News

Vault Cash and Cash Management

Running an effiicent and profitable ATM operation requires an understanding of the way cash gets from bank to ATM to cardholder. There are plenty of steps, and fees, along the way, and there are ways to lower the cost of cash.

October 31, 2002

Success for an ATM manager is anything but simple, whether the ATM fleet consists of one machine, a hundred or a thousand. The ATM owner's revenue comes from a surcharge and/or an interchange fee on transactions conducted at the ATM. Those revenues can add up to a tidy sum in monthly revenue, especially in a high-traffic location.

Nonetheless, margins are tight, and ATM owners must make a number of decisions when setting up an ATM program so expenses can be kept low while maintaining a high level of security and service. Many of those expenses fall under the general category of cash management. Included are the costs of keeping cash in the ATM, balancing the books and providing security when delivering and loading the ATM.

Not every ATM requires third-party cash management. Most financial institutions load their own cash into ATMs they own. Non-bank locations are divided into two categories -- those in which the ISO or merchant loads cash, and those that use vault cash services.

Ron Schuldt, president of Columbus Data Services, a third-party transaction processor and vault cash provider, estimates that 20,000 ATMs in the U.S. use vault cash services. That's less than 10 percent of the 220,000 off-premise ATMs in operation, he said.

Schuldt added that many merchants simply can't afford the expense of vault cash management at their ATMs, because many of them don't have a sufficient number of transactions to offset the cost of vault cash services.

It's a risky business, but that risk can be minimized significantly through the use of an efficient cash management program utilizing vault cash, armored car services and the right amount and level of insurance.

For hundreds of ATM owners in the United States and around the world, ATM ownership is an efficient and sound way to make a living, or at least a reasonable profit. If it weren't, there wouldn't be 381,000 ATMs operating in North America, according to Retail Banking Research Ltd. More than half of those ATMs are located in off-premise locations, that is, away from bank branches. And of those off-premise machines, independent business entrepreneurs operate many. These creative types place ATMs in a variety of locations, from bowling alleys to convenience stores, or any place where people gather.

Getting started in the ATM business may seem complicated. There are many details beyond simply making a decision to become an ATM owner and choosing a location. For instance, the ATM owner must buy or lease the machine through an ISO.

The business side of ATM ownership requires several other agreements once those two details are taken care of. A transaction processor facilitates the process by which cardholders receive cash from the ATM, which is debited from their bank account.

Then there's the cash itself, which takes a circuitous path from the ATM owner's cash provider (bank), delivered via an armored car carrier. That carrier may store the ATM's cash in its own vault, and delivers to and picks up cash from the ATM. The armored car picks up the actual cash from a correspondent bank, located near the ATM, which gets its orders from the ATM owner's cash provider.

Still paying attention? All these actions take place in the normal course of business, and ATM owners are required to, or should, have insurance in place should something go wrong. Crimes involving ATMs get a lot of media attention, though in reality they don't occur frequently. Consider that Columbus Data Services has circulated more than $1.3 billion the last 12 months, and its losses from crime or theft have totaled less than .004 percent.

Insurance on the value of the machine, its contents while at the ATM, the cash in transit, and liability protection against any number of accidental mishaps, are necessary forms of insurance for ATM owners.

For some ATM owners, the cost of vault cash services is repaid many times over in stress reduction. After all, ATMs handle boatloads of cash, and the temptation to steal for those who handle that cash can be overwhelming. Some managers can cut some expense by supplying and loading cash themselves, or having employees or merchants do it. This can lead to other problems, from employee theft to difficulty in getting insurance coverage.

Sure, some ATM managers, especially single-shop merchants, prefer to load their own cash and save the fees involved in safekeeping of cash in ATMs. The fact is that many ATM managers would not consider entering the business without a valid vault cash agreement, along with the confidence that the transaction processors, banks and armored car carriers involved in managing ATMs are proven business professionals.

Fortunately, ATM owners don't have to become intimately involved in each step of the process.

How it Works

Let's look at how the cash makes its way to the ATM.

1. It all starts with the Independent Sales Operation, or ISO. The ATM manager initiates an order for the placement of the ATM, through an ISO. The ISO's role is to coordinate the wishes of the ATM manager with various vendors, including a cash provider, transaction processor, correspondent bank and armored car carrier.

2. Contacts, Contracts. There are several contracts involved. One is between the ATM manager and the ISO. This contract establishes the split of revenues and the parameters for service on the ATM.

Another contract is set up between the ATM manager or the ISO and the cash provider. This contract describes the services that the cash provider will handle directly or through third parties. Cash providers usually manage the relationships with correspondent banks, armored car services, insurance providers and to a degree, with processors in terms of getting cash to an ATM and getting monies settled back to the cash provider. The cash provider may forecast the cash needs of the ATM or take direction from the ATM ISO or manager for acceptable cash levels to be maintained in the ATM.

3. Moving the Money. The armored carrier delivers the cash to the ATM, balances the ATM, resets bill counters inside the ATM, collects journals of transactions for return to the cash provider and may change receipt paper. Most cash loads are made on a weekly, bi-weekly or monthly schedule. Schedules are usually established between the cash provider and the armored car carrier based on fill frequency and the pre-set carrier routes.

The cash provider transfers money to the correspondent bank for preparation for the armored car carrier, which picks up the cash, transports it to the ATM and loads the cash in the ATM.

Once the cash is ordered, the cash provider notifies the armored car carrier that the cash is ready for pickup at the correspondent bank.

4. Keeping it all in Balance. The cash provider confirms the load with the armored car carrier, receives the balancing sheets and journals from the carrier and then balances the ATM on its own books by comparing cash orders, cash settlement reports from the processor, deposits and settlements back to the cash provider, and the current cash amounts in the ATM as reported by the armored car carrier.

If an ATM is out of balance, the cash provider researches the out of balance situation that may in turn lead to filing adjustments with the processor, responding to Reg E claims, filing claims with the armored car carrier, or even advising the ATM manager he may have a faulty ATM.

5. The Transaction Chain Reaction. Meanwhile, transactions at the ATM are recorded and monitored. When a cardholder makes a request for cash, the request (or transaction) is sent to an ATM processor that in turn routes the transaction to the appropriate network, which directs the transaction to the cardholder's financial institution for approval or authorization.

If approved by the financial institution, the transaction reverses the previous route and the processor directs the ATM to dispense the requested amount of cash to the cardholder. At the end of the business day, the cardholder's account is debited for the amount of the withdrawal (plus surcharge) and the cash provider's account is credited for the amount.

At least, that's the way it is supposed to work. For those occasions when something goes wrong, there is insurance.

To download a copy of the ATMmarketplace Guide to Vault Cash and Cash Management, click on this link.