Vendors change direction amid a changing ATM environment
It's 5 p.m. on a Friday afternoon, but the day isn't nearly over for Andy Heyman, president of financial services at NCR Corp. There's one more meeting still on his schedule for later, and right now, he's on the phone talking about NCR's just-completed deal with Blackstone that will add some $820 million to the company's coffers.
The deal has been a long time coming — the company was reportedly in negotiations for months trying to find either a buyer or business partner as part of a strategic process that aimed to equip the company to serve a rapidly — and radically — changing retail banking market.
In a telephone interview, ATM Marketplace asked Heyman about the Blackstone buy-in — and about another major development in the ATM vendor market, the pending business combination between Diebold Inc. andWincor Nixdorf AG.
How does the $820 million investment by Blackstone help NCR meet its strategic goals?
AH: For us, it's a great outcome of the strategic process that we've been through for a number of months ... and to land with a partner with the prestige and with the influence and with the inside connections [of Blackstone] is a positive accomplishment for us.
They really can help us in a variety of ways — and frankly, some things you don't know until you get going — but I'll tell you the areas that we are optimistic about right now:
First of all, they bring global expertise in terms of operational excellence, so if you think about our supply chain, our factories, our Six Sigma programs, things that we've all got a lot of history with within NCR — now we've got a partner by our side with a lot of their best practices out there, with a lot of supplier relationships, so we think it can really help us in terms of efficiencies.
That's point number one. Point number two would be from a talent perspective. ... We're constantly looking at growing and expanding our talent base and Blackstone brings to us great connections, a great network in terms of talent pools. So we're really excited about that on a global front.
And the third thing ... is insights into markets, connections with financial institutions and other retail and hospitality businesses who they have relationships with.
We think we will be able to, at a minimum, gain a lot more insight into our end customers so that we can help add more value to those industries and perhaps get some seats at tables where we can be a greater influence with the industries we serve by working closely with the Blackstone executives.
Simultaneously, we're seeing the business combination of Diebold Inc. and Wincor Nixdorf. What do you see as the implications of this major change?
AH: What our customers are telling us is that they're waiting and seeing. They're a little confused as to whose products and services will win the day within those businesses.
And it also makes some room for perhaps a company not in the big three to come up and there will be a new No. 3 out there, if you will, and so it opens up room for somebody else to make headway there. So, those are the different views of the customers, but I think generally, it's a wait-and-see market.
Any idea who the new No. 3 might be? It seems that Nautilus Hyosung has been gaining some traction in the US market ...
AH: I think when you look at Asia and you look at some of the competitors, whether it be from Japan, China, Korea — there's a variety of different competitors there, and they're certainly the nearest [in size]. There's been a lot of growth there. It's different types of products, some of which have gotten traction in some of the more developed markets like the United States.
And so I think that somebody by mathematical definition will have to become No. 3. And I believe it will have to come from Asia. And there's probably a handful of companies — you mentioned one of them — who will become that. They typically have been marketed well to companies that have been looking for something with lower transaction volumes, lower functionality, more hardware-driven than software-driven kind of solutions.
So we don't believe those types of competitors will eat into our share but they certainly will win a portion of the business as the No. 2 and No. 3 companies in the industry become a single company.
The combined company, Wincor Diebold, will be approximately the size of NCR. Do you see that changing the competitive landscape for you?
AH: There's different ways of measuring the business. The short answer to your question is first, that I have a great deal of respect for both Diebold and Wincor — and second of all, I do not think that it will affect negatively at all our position in the market.
In fact I think it will help us quite a bit because just based on all of the conversations we've been having with our customers, this will be a net positive for NCR in the short and medium term.
And the other thing I'd say is that I think both companies when you put them together will be smaller than NCR, although the financial services pieces of their businesses will add up to just short of $4 billion of revenue ... and we're right around $3.3 to $3.4 billion.
So they'll be larger than us in financial services on the revenue line. But where it's really interesting is on the profit line. And the profit of those two businesses despite them being 20 percent bigger than our financial services business is less than half of the profits of our business.
Why is that?
AH: The reason for that is when we think about the ATM marketplace, it's becoming a real subset of the overall portfolio of what financial institutions are looking for. And as they go through their transformation, they need a lot more software. So we started our reinvention first around the branch and then around enterprise software, both now nine-figure businesses for us.
And the value of those solutions to banks is much higher than a traditional ATM. And so when the value is there, typically the margins are higher in those components. And because of that, our profitability mix is much different than what I'd call the traditional ATM providers out there.
I know you don't do a great deal of business with independent deployers, but how do you see changes at NCR and elsewhere affecting the IAD picture?
AH: We have a couple of substantial partners in that space in each major market around the world, and the story seems to be very similar in every market, and the story goes something like this ... [B]anks are looking for their off-premises fleet for somebody to come in and increasingly help operate those in some form or fashion. And they're typically looking to the independents for that kind of support. ...
It's a bit of a war out there for transaction volumes with the independents and they've got to be highly efficient, highly secure and then come up with better marketing programs.
There are two kinds of independents: the ones that are investing in software that allows them to have fast time to market for new marketing programs to drive traditional transaction counts; and those that are looking to simply earn the hardware and service the hardware.
We think it's going to be a very challenging market for those that are only looking at it from a hardware ownership and efficiency perspective, because we really think the war is going to happen in trying to drive additional transaction counts, and there will be winners and losers in that war.
Companies: Nautilus Hyosung America, Inc.
Suzanne Cluckey / Suzanne’s editorial career has spanned three decades and encompassed all B2B and B2C communications formats. Her award-winning work has appeared in trade and consumer media in the United States and internationally. She is now the editor of ATMmarketplace.com and BlockChainTechNews.com