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Cutting the costs of ATM cash

Industry experts say a little savvy can go a long way toward helping ISOs reduce the costs of cash at sites where using an armored carrier for replenishment is a necessity.

December 15, 2004

Keeping an ATM filled with cash is one of the biggest monthly expenses for ATM deployers. According to the 2004 Dove Consulting ATM Deployer Study, deployers paid on average $180 a month for cash replenishment and $75 a month for cost of funds -- a significant chunk of the $1,194 average total monthly operating cost.

Many ISOs avoid these costs by asking merchants to fill machines with their own cash from the till. The merchant self-fill model isn't an option at some sites, however, because of security or other concerns.

"It's great to have an ATM that makes money, but the number one priority has to be the security of the customer," said Dennis Baker, owner of Supreme ATM, an Ohio ISO with some 100 ATMs under contract. "A rear-loading, through-the-wall ATM is the perfect scenario because they can load it any time. If they don't have that type of machine, but can load it before or after the store closes, that also can work."

Cash and carry?

Baker, a former regional manager for a major armored carrier, said his customers load about half of his 100 machines. He fills three locations himself, a practice he doesn't recommend for most ISOs, although he is willing to do it because of his background.

It's difficult to get insurance to cover that kind of activity, said Ron Schuldt, chief operating officer of Columbus Data Services, a transaction processor and vault cash provider. "Essentially, you're asking the insurance company to cover you from robbing yourself."

Filling machines also demands time that may be better used elsewhere, Baker said. "If you want to grow your business, you may not want to take the time to do it."

John Clatworthy, vice president of sales and marketing for vault cash supplier Cash Connect, a division of WSFS Bank, said many ISOs do not wish to tie up their own capital for replenishment.

Noting that the cost of cash is generally the prime interest rate plus 1 percent or more, he said, "Most ISOs are smarter than we are; they know how to make more than 6 percent on their money."

Before loading an ATM himself, Baker said he calls ahead so his customer can "provide an extra set of eyes for me." He also avoids visiting those sites on a set schedule. "You always want to mix it up so you're never there at the same time," he said.

A little savvy

A little savvy can go a long way toward helping ISOs reduce the costs of cash at sites where using an armored carrier for replenishment is a necessity.

Clatworthy advises ISOs to consider having machines replenished less frequently but loaded with more cash when interest rates -- and thus, the cost of cash -- are low. It's best to prepare for this possibility when purchasing equipment, by buying ATMs that can accommodate added cassettes.

ISOs also need to be aware that some -- though not all -- armored carriers require ATMs to be equipped with electronic locks. Some carriers may be willing to help defray the costs of the lock, Clatworthy said. "It doesn't hurt to ask."

Most ISOs using armored carriers have machines filled monthly, biweekly or weekly, depending on transaction volumes. Clatworthy encourages ISOs to "take the time to do some analysis" and determine optimal replenishment schedules.

Baker's formula for determining load frequency: multiply the number of weekly transactions by $55 (average withdrawal amount), then add 20 percent (in case unscheduled runs are needed). Divide by four, then round to the nearest hundred. Divide that number into the ATM's cash capacity, then round to the nearest one, two or four. This will help determine whether visits are needed weekly, bimonthly or monthly. Doesn't hurt to ask

Baker said ISOs may be able to negotiate a better rate than the average $65-per-drop by asking the right questions during contract negotiations. For instance, ask if a carrier already provides a location with change orders.

"You should be able to piggyback on what that location is already paying," he said. "The carrier won't have any added miles and only limited additional exposure with ATM cash."

Schuldt, of Columbus Data Services, advises ISOs to ask a carrier if it provides its own service or sub-contracts with smaller carriers, a not uncommon practice. "You might be able to get a better rate by going directly to the smaller carrier," said Schuldt -- with the caveat that the risk of potential exposure could be higher for the ISO.

Find out when a carrier visits machines, Schuldt said. "If you've got a machine at a casino that does a lot of transactions over the weekend and they load it on a Monday instead of a Friday, that money is going to sit in the armored vault over the weekend costing you in interest."

Speaking of interest, Baker said ISOs should try to get carriers to commit to a one-day turnaround  -- rather than the average two -- between the time it picks up cash from a source bank and fills machines. This concession is easier to obtain in large metro areas, he said.

All three men encourage ISOs to be wary of added fees, such as higher charges for deliveries outside standard service areas or fuel surcharges.

"You want to be aware of those and keep them as low as possible," Clatworthy said. "For instance, you may want to a contract to specify that fuel surcharges can't exceed the CPI (Consumer Price Index). If you've figured your cash costs, then all of a sudden you find yourself paying 4 percent more per drop for fuel, it can wreck your margins pretty quick."

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