STRATEGIC PARTNERS
Consolidation may be on the horizon for many ISOs, as competition heats up for a limited number valuable locations.
January 7, 2002
Today's ISO marketplace might be compared to the video rental industry a decade ago, when aspiring business owners opened single-location video stores and, in many cases, flourished.
In fact, it was those small-time storeowners who invented the business in the first place, but their time in the sun was to be shortlived. Bigger operators started buying up the independents, and ultimately the business evolved into just a handful of national chains. As the years passed, the single-location video store became as common as a full-service gas station, replaced by the Blockbusters and West Coast Videos of the world.
While the ISO business is probably not there yet, some experts see mass consolidation as they gaze into their crystal balls.
"I think the trend that we see in the ISO business is one of consolidation - some of the largest ISOs are the survivors from those consolidations," said Ann Schmitt, a director for Dove Consulting's Financial Services Practice. "A very significant percentage of total ISO terminals deployed are concentrated in the top 10. What we are seeing is that when you get below that top 10, many of those don't have the scale to continue to compete in the marketplace, which is only getting more heated."
"Heated" is an understatement. Members of the ISO community are moving at lightning speed, jockeying for position to secure a dwindling number of prime placement locations and working to gain the upper hand in new channels. If recent trends have been an accurate indication, the move toward consolidation will continue.
"I see moves in that direction," Schmitt said. "The challenge for the small ISO is continuing to find profit locations that work within their business model. And what we're finding, depending on the business model, is that many ISOs are in locations that generate 200-250 transactions per month. And for large ISOs with great economies of scale, those locations probably work. But when you're dealing with ISOs that don't have that kind of scale, they can't compete for those locations. And given the saturation of the marketplace, those locations are the ones that are available. Smaller folks can get turned upside down pretty quick."
"Saturation" is almost a naughty word to ISOs. The idea that all of the good locations for ATMs have already been taken is akin to a Texan saying there's no use in drilling more oil wells. At the ATM Industry Association's 2001 convention, Tidel executive vice-president Mike Hudson said that with potential placements in retail, hospitality, foodservice, and apartment and rental complexes, there are two million potential new deployment locations in existence today.
According to Schmitt, the market is not saturated, but ISOs have to learn to approach the business differently in the future in order to find creative new channels for their products.
"We still think there's room for deployment, but it will be on a selective basis within the geographic region, as well as by channel," she said. "There are certain channels of distribution for ISO deployment that really haven't played out - for instance, the fast food industry. But when we look at other channels, there are locations still available. Certainly the lower volume locations are still available, and ISOs are really competing among each other for those locations, because banks don't tend to go for those types of opportunities."
As ISOs look to the future, they not only consider new locations for new machines, but new ways to reap benefits from existing machines. There is much speculation currently about the future of ATM advertising; some pundits feel it will become a major revenue stream - perhaps the major revenue stream - while others say it will be just a few bucks in the grand scheme of things. But the industry is taking the prospect seriously: for instance, a group of forward-thinking ATM professionals formed the ATM Advertising Association to promote the concept to advertisers and agencies in 2001.
