Choosing the Right ATM

With the number of ATMs in service across America rising and their average transaction dipping for a decade, convenience store operators face a variety of choices in how they choose to deploy them.

Viewed as revenue generators or simply services for customers, cash machines present c-store executives with a variety of options and challenges, beginning with whether to buy, rent or partner with a local bank or independent sales organization (ISO).

“There are so many different types of partnerships,” said Lana Harmelink, chief operating officer of the ATM Industry Association (ATMIA), a non-profit trade association in Brookings, S.D. “I think most convenience store owners aren’t really interested in owning their own ATMs. A lot of people don’t realize all of the behind-the-scenes issues that go along with it. When you get involved with an ATM you’re getting involved with a sponsor bank, with a process, a network. It’s not just a box that you plug in.”

From the cash provider to the service provider and others, Harmelink estimated, there are at least seven different organizations involved with an ATM. “That’s why I think most convenience store owners are more interested in partnering with ISOs or independent deployers,” she said. “They own the ATM, they take care of everything. They make sure it meets all of the guidelines and regulations, because they are constantly updating those regulations.”

Examine the Options
At a minimum, factoring in electricity and paper costs, retailers must break even with ATMs, but they should all be profitable.

“There are pluses and minuses to owning and renting,” said Margaret Chabris, spokesperson for Dallas-based 7-Eleven Inc., which sold its ATM operations to Cardtronics in 2007. Cardtronics operates all ATMs and advanced-function financial self-service kiosks in 7-Eleven locations throughout the U.S., including new stores.

“As of now, we have very little expense and receive a monthly commission,” Chabris said.

7-Eleven has a branding relationship with Citibank at all its ATMs and Vcom terminals. These deals are often sought by banks because of the brand exposure they get with convenience store customers. “Citi  outlets grew overnight by 5,600 locations when we signed the agreement, and now all Citi customers can withdraw cash surcharge-free from our locations,” Chabris said.

Surcharge-free partnerships are a customer-friendly option for improving ticket rings and customer count in an environment where ATM traffic is declining.

 “There are a few different ways to look at it,” said Tracy Kitten, a consultant with ATM Marketplace. “Right now, with the way the economy is and especially in the retail environment where everybody is looking to cut costs, investing in an ATM may not make the most sense.”

For smaller c-store operators and independent chains, it probably makes more sense to partner with an ISO.
“But the economic downturn has forced a lot of retailers to look at every nickel and dime they spend very closely,” Kitten said. “The downside to an ISO, obviously, is that you have to share the surcharge. You reap benefits because you’re not investing in equipment. Oftentimes, an ISO will come in and basically pay you to put an ATM there.”

Cost of Entry
Choosing the best route depends on what the operators want from their ATM. If they want to make the most money from their ATM and the operation is manageable by them, then they need to own the ATM. Just like anything else, the more equity that chains have in the opportunity, the more they’re going to get out of it.

The challenge, of course, is that it can become both expensive and cumbersome to own and operate a high-volume cash machine. “That’s where the fine line is,” Kitten said.

Convenience store operators nationwide average just shy of 300 per-site transactions each month. In such a case, Kitten added, “I would say it makes sense for them to own and operate their own ATMs.”

One benefit to owning cash machines: The cost of entry today is significantly lower than in years past, as manufacturers have grown more creative in selling their inventory. The entry-level sale price for an ATM ranges from $2,500 to $5,000, according to Cardtronics. These are ideal for small chain operators. If a store goes this route and is charging $2 per transaction and it gets 300 transactions per month, for example, it could break even on a $3,000 ATM in about five months, before factoring in network charges.

“You could lease an ATM,” said Harmelink of ATMIA, “but you have to be sponsored by a bank to hook up to a network and be able to accept Visa and MasterCard. So it’s really not something that is a short-term type of program.”

Ownership Equals Control
Buying machines has its supporters. “I’ve only done it one way, and I think it’s the right way, and that’s buying them,” said Kurt Straube, operations manager for 43-unit Dari Mart Stores Inc. in Junction City, Ore. “We own our ATMs and the money inside them. They are completely controlled by us. My thinking is that it gives us the ability to decide whether we want a surcharge or not, which we don’t.”

That decision has spurred a lot of positive publicity and feedback from customers. “Everyone else seems to be surcharging, and we’re not,” Straube added.

Each Dari Mart location has an ATM, and averages 250 to 300 transactions per store each month. The machines cost around $3,400 each, and are refilled on Fridays and Tuesdays. Each store’s activity level dictates the balance in its machine, and the average transaction is “low” at $20 to $30.

Managing, stocking and maintaining the machines is “really no problem,” Straube said, though he conceded there is some additional labor involved. “And any time you’ve got somebody handling thousands of dollars at a time there is a little bit of risk there.”

Another major advantage to owning the machines is having the ability to negotiate contracts with processors. “Our contracts have varied from 20 cents to a high of 37 cents per withdrawal coming to us,” Straube said. “That has no impact on what the customer feels; it’s just part of the interchange fee. Revenue is collected on withdrawals only.”

Working with a local bank may be tricky for a small operator. Typically, a bank is looking for retailers with several locations within its market.  In 7-Eleven’s case, Cardtronics partners with eight of the top 10 banks in the world to brand its ATMs.


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