Article

Saturation, schmaturation, says ISO

Market saturation of cash dispensers in their current form and functionality is inevitable, but as ATMs evolve, saturation will become a non-issue. by Ryan DuBosar, contributing editor

March 10, 2002

Kurt Schusterman, senior vice president for XtraCash ATM, an ISO based in San Diego, sees ATM deployment saturation as an opportunity rather than a hindrance.

The doomsayers may hold signs aloft saying "Saturation is near," but as far as XtraCash is concerned, it means more opportunities.

While market saturation approaches with the new millennium, others say surviving into the next century will depend upon finding new sources of revenue from the ever-dwindling locations for independent ATMs.

John Schappell, a consultant who advises IBM and about 100 private clients on ATM strategies, predicts that cash dispensers can grow for another three to five years before saturation, while full-service ATMs will experience a slower growth rate as they approach their saturation point sooner.

"It's going to be an environment where deployers will compete for good sites," Schappell said. "Many of those are going to be found by the larger deployers, who have the competitive edge over smaller deployers."

Smaller ATM deployers do not have the leverage of the larger ones, who have financing, background and market awareness, he said. Larger companies can deal with an entire retail chain, for example, leaving the smaller deployers scratching in the dirt to place their machines.

According to consultant Del Tonguette, the saturation point is defined by the places where the return on investment justifies placing a unit. Many merchants and locations want an in-store ATM, even though it would be hard to cost-justify.

"The good locations that would be readily cost justified are growing few and far between, but we're not quite there yet," Tonguette said.

"There's a good market for cash dispensers in the replacement market. The real good locations have been spoken for, but there are a lot of places that you can cost justify."

Also, more ATM makers have started operations, and more owners and operators are placing them.

However, fixed consumer demand is spreading out among a growing number of placements, leaving transaction volume in decline at each unit. This inhibits boosting the surcharge rate, which could drive consumers to other sources of cash, such as charging extra money to the debit card while at the grocery, Mr. Schappell said.

XtraCash's Schusterman said that the traditional paradigm is changing, and the saturation point is shifting as a result. Lower cost devices will lower the break-even point for cash dispensers and allow smaller merchants to profit from smaller volumes, and allow ATM makers and deployers to open new markets.

His company is now hiring sales reps and ramping up to provide even more avenues for deployment.


New revenues

Schusterman said deployers basing their earnings on transaction volume will have to find other ways of generating revenue at each box. Stamps and coupons require modifications and extra expense, but coupons can be printed on the existing receipt paper. Advertising will become an important source of revenue, and can be as simple as posting flyers on the unit. On-screen ads can also require more hardware and software, he said.

Tonguette said that most providers today don't offer the services that give them a competitive advantage, and a niche exists for good customer service. Marketing and advertising also offers an advantage.

"You can do an awful lot to help the merchant market the ATM through signs and couponing at the cash register," he said. "If you have good programs to take the merchant, you can place your ATM in there."


High performance

Schusterman said the same saturation predictions were made about the credit card processing business, and those predictions were unfounded.

"If the credit card processing business is remaining healthy, I believe our business will continue to remain healthy," he said. "The long-term keepers, the most successful players, will be those who continue to manage their costs effectively and maintain a low cost structure."

Independent ATM owners will need to bleed every ounce of performance from their deployments, which will require tighter management performances that eliminate down-time and wasted resources.

Such infrastructure supports high-end ATMs but is weak in the cash dispenser market, Schappell said. Without the management support tools, cash dispensers will generate even less revenue in a declining market. Tightening controls can include the value of the money in the ATM, which loses interest if it sits in the machine unused for too long.

Banks and full-service ATMs use computer programs that track the demand for each machine by days of the week, allowing the owner to more carefully install the amount of money that is needed and not much more. The programs can even signal the provider when the cash has dipped too low and needs to be replenished, Schappell said.

"Banks have been working for years to maximize the availability of the ATM and raise it to the highest level of performance," Schappell said. "Those issues haven't been addressed in the cash dispenser market."

Most cash dispensers run as dial-ups and most higher-end ATMs have a leased line that allows banks to monitor them every 10 seconds. Dial-up machines can become fouled and lose revenue for hours, with no indication that anything is wrong. Cash dispensers can run out of money, become clogged, or even be blocked by delivery truck drivers.

Schusterman said that adding value to the machine will provide a way to break through market saturation.

"We have a better advantage than the credit card processing business," he said. "There is more to it than we have thought of yet. Maybe this could become a platform for smart cards, advertising, a coupon dispenser or a stand-alone kiosk."

In other words, market saturation of ATMs in their current form and functionality is inevitable, but as ATMs evolve, saturation will become a non-issue and deployers will merely adapt to changing technology.





>Sources:

• John Schappell can be reached at (704) 847-3518, e-mail jschappell@compuserve.com

• Del Tonguette can be reached at (504) 645-9601, e-mail delt@bellsouth.net.

• Kurt Schusterman, senior vice president sales and marketing of XtraCash ATM, is at phone (888) 712-1600 x1629, fax (619) 712-1617, e-mail kurts@nbacares.com