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Off-premise ATM deployment: The first considerations

Deployers can make a success of off-premise ATMs, provided they do their homework.

January 7, 2002

Deployers can make a success of off-premise ATMs, provided they do their homework.

To get a idea of what it would be like to implement an O-P ATM, let's take a closer look at the first considerations of a deployer's business plan -- location, machine design and projected net income.

Location

We've heard "location, location, location" endlessly. But one of the most salient keys to ATM success really is its location -- not only regarding the kind of store into which the ATM is placed, but even where in that store the machine is located.

High traffic areas are preferred, the higher traffic the better, with one caveat: The customer must have a need for cash.

In October 1998, Card Capture Services (CCS) and First Union Bank learned this the hard way when they installed about 250 ATMs at Hollywood Video stores. They had conducted exhaustive tests to determine the project's potential success. Eventually, a rollout of 500 was planned.

Did it work out well? Not really. They jerked the ATMs out of the stores in August, 1999 less than a year later.

Why? Because the project did not meet expectations, explained a First Union spokesperson.

One critical factor blindsided the participants: The customer doesn't have a great need for cash in a video store. What's more, customers usually shop for videos at the end of a shopping trip, on the way home, when the need for cash is at a minimum.

Clearly ATMs aren't right for every location, no matter how high the traffic count.

The most popular locations are shopping centers, supermarkets, hotels, department stores and convenience stores, said Bill Koch, senior consultant for NCR, who addressed this very issue in October, 2000 in Orlando, Fla. in his speech at Thomson Financial'sATM2000 conference.

Though many prime locations are taken, he believes there is some prime real estate available. In fact, Koch stressed, there are thousands of potential places to put ATMs that aren't currently being used.

ATMs are popping up at zoos, mobile vans, auctions, traveling circuses, hospitals, airplanes, churches, cruise ships and prisons. Koch mentioned other potential venues, including apartment complexes, post offices, airports, colleges and universities -- the list goes on.

The key to location is simple. There must be enough transactions in a month to make money. Even then, an ATM owner must watch his overhead carefully, particularly the type of equipment he purchases and how he goes about it.

Equipment -- the ATM machine itself

Bank ATMs can cost up to $40,000. These machines can do everything but fix dinner. But for off site deployments, a simple low-end machine, with just a single cash dispenser, is the ticket.

When purchased new, these less complex machines cost from $3,000 up to $8,500. There is a big market for used equipment at lower prices. 

Newer, more complex machines have added functionality, including check cashing and dispesning postage stamps or money orders, but that runs the cost of the machine up. The more elaborate machines are more expensive.

Do the math

On the income side, the ATM owner gets paid what he charges the customer for the convenience of using the machine (the surcharge). According to the "1999 ATM Deployer Study," prepared by Dove Associates, Inc., the average convenience fee is $1.36 per cash withdrawal from an O-P ATM.

The way to figure potential revenue is to estimate, as closely as possible, how many transactions the machine will produce per month, then multiply by the transaction fee that will be charged. A typical c-store might do 300 transactions a month.

Might.

But, if it doesn't, the owner must be ready to take aciton. Owners have a few remedies at their disposal for poor performers, such as improving the location of the ATM inside the store or beefing up signage. He may choose to remove the machine, wirting the location off as a bad one.

ATMs placed just inside store entrance are the most succesful. Customers who have cash are more inclined to buy merchandise inside the store.

Industry experts suggest that the average customer may spend from 10 to 15 percent of the money he withdraws in the store.

Other deployers may realize more. Owner may estimate this way. If the average withdrawal is $40, and 10 percent of that is spent in the store, that means an extra $4 is spent in the store per customer.

Income from the ATM can be figured like this: 300 transactions a month times $1.36 per transaction means $408 per month gross income -- a figure likely to be $75 to $100 more than breakeven.

Operating costs include the terminal lease, interest, phone line, electricity, insurance, cash replenishment (smaller deployers often do this themselves), maintenance, supplies and monitoring the ATM's status. Effective management of costs is important if a merchant wants to turn a profit on an ATM.  

By considering location, machine design and projected income, potential ATM owners can predict whether their off-premise ATM machine will be a wise business decision.