STRATEGIC PARTNERS
The off-premise ATM market took off, and deployers discovered a low-maintenance 'employee' and stand-alone business rolled into one.
January 7, 2002
The off-premise ATM market took off, and deployers discovered a low-maintenance "employee" and stand-alone business rolled into one.
It was late 1995, and all was relatively quiet on the ATM front.
Most banks offered ATMs in their branches. And the companies who issued ATM cards for customers -- the national networks Cirrus and Plus, owned by MasterCard and Visa respectively, along with Discover and American Express -- were kings of the hill.
They said, "No surcharging." And that was it. No surcharging.
If an ATM was located off a bank's premises, the machine's owner had to provide it out of the goodness of his heart, because he couldn't ask the customer to pay a surcharge -- not one red cent -- for using the ATM at a closer, more convenient location.
Can you imagine how many ATM owners were thrilled to do that -- provide zero-profit ATMs?
Still, there were those who forged ahead anyway and initiated the customer surcharge.The rebels were few in number -- enough, however, for the national networks to realize they couldn't keep the ATM industry in a stranglehold forever.
In April of 1996, the national networks relented.
With the ban on surcharging lifted and the development of lower-end, less expensive machines by manufacturers such as Tideland Triton, ATMs took off.
In no time at all, there were ATMs everywhere - at convenience stores, grocery stores, gas stations, truck stops. Soon one would be hard pressed to think of a well-traveled location that didn't sport an ATM machine.
This new surge of ATMs not located on bank premises was known as "off-premise" deployment (O-P). Today, according to Bank Network News, there are 273,000 ATMs in the US, generating more than 11 billion ATM transactions. Moreover, for the first time, the number of off-premise ATMs actually exceeds those at bank branches.
O-P is basically driven by customer demand and customer satisfaction. Deployment history bears this out.
People have viewed their ATM card as a major convenience. They would rather use it and save their cash. For store owners the benefits are even more profound: ATM use increases store traffic, people spend more money and it increases profits.
As such, ATMs encourage more add-ons and impulse purchases; more upgrades in products and services; more patronage of sideline concessions. People are inclined to stay and "play" longer and ATM card usage engenders larger gratuities.
From the start, ATM owners found if enough customers were willing to pay for the convenience of using the closest ATM, regardless of where their card-issuing bank was, the retail business would thrive.
Did the O-P business really thrive, putting bunches of money in ATMs owners' pockets?
Well, actually no.
The O-P business may have looked like a potential gold mine, but it wasn't that easy. It was built one transaction at a time. The ATM owners who made money did it with a combination of nerve and savvy.
Some enterprising entrepreneurs came up with the idea of owning a group of machines to builde economies of scale. Thus was born the ISO (independent sales or service organization). ISOs oversaw the deployment of more than just a few machines and played the role of middleman, between themanufacturer and the distributor, or the manufacturer and the merchant. For transactions, the ISO was also the liaison between the merchant and the transaction processor.
Bob Campbell, president of 1st Federated ATM Network, an ISO in Tampa, Fla., has a good take on O-P deployment of ATMs. "It's not a business that requires a lot of employees, so you don't have personnel problems," he said.
"The way I look at it is, OK, we've got 80 machines out there, those are 80 little employees that don't need a day off. They don't get sick. You know, it's raining outside, so they can't get to work. You just don't have those issues to deal with. Take care of them (the ATMs) every now and then, and that's it."
Campbell continued, "Early on, it's a labor-intensive and a very capital-intensive business, where obviously you have got to have a lot of money to get the business started, especially if you're going to be providing cash for the machines. But other than that, it's fairly attractive."
Other successful deployers agree. In fact, when they put the numbers together, plus listen to customers' demands to add such perks as check cashing, coupons, ticket sales and stamps, some are reporting net profits in the neighborhood of $500 to $1,000 per machine.
Not bad for a low-maintenance "employee" who comes to work on time, rain or shine, and doesn't take vacation time off.
Today ATM deployers such as Campbell say it's not a business someone should just jump into. The way to make money, he says, is to put together a business plan first, then think of an O-P ATM as an employee and a stand-alone business rolled into one.
