News

Return of the placement?

While a model in which ISOs owned ATMs was common in the early days of retail deployment, the emphasis had shifted to sales in recent years. But market forces have caused more ISOs to at least consider owning more of their own machines.

January 10, 2002

In the early years of the retail ATM market, it was not uncommon for ISOs to own and operate machines themselves, sharing a small percentage of revenue with the merchant.

As more locations got machines and the transactions per ATM dropped, however, many ISOs chose to focus on sales. The business model changed from owning machines to selling them to merchants, and collecting a smaller cut of revenue for providing processing and other services.

 Now, it looks like the pendulum may be swinging back, with placements becoming more common again.

 Why this is happening, and why now, is not entirely certain.

 A smarter customer

 Bob Cannon, chief executive officer of Houston-based Momentum Cash Systems, believes an increasingly savvy merchant is key.

 "I think as the merchants have become educated on the ATM business, and particularly the cash side of the business, when you have a higher volume location, you're talking about a considerable investment of cash in the machine - probably more than the machine cost itself," Cannon said, "and when you look at your program and the time you spend on it, it begins to make more sense to contract the entire program out - which would include the machine."

 Momentum operates more than 3,000 machines in eight states, and owns 850 or so are of them. Cannon said merchants are increasingly reluctant to invest time and money in the machine.

 "Particularly for the better locations, merchants are now looking to outsource the entire ATM program, which would include the machine, the monitoring, the vault cash," he said. "When you talk about placements, you're talking about a more turnkey program - and we are seeing more of that."

 He added, "Eight years ago, five years ago, the merchant was uneducated and didn't get his fair share. Two or three years ago, the merchant believed he was entitled to more than his fair share. I think the market is coming back into equilibrium."

Squeeze is on

Michael Guthrie, vice president of sales for Automated ATM Solutions, a Concord, Calif.-based ISO which operates about 800 machines, said that close to 50 percent of those machines are placements - up from roughly 25 percent just two years ago. He's seen an increase in requests for placements in the last four to five months.

 "Why more people are wanting a placement as opposed to a purchase, I don't know. Maybe they've had issues or have heard things through the grapevine, and they just don't want to take the risk," he said, noting that many merchants have at least heard of Credit Card Center, the high-profile ISO that filed for bankruptcy in June.

 Guthrie said that while Automated ATM Solutions handles cash management and major repairs for its placements, it still expects merchants to help out with minor fixes. "They take care of receipt jams," he said, "we take care of the machines and the cash."

 Working the numbers

Although the number of placements has risen in recent months for his company, the percentage of transaction fees that it collects has not changed.

 Like Guthrie, Cannon said that even with placements, merchants expect to receive more fee revenue than they did in the early years of retail deployment.

 "Pressure has certainly been on merchants receiving more of the revenue off the transactions," Cannon said. "There's been pressure on that for several years. I do see that leveling out, because there's only so much they can get - there's only so much to go around."

 Guthrie said that while it has advantages, the placement deal also requires ISOs to take a bigger financial risk. <

"You can lose your ass if you make bad placement decisions," he said. "That's why there are a lot of companies that have come and gone - they'll buy 100 units and put them in locations where they're not doing enough transactions. In a case like that, your fees alone are more than you're ever going to generate in revenue."

 According to Guthrie, it's crucial for an ISO to be picky when scouting placement locations - perhaps more crucial now than ever. "If I don't believe the location will do a minimum of 400 transactions per month, I will walk away," he said.

 "We have gotten tougher," Cannon agreed. "In general, we're looking for a merchant-load location to do a minimum of 250 to 300 transactions a month, and we're looking for a full service to do from 750 to 800 at a minimum."

Keeping tabs

 Low volume is one reason that ATM Express, a Billings, Mont.-based ISO that operates about 3,000 machines, doesn't seek out more ownership opportunities.

"Way less than one percent" of his company's ATMs are placements, said ATM Express national sales executive Scott Boone. 

"If we were in a different geographic region, it might affect how we do things," he said. "But in Billings, Montana there are limited placement opportunities. Since we would be at quite some distance from most quality placement locations, at this point we haven't changed what we're doing. We have placed machines in our little area here, but not very many. We live in a town of 100,000, and we're the biggest town for 500 miles."

 To maintain more control over their own destiny, most ISOs want to keep tight tabs on their placements, Boone explained. And to keep costs down, he added, many ISOs fill their own machines with cash, which becomes less feasible as the distance from home grows.

 Another option for cutting cash replenishment costs, Boone said, is to have merchants load the cash themselves. However, he said, ATM Express has had poor luck doing so with its placements.

 "We haven't found merchants to be as reliable loading the cash when we own the machine. You get 33s all the time," he said, referring to the code for an empty dispenser. "The smart ones will realize they still need to keep the machine filled to keep the cash moving through the store, but unfortunately not all of them see it that way." 

Point of no return

Now that the average merchant has become more savvy to the ATM business, it's hard to imagine the sales-happy climate of the early 1990s returning. But even so, Momentum's Cannon is optimistic.

 "There's plenty of existing locations that over the next few years we'll replace with better equipment at a lower price," he said. "There's a lot of market that remains untouched. But I do think the higher volume locations - meaning 750 transactions a month and up - will ultimately go to a full turnkey situation."