Article

Trade association files anti-trust complaint against Diebold

The Financial & Security Products Association has filed an anti-trust complaint against Diebold, contending that the manufacturer is trying to gain an unfair edge in winning banks' business by restricting the ability of independent service providers to perform diagnostics on its ATMs.

October 18, 2004

A trade association representing third-party ATM service and maintenance companies and related suppliers of financial and security equipment has filed an anti-trust complaint againstDiebold, contending that the manufacturer is trying to gain an unfair edge in winning banks' business by restricting the ability of independent service providers to perform diagnostics on its machines.

The complaint -- filed by the Financial & Security Products Association (F&SPA) in U.S. District Court in San Francisco -- states that Diebold has instituted policy changes "that maintain and extend its monopoly position in the markets for service associated with the maintenance of Diebold ATMs in the U.S."

The complaint asks the court for a preliminary and permanent injunction preventing Diebold from enforcing any policy restricting third-party maintenance companies, including the more than 300 members of F&SPA, from purchasing any spare parts or licensing diagnostic software tools from Diebold.

The complaint also asks the court to rescind Diebold policies that give the company an unfair advantage by requiring that only Diebold technicians perform hardware or software installations on Diebold ATMs.

Second-line service sidelined

Kevin McLaughlin, president of Advent Associates, a Hanover, Md.-based ATM sales and service company and F&SPA member, said that software in all of Diebold's new Opteva ATMs incorporates the use of a password that restricts access to tools necessary to diagnose second-line service issues such as malfunctioning card readers.

"We cannot effectively service the equipment unless we have full access to these diagnostic tools," McLaughlin said.

According to a Diebold statement, its parts policy provides for the sales of parts directly to customers, under license. A customer may then select the service provider of its choice to install the parts. This policy applies to the Opteva line of ATMs.

As part of its software licensing package, Diebold provides its customers with standard service diagnostics. The customer may choose to have the service provider of its choice use these diagnostics. Again, the policy applies to Opteva machines.

However, according to the statement, Diebold's service organization has "invested significant financial and intellectual resources in developing advanced diagnostic tools for its Opteva line." Those advanced tools are only available to Diebold service personnel.

Ted Josephson, vice president of Direct Banking and Operations for Connecticut-based People's Bank, said he was considering ordering some Opteva ATMs. But he became concerned after learning that only Diebold technicians would have access to software tools used to diagnose serious second-line service problems.

"I basically had to tell Diebold that even though I like their equipment and would seriously consider buying from them, their servicing arrangements have left me concerned that it might not be worth the switch," Josephson said.

In the past, said John Vrabec, F&SPA's executive director, customers purchasing Diebold ATMs and wishing to use a third-party service provider signed a so-called "hold harmless" agreement. Such agreements guaranteed that their chosen providers would have access to the parts, firmware and diagnostic tools needed to provide service equivalent to that provided by Diebold technicians.

UnlikeNCRand other ATM manufacturers, which provide service for their equipment through designated third-party providers in addition to their own service technicians, Diebold does not partner with any outside ATM service providers.

Triple DES twist

Particularly worrisome, said Vrabec, is Diebold's requirement that only its own technicians be allowed to perform Triple DES upgrades, which include installation of the password-protected software. "Introducing these policies at the same time as the Triple DES mandate leaves their customers with no options."

"When customers purchased Diebold ATMs in the past, they were making an informed decision," agreed McLaughlin. "That's no longer the case. If my company has a maintenance agreement with a bank, and Diebold comes in and installs the EPP (encrypting PIN pad) and software for a Triple DES upgrade, I won't be able to service those machines any longer."

According to the Diebold statement, ISO and Visa security procedures require manufacturers to track the sale of EPPs to the end user. However, according to the statement, "EPPs compatible with Diebold ATMs are available from any number of manufacturers."

Vrabec said that F&SPA contacted Diebold in August in an attempt to resolve the issue, but "did not receive a satisfactory response."

Possible market impact

Vrabec estimates that more than 60 percent of the installed base of bank-owned ATMs is comprised of Diebold machines, and that Diebold commands at least 90 percent of the parts and service market for them.

"This lack of competition is leading to higher prices and lower-quality service in the ATM maintenance market," he said. "If this is not corrected, the independent companies selling and servicing financial security equipment will begin to be severely affected, which, in turn, will cause higher ATM servicing fees for financial institutions and other ATM owners."

Vrabec, who has been in the financial equipment industry for 31 years, said independent providers' rates are generally 25 percent to 33 percent lower than manufacturers' rates for ATM service.

Also worrisome, said Vrabec, is Diebold's increasing share of the financial equipment market. Diebold purchased the assets of Mosler, Incorporated, a provider of integrated security systems and related services, when that company filed for bankruptcy in 2001. Mosler had purchased LeFebure, a provider of vaults and other security products, in 1998.

McLaughlin, whose company also provides service for pneumatic tubes, security systems and other financial equipment, believes that Diebold may try to inhibit third-party providers from servicing those products as well.

According to F&SPA's legal counsel, Ronald Katz of Monett, Phelps & Phillips LLP of Palo Alto, Calif., Diebold must respond to F&SPA's complaint within 20 days; then the discovery process will begin.

Barring a settlement, Katz said the complaint will likely go to trial in 12 to 18 months.

"Free market competition benefits all parties in the financial services industry and ensures that ATM owners of all sizes will continue to have freedom of choice regarding service and installation," Vrabec said. "We are trying to keep the market open and competitive. A level playing field will benefit not only financial institutions and service companies, but free enterprise as a whole."

According to the Diebold statement: "Our goal is to understand our customers' priorities and develop solutions that will have the greatest positive impact on their businesses. Diebold has always supported, and will continue to support, self-provided service and third-party maintenance of our ATMs."

Included In This Story

---

Diebold Nixdorf

As a global technology leader and innovative services provider, Diebold Nixdorf delivers the solutions that enable financial institutions to improve efficiencies, protect assets and better serve consumers.

Request Info

Learn More