News

Striking the Deal

While there are many elements in a merchant/ISO contract, the bottom line is that every agreement is different and every aspect is negotiable.

January 7, 2002

Selling an ATM isn't much different from selling insurance, advertising, telephone service or any business-to-business product. There's a delicate dance between two parties, each wanting something from the other and willing to give something in return. For an ISO rep, the dance begins with a phone call, a response card, or a referral, standard prospecting tools for any sales professional.

Once the ISO's agent identifies a prospect, he begins to create an image of success in the merchant's mind. He, or she, demonstrates that having an ATM in a place of business will be a boon to the merchant's business, one that can't be missed. The challenge is to convince the merchant that it would be costly not have an ATM.

If the merchant buys in to the concept, the agent can shape a program to fit the application.

"What an ISO wants to be able to do is get into any situation that they find viable," said Bob Campbell, president of First Federated ATM Network, "and there are enough variables in there that if an ISO wants to deal bad enough, they can make concessions one way or another."

Making the Sale

Once the sales agent finds a merchant who expresses a desire to install an ATM, the agent provides options such as the type, size and cost of various machines. Purchasing options, such as leases and purchase plans, are presented.

Increasingly, lease options are the most attractive route for merchants. "I would say we're probably 60 percent leases," said Noah Weider, vice president of ISO Sales for XtraCash/Amicus Bank. "We have a lot of companies that are vending-type organizations - pay-phones, gum machines - and they leverage those machines from their vendors. So they lease the ATMs from us, and basically treat them like vending machines."

Vance Rowland, vice president of ATM America, Inc., said he's seen a trend toward buying machines. "I would estimate it's probably a 50 percent split," he said. "We used to see more leases, but we're seeing more and more cash sales."

Rowland said ATM America has a flat mark-up on sales, which does not vary from customer to customer.

First Federated ATM Network has a different approach. It retains ownership of the machines, and earns revenue exclusively from fees. If the ATM generates revenue above an agreed-to number of transactions per month, it pays the merchant a percentage. First Federated has about 470 machines in inventory. Campbell said some merchants buy their ATMs at the end of their contract period, which is typically five years.

While much of the ISO/merchant relationship is consistent through all of its deals, there is room for negotiation in every sale. Merchants with prime locations are more likely to get concessions from the ISO, while less desirable locations have less flexible terms.

"It depends on the situation," said Campbell. "The number one thing it's dependent on is what kind of revenue we think we can expect. If it's a location we desperately want, we can be extremely flexible in the terms of our contract. If it's a contract where it might work or it might not, we're fairly rigid. We know the terms that we need."

One of the main negotiating points is the length of the agreement. While five years is typical, some ISOs offer shorter terms if the deal is enticing enough. "From time to time a customer will ask us to reduce the amount of time that we contract for, and we have a little bit of flexibility with that, but not a lot," Rowland said. "We're as flexible as we can be in that area. The businessman has become more savvy - he doesn't just want to sign a long-term agreement. He wants us to earn his business."

Sign on the Dotted Line

The paperwork associated with a new ATM contract varies from ISO to ISO, but in most cases, the emphasis is placed on simplicity. Once the merchant makes the commitment to the program and the two parties have worked out the details, applications are signed, credit checks are done on the merchant, and the wheels are set in motion.

"We have what we call an ATM Agreement and Lease Application, and it's all in one," said Weider. "The application is on the front, the terms and conditions are on the back. It's just a one-page application - and if the guy has five locations, he only has to fill that out once. Our lease agreement comes right from the leasing company. It's pretty simple. There's not a lot of repetitive information."

"[We have] a three-page merchant processing contract that stipulates their obligation to us and ours to them," said Rowland. "It's typically five years. It's not intimidating at all."

In Campbell's case, the paperwork varies directly with the quantity and complexity of the placements. "We have machines at LaGuardia Airport, and the contract is over 100 pages," Campbell said. "We have machines in convenience stores, and that contract is eight or nine pages."

Once the paperwork is signed, the process gets underway. The speed of the process from this point depends largely on the merchant's credit.

"If the guy's got really good credit, we can turn it around in a week or two," Weider said. "We typically say it's a 20-day process from the time that we get the application in house to the time the machine is bolted in."

"[It goes] very quickly," Rowland added. "We have an ATM Now program where we can order pre-configured machines. The same day that we write the business, we ship the equipment. It takes three to five days standard shipping time, then another day or two to get the technician on-site. Within 10 days total."

What Is Expected

The ISO/merchant relationship is a two-way street: the ISO is expected to make sure that the machine works smoothly, that transactions are processed correctly and quickly. The merchant is expected to do everything possible to help bring business to the machine.

"The only major obligation is that [the merchant] keep it loaded with cash," said Weider. "Our obligations are much more serious than theirs."

In addition to keeping the machine stocked and ready to go, placement is a key issue. Most ISOs suggest where the machine should go. "We recommend where we think it needs to be, but these guys are buying the ATM - it's theirs - and they have the ultimate say-so," said Rowland. "These guys are businessmen as well - they understand the value of the ATM - and typically they put it where it needs to be."

Paying the Bills

Once the machine is installed and paid for - either outright or through a lease - it can begin to generate revenue. It does this in two primary ways: the surcharge and the interchange, or back-end fee.

The surcharge is the fee - typically $1.50 to $2.00 - that is charged immediately to the user. The user reads a warning message onscreen, alerting him/her that this terminal charges a fee to withdraw cash. The interchange is the fee paid by that user's bank to the owner of the terminal. Often, depending on the bank, the interchange is also passed along to the user - it arrives at the end of the month on the bank statement.

One of the key components of the merchant/ISO contract is the manner in which these two fees will be split. Some ISOs keep the interchange, giving the surcharge to the merchant. Others split the fees by percentages.

"It's different every time," said Weider. "It depends upon how much service they bundle in with it. We offer service contracts for a portion of the fee. If the merchant wants to take care of everything, they get the lion's share of the fee. Typically, we only keep 10 percent of the surcharge."

There's plenty of leeway in the structuring of deals with merchants.

"There's not a lot of variation there - we pay the surcharge to the merchant, with no fees or hidden costs," said Rowland. "We do shy away from splitting the interchange."

Looking to the Future

Once the deal is complete, the machine is up and running and generating a profit, it's time for the salesperson to find the next prospect. But in an increasingly competitive marketplace, service after the sale is crucial. Most ISO agents will regularly check in on existing customers, perform minor checks on the machines, and monitor how the machine is doing.

Industry experts say that in such a competitive field, a quality service program is absolutely essential to survive.

"The playing field for ISOs has leveled - there's no question about that," Rowland said. "No one has a service advantage anymore, because we're all basically using the same service technicians around the country."

The ISO can differentiate themselves by the level of service and attention they provide in the days, weeks, and years after the machine has been placed.