News

ATM portfolios grow through acquisition

The Top Ten ISOs are growing their numbers through portfolio acquisitions rather than through new ATM deployments.

June 24, 2002

Reprinted with permission from ATM&Debit News, a weekly electronic newsletter based in Chicago. Subscriptions available at 212-631-9780 or go to thisWeb site.

The market for existing ATM portfolios held by independent sales organizations is sizzling, despite negative growth in ATM sales. The top 10 ATM ISOs hold a total of 59,596 long-term ATM management contracts, up 16 percent from 51,360 held by last year's top 10 ISOs, ATM&Debit News survey data collected earlier this month show.

Most ISOs, however, made ATM-portfolio gains mainly by snapping up existing contracts. Few of the ISOs report substantial deployments at new ATM venues, and some pared back their ATM programs. American Express, for example, shed more than 600 ATMs from its portfolio since last year.

Another indication that few of the added ATM contracts identified in the ISO survey were the results of new retail venues was a negative growth rate among ATM suppliers in 2001 from the previous year. A March ATM&Debit News survey of ATM manufacturers found that shipment growth slipped by 17 percent in 2001, to 48,741 ATMs from 58,700 machines in 2000.

The ISO business, as a result of acquisitions, has far more concentrated non-financial institution ATM business than existed a year ago, the ISO survey findings show.

One of the best examples of the changing of the guard among ATM ISOs is the emergence of eFunds Corp., a Scottsdale, Ariz.-based debit/ATM transaction processor, as the nation's newest leading turnkey operator of nonbank ATMs. eFunds, which since August has acquired three ATM ISOs-Access Cash, Hanco and Samsar-now operates 12,000 ATMs in retail locations from none a year ago.

In addition to traditional ISO revenues from surcharges, interchange and ATM-sales margins, eFunds also wants to lock in processing and driving business and use higher processing volumes to reduce ATM management costs. Buying ISOs allows eFunds to lock in future transaction-processing business, says Todd Hannon, eFunds vice president of ATM management. "It makes sense for processors to get into this business," he says.

Growing Competition

EFunds has so far picked up transaction-processing commitments on about 6,000 of the 12,000 ATMs it manages, and, says Hannon, the company expects eventually to be handling the processing on most of the ATMs it manages.

EFunds is locked in a competitive struggle with several other large electronic funds transfer processors and ATM drivers, including Memphis, Tenn.-based Concord EFS Inc., which drives 93,000 ATMs, many of them for ISOs.

And other processors are likely to acquire ATM-management companies as the transaction-processing industry gets more concentrated and the number of significant players shrinks, says Ann Schmitt, an analyst for Boston-based Dove Consulting Inc. and head of Dove Capital Partners, a Dove venture that analyzes off-premise ATM markets. "The consolidation piece of this is going to continue," Schmitt says.

Schmitt predicts that the top 10 ATM off-premise managers in the future also will process and settle most of their own transactions from the machines they manage instead of outsourcing such services to third parties.

An ISO with a sizeable fleet and good revenue can cash in by selling to a larger company, often for three times its income worth, says Thomas Keilich, president of Buffalo, N.Y.-based National Bank Equipment Corp. ISO. "These people are offering incredible amounts for these fleets," says Keilich.

But some observers question whether corporations that have widely varied interests can manage retail-based ATM fleets as well as independent companies. "These larger companies have other agendas," says Neil Johnson, president of the Euless, Texas-based International Merchant Services.