."
Sturgill suggests the impact of rising fuel prices will have different effects on ISOs and financial institutions, since most of the merchants ISOs work with supply their own cash for ATM fills. Banks and credits unions, on the other hand, are more likely to lean on technology to enhance cash forecasting and even cash recycling to reduce the number of visits cash-providers such as Loomis and Brinks have to make.
"I think there will be stress on cash services," she said. "With cash costing less and servicing costing more, the banks will probably just put more cash into the ATM when a run is made. And now with remote capture (Check 21), they're already moving in a direction of visiting an ATM less often. So ATMs that they had visited every day to pick up checks are now being visited, maybe, once or twice a week. And the service providers are feeling that reduction now, for sure."
Learning by example
Ultimately, in the ISO space, thinking more entrepreneurially will be the best answer, industry experts say. Where FIs are more likely to sign annual maintenance and cash-management contracts, ISOs will be more likely to sign per-call deals with the service providers they use. ISOs also are more likely to continue leaning on merchants for cash replenishment.
In the FI space, automated deposits and remote-management investments will become more attractive. And many FIs are already using more sophisticated technology that allows them to remotely manage their ATM networks
"It will be interesting to see what happens," Sturgill said. "It really is a convergence of technology — you have all of these pieces that are pushing banks to consider different things, like check imaging and cash recycling — and that's good, because the technology is available. In remote locations, where you don't have a branch and the ATMs aren't really close to anything, you still have to provide ATMs for the people who live there. You can't just take the machines out. So banks will look more to how they can automate processes, and this is a really good time for them to start considering new investments in technology that can help them reduce costs."
U.S. FIs could learn a lot from their European counterparts in this area, since fuel prices in Europe have historically been much higher than those in the United States.
Richard Cummings, a researcher for England-based Retail Banking Research Ltd., also known as RBR, says ATM-service and vault-cash providers in the United States are a bit out of sorts at the moment, since they've never dealt with high fuel prices.
"It was interesting that (U.S.) companies thought that it was not in the traditional American-business psyche to make big allowances for fuel costs, and this is part of the reason why changes have been so hard-hitting on many service companies and ISOs," Cummings said.
In RBR's most recent bulletin, Cummings published a report about rising U.S. fuel prices and the impact increases are having on the ATM-servicing industry. And beyond fuel-surcharging, Cummings says ATM-service providers and cash carriers are looking to European-business practices as well.
"Service companies have been able to take leads from other industries and other countries," he said. "(Some) felt they could take leads from looking at ATM-servicing models in Europe, as the situation regarding fuel prices is far more comparable now."
Solvport's Vandekraak agrees, saying the use of smaller, more fuel-efficient vehicles and shorter-distance service runs has been the norm for ATM servicers in Europe for a number of years.
"In Britain, that's always been the case — using smaller vehicles rather than vans and trucks loaded with equipment," he said. "In the U.S., our average tech travels 52,000 miles per year. That kind of mileage would be unheard of in Europe. In Europe, they're probably traveling about 30 percent of that."
From an enhanced functionality perspective, Sturgill says U.S. FIs in particular are more likely to look at the benefits certain Western European markets and Japan have seen with cash-management solutions that include cash recycling.
"You can make a good business case now for cash recycling at the ATM," Sturgill said. "The business case hasn't been here in the past, but now we can look at examples in Western Europe and Japan where it has worked very well. And it's technology that banks are familiar with. Teller cash recyclers are definitely gaining traction now, so the next logical step is to recycle at the ATM, too."
