STRATEGIC PARTNERS
Looking for a better, more cost-effective way of running your ATM network? Consider joining the crowd and getting someone else to do it for you. by Ann All, editor
February 21, 2002
Outsourcing all or part of their ATM operations is an increasingly popular option for banks looking to expand their reach into out-of-the-way locations. "The nature of the off-premise network really dictates that you outsource just about everything," said Chris Klein, senior vice president of ATM systems for BankAtlantic.
Fort Lauderdale, Fla.-based BankAtlantic has 800 ATMs in Florida, Georgia and Alabama, and on cruise ships around the world. Klein admits his far-flung network would look totally different if he didn't outsource. "If those services didn't exist, we couldn't even be 65 miles from here."
At the 70 ATMs located at BankAtlantic branches, Klein said the bank does its own cash replenishment, balancing and first-line maintenance but outsources everything else. It's possible to outsource just about every aspect of an ATM business, including cash replenishment, switch maintenance, remote monitoring and transaction processing.
Klein said outsourcing became crucial to the success of the bank's ATM program when off-site ATMs were first deployed at a Florida Wal-Mart in 1994.
Peter Bendor-Samuel, president and CEO of the Everest Group, a Dallas-based consulting company, said banks often choose to outsource ATM operations because it's not a "core" business to them. "You never outsource something that's core, but you can outsource something that's important, maybe even strategic."
ATM management consultant John Schappell, president of Charlotte, N.C.-based Schappell and Associates, agreed with Bendor-Samuel. "A lot of banks are asking am I in the business of running an ATM network or am I in the business of banking," Schappell said.
It's the money, stupid
Bendor-Samuel said outsourcing can help small and mid-size financial institutions compete more effectively with banking monoliths like BankAmerica and Citibank. "If you're going to compete against them, you've got to find a way to get economy of scale. That's what outsourcing does for you."
While it's just starting to pick up momentum in some industries, outsourcing has been common in the ATM industry for years. It's all about saving money, Bendor-Samuel said. "It has a strong foothold in the ATM industry because of the significant costs associated with monitoring ATMs and processing transactions."
Schappell said there's been a virtual explosion of outsourcing in recent years because of the booming off-site market. A bank can't constantly monitor the dial-up cash dispensers usually deployed at remote locations, and it's too expensive to send staff there to deal with problems.
Hiring an ISO or other third-party outsourcer can help make those problems go away. "There are people out there who can do those things better and they can do them cheaper," Schappell said.
Minneapolis-based ISO Access Cash has deployed more than 6,000 ATMs. So Access Cash can run a network for less than a bank, said national sales coordinator Brandon Almich. "Our only business is the ATM business. When you get into volumes like that, the economies of scale start to make sense."
Results of a 1998 Dove Associates survey indicate an ISO can operate an off-premises ATM for about $600 a month, compared to over $1,000 for a bank.
One-stop ATM management
Almich said ISOs like his company have existing relationships with retailers who may not want to purchase ATMs themselves but still want to be involved in the ATM business. ISOs function almost like a matchmaker for those retailers and banks.
"We have retailers who are looking for ATMs and banks who want off-site locations. Access Cash is in the middle," Almich said. "We get the two sides together and marry them."
Klein, of BankAtlantic, prefers the one-stop-shop approach to outsourcing he gets with an ISO. "The more vendors you have out there, the more complicated your management process gets," he explained. "They may have three or four different relationships, but I just have one."
Klein said it's important to monitor service, particularly in a program like BankAtlantic's that includes branded ATMs. "You've got to be concerned with the quality of the product you're delivering out there, especially when it's got your name all over it."
If a problem arises, Klein thinks meeting directly with an outsourcer is the best way to solve it. "They need to be kept aware of where their weaknesses are," he said. "A lot of times they may not see a problem unless a customer raises a flag."
ISOs like Access Cash maintain outsourcing relationships of their own. With 33,000 ATMs being switched through EPS, Almich pointed out it doesn't make sense for Access Cash to set up a switch. "Why reinvent the wheel when other people have systems in place that you can get on a more cost-effective basis?"
Almich said ISOs are adept at overseeing relationships with retailers, processors and others in the ATM business. "We've done it over and over. It's almost like a cookie cutter approach for us."
Playing with the big boys
Not all ISOs have the resources and expertise to deal effectively with banks. Most ISOs work only with retailers, although larger companies like Access Cash and Card Capture Services are forging successful deals with banks.
"All a retailer wants to know is 'Can I surcharge?' and 'Does it work?' Banks are under the scrutiny of the FDIC. They need to know exactly what's happening at their ATMs," Almich said.
Schappell encourages anyone who is considering outsourcing to weigh all the alternatives, thinking through their strategy and developing criteria before even evaluating possible candidates. While outsourcing may be the best option for a small or mid-size financial institution, he isn't as convinced it will work for a large bank.
"It makes more sense to outsource if you're a small fish in the big pond," Schappell said. "I'm pretty much convinced the big guys will suffer if they outsource, if they're doing a reasonably good job now. They'll suffer from a customer service, availability and revenue point of view."
Sources:
Brandon Almich is national sales coordinator for
Access Cash
Peter Bendor-Samuel is president and CEO of the Everest Group and managing editor of infoserver.com, an online magazine about outsourcing.
Chris Klein is senior vice president of ATM systems for BankAtlantic
John Schappell is president of Schappell and Associates.
jschapell@compuserve.com
