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UnderstandingtheATMBusiness

AimeeLeeper,MarketingManagerTritonSystemsandATMGurus

Nearlyevery

adult

(with

the

exception

of

afew

Senators)

has

used

an

ATM,

probably

without

much

thought

about

whoownsandoperatesit.ManyATMsbelongtoFinancialInstitutionsFIs(Banks,CreditUnions,etc.),andthese

FIstypicallyoffertheATMasaconveniencefortheircustomerbaseandevenfornoncustomers. Thisprovides

afterhoursaccesstoahostoftransactionssuchascashwithdrawals,deposits,andtransfers.Thisisaservicethat

consumersexpect,andonethatFIsarecompelledtoprovidetoadiscerningcustomerbase.Inadditiontothe

traditionalFI,thereareotherATMs,nottypicallyfoundonbankproperty.Thesearetheonesyouseeinairports

andhotels,atconveniencestores,inshoppingmalls,etc.Someofthesemaybeplacedbyabankforthe

convenienceoftheircustomers,butmanyareplacedbyindependentbusinessesthatoperateATMsforprofit,

muchinthesamewayvendingcompaniesplacesodamachinesinsimilarlocations.

ThesetwodifferenttypesofATMinstallationscanbecategorizedasonpremiseandoffpremise,orasFI

brandedand

independent.

On

premise

ATMs

are

typically

more

advanced,

multi

function

machines

that

complementanactualbankbranch'scapabilitiesandthusaremoreexpensivehardwarepurchase.ManyFIssee

thesemachinesasanextensionoftheirbranchofferingssincetheyprovidemultipletypesoftransactions.Off

premisemachinesaredesignedtotypicallybedeployedbyfinancialinstitutionsandalsoISOs(orIndependent

SalesOrganizations)inareasthatarelimitedbyspace.Withasmallerfootprintandlimitedfunctionality,these

unitsareacosteffectivesolutiontolarger,fullfunctiondevices. Althoughlowerincost,thereareanumberof

innovativetechnologiespresentintheseoffpremiseunits. Advancesinsecurity,communicationsand

transactionofferingshavehelpedtomakethewhitelabelorindependentATMacommonsitevirtually

everywherewego. Conveniencestores,sportingvenues,theworkplaceATMsarepartofthefabricofourlives.

UsinganATM,customerscanaccesstheirbankaccountsinordertomakecashwithdrawals(orcreditcardcash

advances)and

check

their

account

balances,

or

even

in

some

cases

to

purchase

other

services

such

as

gift

cards

or

cellphoneprepaidcredit.IfthecurrencybeingwithdrawnfromtheATMisdifferentfromthatwhichthebank

accountisdenominatedin(e.g.withdrawingJapaneseYenfromabankaccountcontainingUSDollars),themoney

willbeconvertedatawholesaleexchangerate.Thus,ATMsoftenprovidethebestpossibleexchangeratefor

foreigntravelersandareheavilyusedforthispurpose.

Everyonecanagreethatpayingfeesissomethingwedallliketoavoid.Folkswhotendtoplanaheadeither

withdrawenoughcashfromtheirbankduringregularbusinesshours,orusethefreeofchargeATMthattheir

bankoffers.Everyonecanprobablyalsoagreethattheyarehappytopayafeeforaccesstocashwhenadvance

planningisntpossible.Imaginetravelingbycarandbreakingdowninaremotearea.Theonlymechanicavailable

doesnttakeplastic,andyoudidntbringyourcheckbookonthistrip.PayingacoupleofbucksatanearbyATMto

getthe

cash

necessary

to

get

you

rolling

again

is

abargain.

Independent

ATM

operators

are

the

ones

who

make

suchconveniencespossibleforconsumers.SeeFigure1,abreakdownofATMIA(AutomaticTellerMachine

IndustryAssociation)membershipsintheU.S.,forthemakeupoftherangeofbusinessrelatedtothisindustry.

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Figure

1

Asconsumers,eachofusmakesdecisionseverydayregardingconvenience. DoIdrivemycartowork,takemass

transit,oracab? Theconvenienceofacab,forexample,providesanindividualwithpointtopointpersonalized

service.Whnweselectataxiasaformoftravel,weexpecttopayapremiumforthis,sinceweareweighingthe

valueofconvenienceandpersonalizedserviceoverthecost/timeofmasstransitorwalking. Takethisastep

further,thinkofthevalueofaconveniencestore. Howmanyofyouhavewalkedintoaconveniencestoreto

purchaseapackofgumorasoda?Whenyoumakeadecisionlikethat,youaretakingconvenienceovercost. A

sodaatthegrocerystoreordiscountstorecanbepurchasedforafractionthecostofonethatissoldata

conveniencestore.Why? YouarethirstyNOW.Hereisahandymarketnearby,wellstockedwithavarietyof

beveragestypicallycold,andConvenient!Consumersmakedecisionslikethiswhenaccessingcashaswell.

Conveniencecomesataprice,whetherfortravel,goodsorevencash.

HowdoesoneoperateanATMforprofit?Therearemanythingstoconsiderwhenansweringthisquestion.Costsvary

by

the

type

of

ATM

and

by

the

location.

Machines

vary

widely

in

price,

ranging

from

$1500

$15,000,

dependingonfunctionality.Then,thereareongoingmaintenancefeestokeeptheunitoperational,likeensuring

receiptpapersupplyremainsconstantandotherrepairsandmaintenancemuchlikeacarmighthave.The

communicationsline,whethercable,phone,orwirelessmustbepaidformonthly.Dependingonthelocation,

operatorsmaycompensatethestoreownerforrentalofthespacetheunitoccupies.Someoperatorshire

armoredcarsforcashreplenishment.Then,thereareeverchangingsecuritymandatesthatcompeloperatorsto

complywithorbefined.Finallyaprocessingbankmustbepaidtocompletethetransaction.

ReturnoninvestmentinanATMdependsontheusageandtraffic.KeepinmindthatanATMlocatedina

nightclub,amusementpark,orcasinowilltypicallyhavehightransactioncountsbecausecustomersfrequentlyrun

outofcashanddonotwanttoleavethepremisestofindanATM.AnATMlocatedinthelobbyoflargeapartment

orcommercial

building

with

lots

of

tenants

or

employees

typically

does

well

because

of

convenience.

People

are

creaturesofhabitandliketocombinetrips.ATMsinconveniencestoresandfastfoodrestaurantsdowell

becausetheyaredestinationestablishments.PeoplegothereforsomethinganywayandtheATMsavesthema

triptothebank.

Whatistheprocessforcompletingatransaction?MostATMsareconnectedtointerbanknetworks,enablingpeopletowithdrawanddepositmoneyfrommachinesnotbelongingtothebankwheretheyhavetheiraccount

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orinthecountrywheretheiraccountsareheld(enablingcashwithdrawalsinlocalcurrency).Someexamplesof

interbanknetworksincludePULSE,PLUS,Cirrus,Interac,Interswitch,STAR,andLINK.

ATMsrelyonauthorizationofafinancialtransactionbythecardissuerorotherauthorizinginstitutionviathe

communicationsnetwork.ThisisoftenperformedthroughanISO8583messagingsystem.

ATMstypically

connect

directly

to

their

host

or

ATM

Controller

via

either

ADSL

or

dial

up

modem

over

atelephone

lineordirectlyviaaleasedline.LeasedlinesarepreferabletoPOTSlinesbecausetheyrequirelesstimeto

establishaconnection.LeasedlinesmaybecomparativelyexpensivetooperateversusaPOTSline,meaningless

traffickedmachineswillusuallyrelyonadialupmodem.ThatdilemmamaybesolvedashighspeedInternetVPN

connectionsbecomemoreubiquitous.CommonlowerlevellayercommunicationprotocolsusedbyATMsto

communicatebacktothebankincludeSNAoverSDLC,TC500overAsync,X.25,andTCP/IPoverEthernet.

Inadditiontomethodsemployedfortransactionsecurityandsecrecy,allcommunicationstrafficbetweenthe

ATMandtheTransactionProcessormayalsobeencryptedviamethodssuchasSSL.

Howaresurchargesdetermined?TheaverageATMtransactionis$60.Abankingrulestatesthatacardholdermust

be

able

to

withdraw

a

maximum

of

$200

when

paying

a

surcharge.

The

operator

may

set

a

limit

on

how

muchcanbetakenout,butitneedstobeatleast$200.

Theaveragesurchargeistypicallysetbetween$1.75 $2.50.TheATMsetsthepriceatwhatthemarketwillbear.

However,somestateshavespecificmaximums.

AllofthemoneytakenoutofanATMisusuallydirectlydepositedbackintoacheckingaccounteachbusinessday

frompreviousdaysusage.AllfundsgothroughtheFederalReserveACH(automatedclearinghouse).Fundsfrom

surchargeincomearedirectdepositedintothecheckingaccountalso. It'sjustlikehavingcreditcardcharges

directdepositedintoacheckingaccount.

TheaverageATMinaretailenvironment(notabank)doesabout610transactionsperday.Keepinmindthat

thereare

ATM

owners

only

doing

two

or

three

transactions

aday

on

an

ATM,

but

there

are

also

ATM

owners

that

haveATMmachinesthatcomplete30 40transactionsperday.SomeFARexceedthisincertaincircumstances

imaginetheactionATMsgetatChurchillDownsonDerbyDay.

Inascenariowitha$2.00surcharge,anATMprocessing10transactionsperdaywouldearnatleast$560per

month. At25transactionsperdayitwouldearn$1400permonth.

Howdoestheprocessingwork?WhenanATMtransactionisprocessedthemachinemakescontacttobegintheauthorizationprocess.TheATMmachinehasaTID(terminalIDnumber).Thisisthenumberthatidentifiesit

uniquelywithintheprocessingsystem.Thisishowthenetworksallowthetransactiontobecompleted.ThisTID

alongwithotheridentifyinginformationletsthecardholder'sbankknowthatthetransactionistakingplaceon

thatparticularATM.

NowtheATMcanconnecttothenetworksthroughourprocessingcenterandthentothecardholdersbank.If

therearesufficientfundsintheATMcardholdersaccountforthewithdrawalrequest,thetransactionwillbe

completed.

OncetransactionsareapprovedtheATMreceivestheauthorizationanddispensesthecashrequested.TheATM

canalsobeusedifsomeonejustwantstochecktheiraccountbalanceortransferfundsbeforeorafter

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withdrawingcash.Thereistypicallynosurchargeplacedonnoncashwithdrawaltransactions.

WhatisanATMnetwork?IfyoutakeyourATMcardoutofyourwalletnow,youwillseenetworklogos(alsoknownasbugs)ontheback:

NoticethattheCirrusbuglookssimilartotheMasterCardlogo.That'sbecauseitstheATMprocessingnetworkof

MasterCard.ThePlusnetworkistheATMsideofVisa.PlusandCirrusaretheNationalATMnetworks.Allother

logosandbugsareregionalnetworks.

WhatdoATMsofferbesidesconvenientaccesstocash?MikeLee,CEOofATMIA,isanexpertonthesocioeconomicbenefitsthatATMsprovidetosociety.Figure2onthenextpageshowsanexcerptfromhiswhitepaper

onthesubject.

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Figure2

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Whatwemustunderstandaboutthisbusiness,justlikeanyother,isthatconsumershavechoices. ATMoperators,

justlikeinanyotherbusiness,willchargefortheirservicesbaseduponanumberoffactors. Convenience,

location,competition: allofthesedeterminethefeesATMoperatorscharge.Ifafeeissettoohighonamachine,

transactionvolumegoesdown,andtheoperatormakesanadjustmenttogetthatmachineoperatingprofitably.In

afreesociety,themarketsetsthepriceforgoodsandservices.Consumersaskfordemandorientedandcost

effective

solutions:

i.e.

more

applications,

bandwidth,

graphics,

intelligence,

flexibility,

and

reliability.

All

of

this

costsmoney,andconsumersdontexpectittobefree.

ATMusersspendmuchofthecashtheywithdrawrightattheestablishmentwherethetransactiontakesplace.

Thisdrivestheeconomy.Whodoesntsupportthat?

Sources:ATMDepot.com http://www.atmdepot.com/resources/howatmmachineswork/

Wikipedia

ATMMarketplace

ATMIAMikeLee TheManySocioEconomicBenefitsofATMs

NotealsothatinconjunctionwithTremontCapital,ATMIAhasalsopublishedanewpaperanalyzingthebusinessmodeloftheoff

branchATM.Fordetailsonhowtopurchase,visithttp://www.atmia.com/unitedstates/

www.atmgurus.com www.triton.com