The ATM world is in for a seismic shift ... Are you ready?
by Daryl Cornell, CEO, Triton Systems
In what looks like a unique confluence of events, seismic changes in the ATM landscapes of Australia and the U.K. — and the ongoing EMV upheaval in the U.S. — will likely mean a tectonic shift in the global retail ATM industry.
As with most industry earthquakes, these changes have largely blindsided participants, who have been principally focused on other threats such as the death of cash, the rise of "tap-and-go" and mobile payments, and the challenges associated with the adoption of polymer currencies in the U.K. and Australia.
The Australian elimination of direct charge by the four largest banks caught virtually everyone by surprise. In late September, reportedly in an attempt to burnish their soiled reputations, Commonwealth, Westpac, National Australia and ANZ Banks agreed to eliminate ATM charges for all users.
This means that customers can now choose free transactions at the ATMs of any of Australia's four largest banks — now effectively a 10,000-ATM surcharge-free network. The stark alternative for customers is to pay an AU$2–$3 surcharge (US$1.53–2.30) at one of 22,000 white label ATMs in Australia.
Caught in the crosshairs of this unexpected bank decision are independent ATM deployers, many of whose business models were based on ATM convenience at a cash withdrawal cost comparable to that of a bank.
Most surcharging ATMs located in clubs, remote locations or temporary event venues will emerge unscathed. It is the surcharging ATMs located in the vicinity of any of those 10,000 free bank ATMs that are now heavily at risk.
In the U.K., a Link network plan to slash interchange by 20 percent will mean major changes in the ATM landscape. While not yet finalized, the recent proposal supported by the Link board (read: the banks), will reduce the interchange paid to ATM acquirers for ATM withdrawals from 25 pence to 20 pence (33 cents to 26 cents) over four years, beginning in 2018.
Note that this plan comes on the heels of a U.K. Finance estimate that cash use across the country decreased 11 percent between 2015 and 2016, and a Link report that the number of U.K. ATMs increased from 65,000 to 70,000 (including 55,000 free-to-use machines) in the last three years.
Link is already scrambling to reassure regulators that the inevitable contraction of free-to-use ATMs won't be at the expense of the underbanked and economically distressed or rural areas. In the end, the banks almost certainly will be strong-armed into subsidizing many uneconomical sites. Meanwhile U.K. IADs are scrambling to figure out which of their free-to-use sites will be viable at 20 percent less interchange in an environment of reduced cash use.
The U.S. migration to EMV at the ATM, accomplished via chargeback coercion, will almost certainly mean severe merchant and IAD pain. Almost 30 days after the final ATM EMV deadline, anecdotal evidence suggests that the tide of chargebacks is already rising.
Merchants and IADs who have thus far resisted upgrade to EMV will likely be stung financially and risk the disconnection of non-EMV ATMs. After the dust settles, the U.S. may see a contraction of up to 30 percent in its 450,000 ATMs.
While the U.S. migration to EMV is not a surprise, many of the ATM market changes coming to Australia and the U.K. are also on their way to the U.S. and could catch IADs unprepared.
Given the magnitude of these market distortions, IADs must quickly adapt. It's probably not an exaggeration to say that, for some IADs, the very viability of their business model is at stake. Implications for IADs in Australia, the U.K. and the U.S. are likely to be as follows:
A renaissance of surcharging ATMs
Over the past decade, IADs in the U.K. and Australia have increasingly moved to the free-to-use ATM model, relying heavily on strong transaction volume and interchange to drive profitability. Other IADs have hitched their wagons to the bank outsource model, creating vast, free-to-use networks, subsidized by the banks themselves.
In a world of drastically reduced interchange (U.K.) and bank-sponsored free-to-use networks (Australia), these business models may be at best strained and at worst no longer viable.
The good news for IADs is the near certainty that bank ATM networks will contract under the weight of costs no longer supported by as much (or any) interchange and direct-charge revenue. Over time, this should create room for the growth of surcharging ATMs in these transitioning markets. In many cases, retail surcharging ATMs also run on the much more economical Windows CE platform and are sold without hardware and software contracts.
Operational excellence will become a prerequisite for IAD survival
In an industry where costs continue to rise while revenues decline, only the operationally efficient will remain. Whether this means bringing field service maintenance in house or developing closer ties with third-party service providers, IADs can no longer afford to overlook the importance of actively servicing their fleets.
Strong manufacturer support will grow in importance in this changing market, as well. The days of widespread ATM replacement by IADs for whom manufacturer support has historically meant "buy a new ATM" are over.
Finally, mastering the art of asset management will separate the IAD winners from losers. Culling weak ATM sites, upgrading strong sites, proactively replacing units, and trading in older and surplus machines and parts to manufacturers — these are the bunts, singles and sacrifice flies that will allow IADs to thrive in an industry bereft of home runs.
The rise of the refurbished ATM will now be a critical arrow in the IAD quiver. For some it will be the refurbishment of existing ATMs in need of a refresh prior to redeployment. Refurbishing existing hardware is the lowest cost way to maintain and grow an ATM estate.
For others, the purchase of low-cost, certified pre-owned ATMs for low-transaction or "greenfield" sites can spur organic estate growth without the heavy expense of new hardware purchases, and without recurring hardware and software maintenance expense.
The speed and magnitude of the recent changes seen in major ATM markets cannot be overstated. It will likely be the ability to adapt quickly — or not — that will determine the winners and the losers among independent ATM deployers.
atm Atom Posts for the atmAToM blog are contributed by a collective of writers from Triton Systems and ATMGurus seasoned ATM pros who thought they might like to share a few things they've learned during the last 30 years in the ATM industry. www