STRATEGIC PARTNERS
If you're interested in investing in ATMs or just curious about how the industry works, this short overview is a good starting point.
February 21, 2002
The ATM industry is one of the fastest-growing segments in American business today. In 1993 there were around 95,000 ATMs in the country, and today there are over 170,000. By the year 2002 some experts estimate the number will reach well over 300,000. That's a 316% growth spurt in just nine years.
The main reason ATMs were invented in the early seventies was to divert teller traffic from traditional bank branches. ATMs were a cheaper and more efficient way to deliver bank services to consumers in a hurry. People no longer had to wait in long lines during banking hours just to cash a check or make a deposit. Now they could use the automated teller machine any time of the day or night.
It took a while for ATMs to catch on with the general public. Throughout the eighties consumers gradually became aware of the technology as banks invested in more off-premise branches, and as the nineties rolled around the ATM had become a major part of American culture. The young computer generation was opening their own accounts, and the ATM was a natural for them to use because it was computer-based. Today just about everyone knows what an ATM is and even the senior citizen segment is increasing ATM usage.
The fact is consumers have been trained by banks to expect an ATM on every corner. This expectation has fueled massive ATM deployments by major banks across the country. Bank One, for instance, is installing thousands of machines in Sears stores, Mailboxes Etc., Dairy Marts and other retail environments. Many merchant locations are buying their own machines to stay competitive. Supermarkets are a great example of how the retail industry has responded to the ATM craze. If you don't have an ATM in your store today, many consumers will view you as behind the times and may even shop somewhere to get that added convenience they've become used to seeing in other stores.
ATMs make sense anywhere even moderate foot traffic is generated. Consumers will use an ATM and pay a surcharge for the convenience of not having to drive to the nearest bank branch.
Within the past couple years ATM manufacturers have started slashing machine prices and producing low-end cash-dispensers to meet the market demand for low-cost machines.
A few years ago you would have paid at least $30,000 for a low-end ATM that let consumers withdraw cash, transfer funds and make deposits. Today you can get an ATM that provides those functions as well as dispenses stamps, coupons, long distance calling cards, concert tickets and more for $10 - $15,000. That's why merchants are going crazy over the ATM industry--they can keep up with their competition without spending a lot of money.
How do you make it pay for itself? More importantly, how do you make money from it?
There are basically three fees that change hands every time an ATM transaction takes place. You've heard of the surcharge: that's the $1-3 you pay the owner of the ATM over and above what you're taking out of your account. It's also in addition to any fees your account-holding bank charges for using a foreign ATM.
There's also a charge called the interchange fee that your bank pays the owner of the ATM to cover processing and other operating costs. This averages about $.44 per transaction.
As the owner of an ATM you have an opportunity to generate revenue from every transaction. Let's say your surcharge is $1.50 and your ATM ISO pays you 100% of that fee. The average ATM in a location like a supermarket will generate 1 or 2,000 transactions a month. Larger stores will do more. Multiplying your $1.50 in transaction revenue by 1,000 transactions gives you $1,500 per month, or $18,000 per year in new money. Other fees like a new phone line and supplies will come out of that $18,000.
Not only is the ATM a great profit center on its own, but it can also help improve your overall business. Studies show that retail sales can increase by as much as 10% after installing an ATM. The reason is because people tend to spend more in a store when they have fresh cash in their hands. Another way to boost sales is to print coupons on the back of the ATM receipts. One company measured ATM coupon redemption in a convenience store and said it reached nearly 70% redemption.
One of the reasons these coupons are so powerful is because 70% of ATM users save their receipts until they balance their checkbooks, so every time they open their wallet they see your coupon.
If you want to get into the business there are three ways you can pay for the ATM. You can buy it outright, lease it or apply for a free placement program. Each option has its benefits, so it's best to decide your goals before committing to one of them.
