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It's the economy
Off-premise operators have figured out that the economics of dial-up make it an easy choice for connecting ATMs.
January 7, 2002
When banks were the only players in the ATM game, there were few connectivity questions to answer. Dedicated communication lines (commonly called lease lines) transmitted every transaction from ATM to bank and back in real time, simply and effectively.
The cost of these lease lines is determined by the ATM's distance from the host bank.
This makes lease lines especially costly as off-premise locations proliferate. The onset of dial-up has dramatically lowered the cost of operating ATMs at remote locations.
"Dedicated lines are distance sensitive," said Bob Nemens, senior marketing manager for Dayton, Ohio-based Diebold Global Marketing.
"If you've got a network of ATMs serving an area like Wyoming, you've got to account for a lot of 'moosescape' between a bank and an ATM that's 500 miles away. A lease line running point to point would be very expensive."
The price could range from $300 to $1,100 dollars a month, depending on the distance. That effectively prevents operators from installing lease line ATMs in a lot of locations.
With dial-up communication technology, the cost run an average of $40 per month, no matter what the location. (In some dial-up scenarios, charges are assessed per transaction, but that cost is comparable to a flat-rate charge.) Instead of using older, well-established point-to-point, "always on" lease lines, ATMs now are commonly retrofitted with a modem that "spoofs" or imitates a lease line, and connects to the host bank via public telephone lines. The cost to convert from lease line to dial-up, which has been widely used for about five years, can be around $600 per ATM.
"If you have an ATM that typically requires a leased line, we can reduce that (cost) down to 50-60 percent on average," said Kent Phillips, director of business development at Dallas-based PSINet, a third-party network company that also supplies dial-up retrofit options. "The operator gets to retain the full functionality of (the ATM) and continue generating revenue from the asset they've already purchased."
Unlike the lease line situation in which the ATM connection is always on, a dial-up terminal waits for an ATM user to begin a transaction by swiping the card. The modem logs online by dialing the host, and the transaction is conducted. When it's completed, the modem hangs up and the machine is offline again.
The beauty of using public telephone lines is that their universality renders distance between the host and the ATM irrelevant.
"For dial-up, the whole country has the same public telephone network, so you don't care where that ATM is," said Dick Adams, executive vice president of sales and marketing for AmStar Systems, also based in Dallas.
"Dial-up on ATMs is not revolutionary, it's evolutionary. But it's had a revolutionary impact on where you can put ATMs. You could put an ATM in a convenience store in New York City, but drive it off of a switch in Dallas for $40 a month, plus $10 a month for a lease payment on a modem. Or you could pay about $1,000 a month for a dedicated line. It's a pretty simple economic decision."
Much of off-premise growth in the ATM industry can be attributed to a combination of dial-up's reduced communications cost and the downward direction or pricing for new, low-end ATMs. So many independent operators and ISOs have gotten into the game that, as of 2000, the number of off-premise ATMs has exceeded that of on-premise machines.
"Total ATM population is somewhere north of 290,000 devices in the (U.S.) marketplace," said Phillips. "The last report I saw said 52 percent of those were off premise. I don't know how many of those are direct dial, but I would assume that the vast majority are."
Drawbacks are Negligible
There are few drawbacks to dial-up versus lease lines. Dial-up can slightly lengthen transaction times, but more agree that's a negligible amount of time, measured in seconds.
And while lease lines enable hosts to monitor machines constantly for problems (such as paper misfeeds, cash outages, mechanical failures) and transaction activity, many off-premise dial-up machines are configured to transmit transaction data only, not information on machine status. Also, dial-up machines are only as quick and reliable as public telephone networks, and should those be jammed or disabled, transaction traffic could be, too.
Those concerns are real, according to David Howe, senior vice president, ATM services division for Lynk Systems, Inc., in Atlanta. But in reality, he said, they're really small. "The delay in the transaction is simply the time it takes for the interface to capture a line, dial the number and wait for an answer. As soon as the host connects to the interface, then the transaction takes place in fractions of a second. (Customers) may wait 5 or 10 second longer than if using a lease line ATM."
AmStar's Adams believes that public phone systems are more stable than lease line systems because of the standard of service required maintaining them. That makes him confident that dial-up is a more reliable communication tool.
"You're secure as the public telephone system, and with some of these circuits on long-haul (lease) lines, they don't get treated with the same quality standards that you do on a dial-up line. Their tariff requires them to keep that up."
Mike Mike Roerick, AmStar's executive vice president in charge of network operations, said that troubleshooting is difficult with lease lines.
"When there is a problem with a lease line network, it's always a hassle figuring out who was responsible for a failure," he said.
Discerning whether a local carrier or a carrier in a far-away city along the line is having trouble, he said, takes some detective work.
Diebold's Nemens, however, said that many of the calls his company gets at its help desk come from dial-up communication failures at off-premise machines.
"The nature of the dial-up beast is that there are more and more points of traffic, more and more telephones, and we can't control that," Nemens said. "Lease lines are more reliable than dial-up. It's not like somebody's going to bump you off because you're on all the time."
In the end, experts say, switching to dial up is a money saver for most off-premise operators, and that's all the incentive most need to make the change. Profitability and transaction volume go hand in hand, says Lynk's Howe, and off-premise machines generally don't generate enough volume to profit beyond the cost of a lease line.
"The typical bank ATM-one outside a branch-does 4,000-6,000 transactions per month," said Howe. "At the typical convenience store you might see anywhere from 500-1,500 transactions. And it is in volume ranges such as that, that the cost of maintaining a leased line terminal becomes uneconomical."
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