STRATEGIC PARTNERS
Though no one seems to know just how many ATMs remain under contract to Credit Card Center, other ISOs are apparently angling to get some of that business.
December 19, 2001
The E*Trade ATM programs being offered to former Credit Card Center customers whose machines were financed by two leasing companies – QL Capital and Preferred Leasing – include "special compensation" based on monthly transaction volumes.
While this is not a common contract clause, it doesn't seem out of place in what has been an entirely uncommon chain of events to date.
As reported earlier on ATMmarketplace.com, the two leasing companies took the unusual step of approaching E*Trade ATM to create programs for their CCC clients, most of whom had not received any residual checks since the first of the year when CCC's finances began to unravel.
Saul Caprio, E*Trade ATM's marketing director, told ATMmarketplace.com, "I think this is an unusual situation (the leasing companies) are under, and it's an unusual situation their customers are under," he said. "I think the leasing companies are trying to give the merchants some choices they might not otherwise have had."
Here's the deal
Letters sent to QL and Preferred customers offer nearly identical deals, although Caprio said that the terms would vary. In both, merchants who switch to E*Trade ATM are eligible to receive the special compensation based on their average number of surcharged withdrawals per month.
The monthly average would be calculated based on the first six months of transactions following the switch to E*Trade ATM, according to copies of the letters provided to ATMmarketplace.comby merchants.
According to the letters, merchants would receive 100 percent of the surcharge, less 15 percent for E*Trade service on the machine. While calculated slightly differently, this is the same amount merchants received under most CCC contracts, which gave the merchant 85 percent of the surcharge but with service included.
Merchants with 301 or more transactions a month are eligible to receive $9 per transaction. So, for example, a merchant whose machine did 500 transactions a month would receive a total of $4,500 in addition to the standard surcharge revenue. A merchant with 120 to 300 monthly transactions is eligible to receive $8 a transaction, and a merchant with less than 119 transactions a month is eligible to receive $5.50 a transaction.
The key difference in the QL Capital and Preferred deals are the payment schedules for the special compensation.
According to the letter sent to Preferred merchants, they would be eligible to receive 60 percent of the compensation in the seventh month of their contract with E*Trade ATM and the remaining 40 percent after a year. A letter sent to QL Capital customers indicates they would be eligible to receive 75 percent of the compensation in the seventh month and the remaining 25 percent after a year.
"Feeding frenzy"
CCC claimed to have up to 15,000 ATMs under contract before it filed for Chapter 11 protection in Pennsylvania's Eastern District Bankruptcy Court on June 6. A class-action complaint filed on behalf of two merchants in Philadelphia on May 25 indicated that CCC had at least 11,000 machines under contract.
However, it is widely believed that several thousand customers had already switched their processing to other ISOs, and no one is certain how many machines remain under CCC contracts.
While E*Trade ATM is believed to be the only ISO working directly with leasing companies, other ISOs have reportedly picked up a large number of former CCC contracts by approaching merchants directly. Ken Paull, vice president of sales and marketing for Lynk Systems, an Atlanta-based processor that works with many ISOs, called the pursuit of CCC business "a feeding frenzy." Many ISOs gained the accounts by hiring former CCC sales reps who brought customer lists with them, he said.
The conversion activity has lessened, however, since the court froze business activity while CCC's assets and liabilities are being examined for possible future disbursement among creditors. In addition, several major ISOs have received letters signed by CCC attorneys seeking to recover the income from accounts that have been switched.
The matter is further complicated by previous agreements that CCC made with at least some of its creditors. A complaint filed in Philadelphia's Court of Common Pleas in May by Tidel, at one time CCC's largest supplier of ATMs, cites several provisions of an interim credit agreement signed by CCC in September of 1999.
According to Tidel's complaint: "(CCC) granted Tidel a valid, subsisting and perfected first priority security interest in its accounts, contracts, goodwill and other intangibles." Also according to the complaint, CCC agreed to a lock box arrangement in which Tidel would receive "certain of (CCC's) receivables or income streams from its designated ATM processor Core Data." The complaint indicates that CCC later gave Tidel similar rights to revenues from another processor, AmStar Systems.
Tidel's complaint also cited a temporary restraining order issued by a District Court judge in Dallas that, among other actions, ordered CCC to restrain from selling or contracting to sell its non-inventory assets; selling or assigning its ATM processing rights, business or accounts; transferring its ATM processing business to processors other than those in the agreements made with Tidel; and acting directly or indirectly to divert any surcharge or interchange fee income via modification of merchant agreements.
One ISO, Jackson, Miss.-based Financial Technologies (FTI), has hired a Pennsylvania law firm to petition the court on merchants' behalf to release them from their CCC contracts. While FTI, like other ISOs, had converted some accounts before the June 6 bankruptcy filing, the company's sales reps were ordered not to pursue any more CCC accounts after that date, said Financial Technologies President Tommy Glenn.
Caprio, of E*Trade ATM, said, "Ultimately it will be up to the bankruptcy judge to decide."
Is it enough?
Lynn Baker, owner of Twin Bagels in North Arlington, N.J., received the E*Trade offer from her leasing company, Preferred Leasing. Baker said she has also received at least a dozen offers from other ISOs to switch her account.
"No matter how good (the offers) sound, I don't know which way to turn," Baker said. "After what's already happened, I'm a little afraid of the ATM business in general."
While Baker said the compensation offered by E*Trade ATM "sounds like a nice offer," it wouldn't be enough to cover her $269-a-month payments for the entire term of her five-year lease. Her ATM has been unplugged for more than two months now, but Baker said it never generated more than 60 transactions a month when it was in service.
