Shrinking Interchange & EMV Compliance Top List of Concerns for US IADs

Bloomington, IL and Sioux Falls, BD - 25 February 2013

Further reductions in interchange, network EMV mandates and the possibility of seeing another surge in lawsuits against IADs — this time over Americans with Disability Act (ADA) compliance — top the list of concerns for U.S.-based independent ATM deployers (IADs), according to a recent survey.

Yet, despite challenges facing IADs, the majority of IAD’s surveyed say their plans include growing their businesses over the next 12 months.

Co-sponsored by the ATM Industry Association and Kahuna ATM Solutions, the 3rd annual IAD survey covered topics of importance to ATM deployers including: concerns about the health of the ATM industry; legislative and compliance issues; migration to EMV; mobile payments; products and services offered by IADs; and the future of U.S. IADs.

One-hundred eight (108) IADs, a 93 percent increase from last year, responded to the survey between November 13 and December 21, 2012.

Interchange Reduction

“I’m not surprised shrinking interchange is the number one concern for ATM deployers,” says Bryan Bauer, president of Kahuna ATM Solutions. “Between decreases in the published net interchange rates and the increased popularity in tiered interchange policies, ATM deployers on average have realized a 16 percent decline in interchange from one year ago, and a 33 percent decline in interchange over the past six years.”

Fluctuating reductions in interchange — implemented over time by the card networks to appease card issuers — is an issue ATMIA has been focused on for some time.

“ATMIA is working with the card networks to resolve the balance between supporting the needs of the issuer and the needs of the acquirer,” says ATMIA executive director David Tente. “ATMIA supports variable surcharging — it is good for competition and good for the consumer. It provides ATM deployers with incentives that result in more choices for the ATM user and the convenience of an ATM in many locations that might not otherwise be served.”

In July 2012, the National ATM Council (NAC), which represents the interests of independent providers of ATMs across the U.S., filed a lawsuit against Visa and MasterCard over reductions in interchange rates for ATM transactions. The suit takes issue with Visa’s and MasterCard’s interchange reductions, which NAC claims adversely impact the amount of fee revenue ATM deployers can collect on transactions. It also asks the courts to declare Visa’s and MasterCard’s rules on restricting differential surcharging unlawful and seeks damages for economic losses IADs have suffered because of differential-surcharging restrictions.

In the lawsuit, ATM deployers say the card networks, through tiered interchange, have created unfair business practices. By lowering the fee paid per ATM transaction, independent deployers are at a competitive disadvantage to banks and credit unions.

Recently, the court dismissed the suit saying that the plaintiffs had failed to prove the claimed monetary damages. According to NAC executive director Bruce Renard, the suit currently is being amended and will be re-filed in coming weeks.

Sixty-three point eight (63.8) percent* of survey respondents chose ‘Further Reduction in Interchange’ as their biggest legislative / compliance / network fears, worries or concerns regarding the health of the ATM industry.

The survey also showed that ATM deployers (40.7 percent) favored empowering an ATMIA committee to negotiate with the networks over falling interchange. Thirty-six point one (36.1) percent of respondents favored filing and/or supporting a lawsuit against the networks and 12 percent favored asking Congress to pass legislation that forces networks to make changes to the rules that restrict differential surcharging.

EMV & Mobile Payments

In the middle of the nationwide Americans with Disability Act (ADA) upgrade, Visa announced plans to speed up chip migration and adoption of mobile payments in the United States in mid-2011. This announcement was followed quickly by EMV initiatives from MasterCard and Discover.

The survey found that complying with EMV migration deadlines was a major concern for IADs with 50 percent* of respondents indicating it is one of their biggest legislative / compliance / network fears, worries or concerns.

“Our clients are very concerned about the financial strain of EMV migration,” says Bauer. “The top-of-mind concern is obviously the capital investments in upgrading hardware, but not too far behind and equally as frustrating is the inability to comply in time for MasterCard’s Maestro liability shift. MasterCard needs to step up to the plate and change this date.”

“For ATMIA membership as a whole, EMV migration is our number one issue. Since the majority of EMV discussions are centered on retail point-of-sale, we are finding it necessary to be very proactive about assuring that the unique needs of the ATM industry are made part of those discussions,” says Tente. “To that end, ATMIA is taking the lead in forming an ATM Working Committee within the EMV Migration Forum (EMF).”

The survey revealed that IADs are anxious to find out more about EMV and what it means for the industry. Sixty-four point four (64.4) percent of respondents would like more information on the U.S. EMV requirements, 62.6 percent are interested in what the cost involved with EMV migration will be and 40.1 percent would like to know what the implications of Visa/MasterCard's liability shift will be on the ATM industry.*

The survey also found that IADs are unsure about adopting Near Field Communications (NFC) — which drives contactless/mobile payments — as part of their EMV-migration strategy. An overwhelming 63.9 percent of respondents were unsure if they would adopt it while 20.3 percent indicated they would not include NFC. Furthermore, the survey suggests that IADs need more education about NFC; how it works, it’s effects on ATMs and the benefits of NFC to IADs.

ADA Lawsuits

The possibility of seeing another surge in lawsuits against IADs during 2013 over ADA compliance came in as the third biggest legislative / compliance / network fears, worries or concerns for IADs with 41.6 percent* of respondents.

Since the March 15, 2012 deadline, financial institutions and IADs have seen an uptick in lawsuits for non-compliance with ADA regulations at ATMs. One visually impaired woman from Texas has already filed 19 lawsuits for failure to comply with ADA regulations and a blind man in Pennsylvania has filed at least 20 ADA-related suits.

“ATM deployers need to be very diligent about compliance with the new regulations. Although ATMIA has not been made aware of any frivolous ADA lawsuits, there will continue to be ‘serial’ plaintiffs who seek out even the smallest infraction. Changes in the regulations to allow for correction of most infractions before litigation can begin, would be a welcome revision,” says Tente.

Growing Your Business in a Challenging Time

“With declining transactions due to saturation in the marketplace, reductions in interchange and the pace with which payment technology is changing, this industry has become more challenging,” says Bauer. “Yet, the continued optimism we see from ATM deployers and operators is encouraging.”

Seventy point four (70.4) percent of survey respondents, an increase of 3.2 percent over last year’s results, say their plans include growing their businesses over the next 12 months. Only 8.3 percent indicated they would make ‘no change,’ while 7.4 percent were ‘unsure’ and 6.5 percent planned to ‘align with another business for efficiency.’

Many IADs have taken steps to move away from relying solely on transaction income by offering ancillary products that help to increase revenue and add value to existing business relationships.

According to the survey, the top 12 products and services offered by IADs, other than ATM transactions, to their customers are:

1. Credit Card Processing

2. ATM Branding Packages

3. Professional Support / Managed Services

4. Kiosks & Surrounds

5. Financial Institution Turn-Key Outsourcing

6. Video Toppers

7. Advertising / Media

8. ACH Services

9. Deposit Automation

10. Bank Branch Products

11. Surcharge-Free Transaction Networks

12. Security Products

Bauer also offers the following strategies to increase revenue and decrease operating costs:

1. Outsource Work Where it Makes Sense

2. Form Quality Joint Venture Relationships

3. Take a Consultative Approach to Selling and Up Sell Products and Services When it Makes Sense

4. Strengthen Agreements and Revise Pricing Models

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