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Are ATM vendors truly committed to international expansion?

Jorge Fernandez says ATM vendors play a key supporting role in the introduction of the off-premise concept to new markets. Yet many vendors don't play the part well. Fernandez would like to see a stronger commitment from vendors interested in international expansion.

May 26, 2003

Editor's note: This commentary by Jorge Fernandez of Capture Systems LLC discusses the role ATM vendors play in the introduction of the off-premise concept into new markets. It is Part I of 3. Parts 2 and 3 will focus on the roles of sponsor banks/networks and local ISOs.

ATM vendors play a key role in helping distributors penetrate new markets. However, the reality is that most vendors do not play this supporting role very well.

Imagine that you have decided to go explore the uncharted territories of Timbuktu. You do your research and find that you will need a rugged SUV automobile to take you to this new land. You choose a brand that seems to have the qualities you need. You present the idea to the manufacturer, and they seem excited to help you on this trek. No doubt the company envisions itself the new "Enterprise" and thinks of you as Captain Kirk.

Jorge Fernandez

Soon after you arrive, you find that the tires you brought will not do the job since the terrain presents unforeseen challenges. When you call the manufacturer on the satellite phone to request different tires, they start asking questions like, "If I do this, how many more of these tires am I going to sell? Will anyone else need these tires?"

After thinking about it for a week, they send the tires. By then, the mosquitoes have eaten you alive.

A week later, you find that you need a special filter for the carburetor since the land in Timbuktu is really dusty. Again, you call. It takes two weeks to get the carburetor, and they no longer seem as excited as when you left.

Back home, the sales department wants a forecast of how many SUVs of this kind will be sold when this is over, marketing begins to think that this is not as applicable as they thought, and the engineers say it is more complicated than expected.

"No one speaks English in Timbuktu, so who wants to be there anyway? Hasn't anyone read in the news lately how messed up things are in Timbuktu? Timbuktu is not sexy, why don't we go after Europe instead? Everyone knows about THAT market, and it will sound better when we say that we are there."

"But SUVs are not that popular or needed in Europe!"

"Sshh, it's marketing, no one needs to know. We will say how much our sales have increased there, and we will use a percentage figure; that way it sounds really big. When we speak of our international markets, we will promote our great success in Europe. Timbuktu will be mentioned, but only in passing because people have heard we sold our products there. We will call it something like 'an emerging market' or a 'secondary market.' Let's get folks to focus on our huge success in Europe."

Stuck in Timbuktu

So the entire project becomes a nightmare. The SUV manufacturer is not all that interested anymore. There you are, stuck in Timbuktu.

Since other SUV manufacturers were following this story and nothing seemed to come of it, they are not interested in helping you continue your journey.

How would you like to be stuck in Timbuktu with little if any support? You have not been there long enough to declare victory, and your support group gave up at the first sign of trouble. That, unfortunately, is where many companies that are trying to pioneer the off-premise ATM concept internationally find themselves today.

Substitute ATM for SUV and Timbuktu for almost any market outside North America, and you get the idea.

I've been trying to penetrate the Latin America and Caribbean markets with the off-premise concept for more than four years. I've experienced a fair level of success, installing more than 1,000 machines throughout the region. However, that is much less than the potential and it took a lot longer than anticipated.

Start-up support

I am not going to say vendors shoulder all the responsibility; long term, they don't. But in the beginning, probably more than 70 percent of the effort is dependent on them.

ATMs must be certified in the local networks; these certifications often mean software development and sometimes, hardware modifications. Different communication standards sometimes must be supported. Speed to market is often decided by how quickly the vendor can provide the necessary modifications.

There may be constant readjustments, as different customers need certain changes to be made to comply with regulations. Again, here the vendor plays an important role.

As in the SUV example above, one of the most annoying things is when the forecasting calls come. Even before one has gone through the certification or testing stages, everyone wants to know, "What is your forecast?" Having been on that side of the fence for many years while I worked at a major ATM manufacturer, I play along.

But, it's a senseless game. Everyone knows that the numbers don't mean anything. The accurate but politically incorrect "who knows?" will not do, so one must provide a number to keep the vendor interested. This trump card can only be played a couple of times, however; if you do not meet your forecasts, they will not be taken seriously and you go back to the beginning.

Maybe Manana

While at a trade show recently, one of the "newer" vendors approached me because they had followed our company's success and were interested in partnering with us to go into our region. I took a look at their products, and they seemed interesting. Then I took out my list of questions. Yes, the list is long. I noticed the blood was draining from the gentleman's face as I read the list, and all the initial excitement seemed to now lay somewhere between the sole of his left shoe and the floor.

"OK, I see," he said. "Well, we are more than willing to make that level of commitment. We just need an irrevocable letter of credit to our name for a minimum order of a gazillion units."

Once I picked up my self from the floor, where I was laying right next to his initial excitement, I replied in a way that is customary in our region: "Manana."

When I saw that he did not understand, I explained that the term meant somewhere in between "never" and "when hell freezes over." It's easy to ask for a commitment in writing and money in the bank. It's another thing to say, "OK, we are with you. Let's go after the opportunity together."

Unfortunately, this is more common than not. With that kind of commitment, most companies would be willing to help you install ATMs in the frozen tundra.

What happens if the ATM does not get certified, if it for some reason does not adapt well to the local markets? What if the market does not like the color, or the vendor can't support the machine? Do I get stuck with an irrevocable letter of credit?

World of opportunity

The markets in the U.S. and Canada are only going to support so much growth. In 2002, most vendors experienced low single-digit growth. What happens when the last Starbucks installs an ATM, and when the average per-ATM transaction volume drops to somewhere between "not enough" and "ridiculously low?"

Then perhaps the vendors will realize that there is a world of opportunity outside of their own borders.

There are lots of companies out there like us that are trying to jump-start the business outside of the "sexy" markets. However, we need a commitment from ATM manufacturers to step up their support of these initiatives.

In many international countries, ATM deployment is dismal and there are no off-premise ATM strategies being implemented. There are companies eager to do the start-up work, but they get discouraged when the vendors don't give them the support needed to start the business.

One of the problems is that most ATM vendors put international requirements into the same group as domestic ones. Guess what happens to a request for software modification that comes from a new market when a requirement comes in from a large domestic customer? 

Another problem is pricing. Vendors seem to think that they can get away with charging U.S. customers one price and international customers another. But anyone with Internet access by now knows that there seems to be a fire sale on off-premise ATMs in the U.S.

Currently, our price for a standard off-premise ATM in one of our markets is about 50 percent higher than the price of the same product in the States. Why? We pay higher prices for the same product; add to that duties (based on the already higher FOB price), freight (sometimes based on the value of the machine) and local taxes (also based on the value of the machine). It is not hard for an initially small difference in price to escalate to a very big difference in the market.

At one point, the price of our retail-oriented product was only about 10 percent lower than the price of a bank ATM. The business model simply does not work at those prices.

Entering a new market requires lots of investment -- not just monetary, but also an investment in time. Successfully penetrating a new market takes a minimum of one year; in some cases, it will take much longer. However, if a vendor is not willing to do the necessary things to make their products ready for local markets, all the planning in the world is wasted time, effort and money.

In fairness, not all vendors are bad; we have been working with one that is not bad and getting better. Yet it took a long time to get to where we are, especially because our market is not "sexy."

There are lots of opportunities in the international market that are ready to be maximized.  The ATM vendors need to learn to work with entrepreneurs who are ready and willing to take on the challenge, to provide the support needed for these efforts to bear fruits.

In our assessment, the international market will be similar in size to the current U.S. market in the next three to five years. Only the vendors that make the commitment to support start-up efforts today will be able to profit when these markets open up.

The author, Jorge Fernandez, is president and CEO ofCapture Systems, the largest independent independent operator of off-premise ATMs throughout Latin America and the Caribbean. Additionally, the company offers processing services in Central America, Mexico and the Caribbean. He has been in the EFT industry for more than 15 years, most of those in Latin America and the Caribbean. He may be contacted atJorgef1@aol.com.