News

ATM industry under pressure

March 6, 2005

Banks today, perhaps more than ever, are interested in outsourcing the ATM sides of their businesses. Why? Because outsourcing can improve the economics of a bank's ATM program.

And according to Keith Myers, Cardtronics' financial division executive vice president, many financial institutions are opting for that route.

Cardtronics, the largest independent service organization in the United States, according to the September 2004 ATM & Debit News EFT Data Book, has just more than 25,000 ATMs in its network.

Simply put, Myers said, those numbers don't lie. They're a reflection of banks' changing interests.

Myers said banks and other FIs outsource their ATM channels because they are more interested in working with their customers and letting companies like Cardtronics take care of the ATMs.

According to Tony Hayes, managing director of Dove Consulting's Financial Services division, there's a good explanation for FIs' decision to do that. While the ATM business appears to possess healthy fundamentals in aggregate, the picture looks less positive for individual deployers, like banks, suffering from shrinking margins, Hayes said.

In October, Hayes told an audience at the Thomson Media ATM & Debit Forum that there are "too many ATMs chasing too few transactions."

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Dove's 2004 ATM Deployer Study found that the average number of transactions per ATM has plummeted to 2,400 a month, down from 6,399 per month in 1996, the year that Visa and MasterCard began allowing widespread surcharging at ATMs.

Large credit unions have suffered the biggest erosion, with a 73 percent decline, according to the study. Per-ATM transactions dropped 64 percent at other credit unions. At the other end of the spectrum, banks (large and otherwise) experienced a 54 percent drop. Large ISOs reported a 63 percent decrease, and other ISOs a 60 percent decline.

Fare thee well

But the outlook isn't bleak for all ATM operators. Independent companies, like Cardtronics, are expected to fare well in the changing environment, Hayes said.

Because of reduced profitability and the capital investments banks have made to meet Triple DES requirements and regulatory requirements, like ADA, more banks are evaluating outsourcing their entire ATM channels to third-party providers.

According to the Dove study, credit unions expressed the most interest in turnkey ATM outsourcing. Thirteen percent of large credit unions currently use a turnkey model, and 31 percent are considering it. Eighteen percent of other credit unions use a turnkey model, and 12 percent are considering it.

Myers said banks can save between 15 percent and 30 percent of what they're spending for ATM functions through outsourcing.

"The savings from outsourcing can be used to increase distribution by branding ATMs," he said. "Outsourcing is hot right now. In the last 12 months, it has gained a lot of attention."

Celent Communications cites cost reduction as one of the main drivers of ATM outsourcing in its 2003 report, "ATM Outsourcing Services: A Global View." Celent concluded that deployers could save 15 percent to 25 percent on ATM expenses by outsourcing.

Other drivers mentioned by Celent: performance improvement, importance of the ATM as a self-service channel, and meeting client expectations.

Hayes said he remains hopeful that the ATM can be more than it is today with the addition of new transactions, a trend becoming more feasible as more ATM deployers migrate their machines to a Microsoft Windows-based platform.

Adding new transactions also may drive interest in outsourcing; managing ATMs becomes more complex when services offered at ATMs become more advanced.