News

Declaration of Independents

Here's how an Independent Sales Organization works - from the way most are organized to the way they make money.

January 7, 2002

When ATM networks dropped their voluntary ban on surcharging in 1996, they cleared the way for a whole new type of business: the ISO, or "independent sales organization."

Prior to this, ATMs were primarily a convenience device for bank customers. They had not been viewed as a potential source of profit. The ISO changed all that.

Over time, the ATM itself has evolved, driven by the ISO impetus: the machines got smaller, less expensive and more versatile. A few years ago, a neighborhood pub or convenience store would not have been able to afford an ATM, nor would it have had the floor space for one of the lumbering brutes. But smaller machines, such as those manufactured by Long Beach, Miss-based Triton Systemsand Houston-based Tidel, open up countless new sales avenues for the independent seller.

The Business Plan

The ISO makes money several different ways. The first line of income comes from the sale of the machine itself. Many new machines are priced in the low thousands for a basic, no-frills version. As extra features such as color displays, signage areas, added connectivity options, and remote maintenance are added, the price goes up.

But for most ISOs, leasing is an inexpensive way to sell a merchant on installing an ATM. By combining low-cost machines with creative and competitive lease deals, ISOs can offer machine leases for as low as $100 per month. With this low lease cost, a machine could pay for itself with just two or three transactions per day.

Transaction fees are the other source of ATM income. ISOs have a lot of leeway in dividing this revenue, and there are nearly as many philosophies on these splits as there are ISOs. There are two fees charged for each transaction: a convenience fee, or surcharge, which is paid by the user, and the interchange, or "back-end" fee, which is paid by the card holder's bank.

The ISO and the merchant normally split these fees. Some ISOs keep the interchange fee and give the surcharge to the merchant. The split of the fees is a key part of the ISO/merchant agreement.

Everything is negotiable in the ISO/merchant contract. An ISO might negotiate a higher fee percentage in a low-traffic area, but make concessions to the merchant in high-traffic locations.

A secondary source of income is advertising sales, though few ISOs are currently generating income from advertising. Some in the industry are optimistic that advertising income, from on-screen ads, ads on transaction receipts or ads placed on the ATM, will be a significant source of revenue in the near future.

The Employee Structure

ISOs generally hire independent representatives to sell ATMs in the field. These reps are paid strictly on commission, and don't get paid unless a machine gets sold. In other words, nothing happens until somebody sells something. There are salaried and salary-plus-commission agents, but they are the exception rather than the rule.

"We have a combination [of independents and salaried employees]," said Tom Hannon, president of Peachtree City, Ga.-based Hanco Systems, Inc. "Our most productive ones are independent contractors."

For the ISO, the challenge of running a successful sales operation is similar to the challenge faced by sales organizations in any business. ISOs must provide product and technical support and training, but give reps the freedom to operate independently.

The ISO sales manager must oversee the activities of reps and make sure the right machine is sold to the right merchant. Reps might be tempted to oversell in order to get a larger commission.

"We don't give them a license, but guidelines; that is, we don't allow them to sell machines for $17,000 that should be selling for $5,000," Hannon said. "We keep it where the rep makes a decent commission, and has to sell machines to make a living."

For the sales representative, selling ATMs and ATM service represents a solid money-making opportunity. The money can be good, but as with any sales position, the work can be grueling and requires a high level of commitment.

"[The average salary] can be low, or it can be six-figure," according to Vance Rowland, vice president of Columbia, S.C.-based ATM America. "But the guy who's going to be successful at another sales job is the guy who's going to be successful here. This is not a get-rich-quick business. The business has the appearance, from the outside looking in, that you can generate a lot of money quickly. And to a degree you can. But you do a lot of hard work. It's just like any other sales job - anybody who comes in and applies themselves can really do something."

Handling the Technical Details

There is much more to operating an ATM than simply setting it up, plugging it in and counting the profits.

Most ISOs offer merchants a network fulfillment package that includes access to exchange networks and transaction processing. The merchant may choose to do his own cash replenishment, though ISOs offer this service as well. ISOs, by virtue of their volume and expertise, are able to keep these costs at a level that allows merchants to operate machines at a profit, in most cases.

ISOs order installations, generate activity reports, monitor the machine's condition and provide repair service. Some ISOs generate additional revenue by selling supplies - ink, receipt paper, cleaning supplies - to the merchant.