Article

The US IAD business gets a pulse check

Fourth annual report examines challenges, concerns, opportunities and outlook for US independents in the ATM business.

March 14, 2014

Despite myriad challenges — EMV migration, interchange reduction, and fast-changing technology, and more — the majority of IADs in the United States expect their business to grow in 2014.

This upbeat finding comes from the fourth annual IAD survey, co-sponsored by the ATM Industry Association and Kahuna ATM Solutions, and presented by Kahuna president Bryan Bauer at the 15th ATMIA U.S. conference in Orlando last month.

Results are based on an opt-in survey of 92 IADs between Dec. 16, 2013, and Jan. 24, 2014. Issues covered by the survey included:

• legislative issues;
• compliance issues;
• migration to EMV;
• mobile and contactless payments;
• incremental revenue; and
• the future of the IAD business in the United States.

Legislative, compliance and network concerns

"Not surprisingly the survey results showed that IADs are most concerned about EMV migration, reductions in interchange and surcharge restrictions," said David Tente, executive director of the ATMIA U.S. chapter.

Closely mirroring last year's results, EMV migration was cited as the No. 1 concern with 61.9 percent of IADs choosing it as one of their three biggest legislative, compliance, and network fears, worries or concerns regarding the health of the ATM industry.

Reduction in interchange, which was the number one concern for IADs in 2013, came in second with 52.1 percent, followed by surcharge restrictions, at 29.3 percent.

Rounding out the top five responses: governmental changes and interference based on lack of information (27.1 percent); and the impact of the Durbin Amendment (20.6 percent).

EMV migration

With the MasterCard EMV liability shift for U.S. ATMs set for October 2016, the uncertainty surrounding the development of a common debit solution, routing choices and the implications of the Durbin Amendment lawsuit, EMV migration is a major concern for IADs.

"Our clients are very concerned about the financial strain of EMV migration," said Bauer. "Their top concern is the obvious capital investment in upgrading hardware and dispatching service personnel, but the larger, more frustrating variable is the lack of a common debit solution that would negatively impact routing choice."

According to Tente, not much has changed in regard to EMV debit status or the Durbin lawsuit in the last few months. "There was oral testimony in the Federal Reserve Board's Durbin appeal case last month, which seemed to favor the Fed.

As far as adoption of a common debit solution for the U.S., Tente said the three debit solutions that were announced last July remain largely unchanged.

The survey revealed that IADs are anxious to find out more about EMV and what it means for the industry. Of the respondents, 64.8 percent want more information on EMV migration, while 47.8 percent want to know about the upgrade paths for ATMs in the U.S., and 41.3 percent want to know more about the implications of the Visa and MasterCard liability shifts.

The survey indicated that IADs are beginning to embrace the idea of contactless and mobile transactions at the ATM as part of their EMV migration strategy. In 2013, only 14.6 percent of those surveyed said they were developing a contactless and mobile transactions strategy. This year 34.7 percent of IADs said they were interested in contactless transactions.

Asked what they would most like to know about contactless and mobile transactions at the ATM, 46.7 percent of IADs said they wanted to know how contactless transactions and payments could affect the ATM industry; 28.2 percent wanted to know how they could benefit IADs; and 23.9 percent wanted to know what contactless ATM transaction options are available from retail manufacturers.

Interchange reductions, surcharge restrictions

Declining ATM interchange revenue and increasing fees are among the greatest threats to U.S. IADs.

Depending on the region and the data source, average interchange income has declined by 35 to 59 percent since 2004. Kahuna reports a 35 percent decline since 2004, with average interchange income per transaction now at about 29.5 cents per transaction; ATM Data Pro reports a 59 percent decline, with average interchange income per transaction now at about 27.5 cents.

Tente said that IADs fear surcharge restrictions because, for most, it's the only real revenue source tied to the operation of their ATMs. Any new restrictions on surcharge would be an immediate knock-out blow to the successful operation of a certain amount of ATMs, and possibly even some IADs.

Bauer agrees. "It simply doesn't make sense to limit business or consumer activity with any surcharge restrictions. A consumer chooses to use, or not to use, an ATM based on the price of a surcharge already — we don't need government for this. More importantly, a consumer also chooses an ATM based on the value of their time — this is the convenience factor — as well as other factors such as security. Government should not dictate what a consumer's time or security is worth," he said.

Growth amid challenges

Despite their concerns, 32.5 percent percent of the IADs surveyed said they expect their business to grow more this year than last; 11.1 percent said they expect growth equal to last year's; and 6.6 percent said they planned to sell their business or were unsure of their growth strategy for 2014.

Asked how they planned to achieve business growth, 20.3 percent of IADs said they planned to acquire portfolios and 12.5 percent said they planned to align with another business to increase efficiency.

As the market changes, IADs are changing, as well. Rather than rely solely on transaction income, many IADs have added new products and services to their offerings.

According to the survey, the top five new products and services offered by IADs are (in descending order):

• credit card processing;
• advertising and branding packages;
• professional support and managed services;
• surcharge-free network access; and
• deposit automation.

Empowerment through education

Educational topics of greatest interest to survey respondents were (in descending order):

• EMV education;
• the future of ATM interchange;
• contactless ATM transactions;
• branding and advertising at the ATM; and
• increasing bottom-line profitability and reducing transaction expenses.

Tente said that, as they did last year, ATMIA and Kahuna would work to address those needs in 2014.

"Based on the 2013 survey results, [we] jointly developed two white papers and webinars on the top IAD concerns — interchange reductions and EMV. We received a lot of positive feedback from our membership and plan to continue the series based on the 2014 survey results," he said.

Also at the conference, ATMIA officially launched the ATMIA Academy, an industry-endorsed online training and certification program. The academy offers 100 sessions that fall within five categories. Course material is based on intensive global research into current ATM operational practices and procedures.

Read the full survey

A free download of the complete IAD survey report is available at the ATMIA and Kahuna websites. Last year's survey-based white papers — "The Future of ATM Interchange" and "The Long Road to EMV: An In-Depth Look at EMV and How It Will Impact IADs" — are available online, as well.

photo: tandmconnect

Included In This Story

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ATM Industry Association (ATMIA)

The ATM Industry Association, founded in 1997, is a global non-profit trade association with over 10,500 members in 65 countries. The membership base covers the full range of this worldwide industry comprising over 2.2 million installed ATMs.

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