Despite a myriad of challenges facing U.S.-based independent ATM deployers (IADs) — EMV migration, reductions in interchange and quickly changing technology, to name a few — the majority of IADs say they plan to grow their business over the next 12 months, according to a recent survey.
Co-sponsored by the ATM Industry Association (ATMIA) and Kahuna ATM Solutions the results of the fourth annual IAD survey were revealed February 12, during the ATMIA U.S. Conference and Expo at the Loews Pacific Resort in Universal Orlando. In his presentation, Bryan Bauer, president of Kahuna ATM Solutions, provided attendees with the results of the survey including the major legislative and regulatory challenges, and operational concerns of IADs.
Ninety-two (92) IADs responded to the survey between December 16, 2013 and January 24, 2014. Issues covered by the survey included: IAD concerns regarding legislative and compliance issues, migration to EMV, mobile/contactless payments, products and services offered by IADs and the future of IAD businesses in the United States.
Legislative / Compliance / Network Concerns
"Not surprisingly the survey results showed that IADs are most concerned about EMV migration, reductions in interchange and surcharge restrictions," says ATMIA executive director David Tente.
Closely mirroring last year's results, EMV migration was cited as the number one concern with 61.9* percent of IADs choosing it as one of their three biggest legislative / compliance / network fears, worries or concerns regarding the health of the ATM industry. Reductions in interchange, which was the number one concern for IADs in 2013, came in second with 52.1 percent and 29.3 percent of IADs chose surcharge restrictions. Rounding out the top five responses were governmental changes / interference based on lack of information (27.1%) and the Durbin Amendment’s impact on ATMs (20.6%).
With MasterCard's EMV liability shift for U.S. ATMs set for October 2016, the uncertainty surrounding the development of a common debit solution, routing choices and the implications of the Durbin Amendment lawsuit EMV migration is a major concern for IADs.
“Our clients are very concerned about the financial strain of EMV migration,” says Bauer. “Their top concern is the obvious capital investment in upgrading hardware and dispatching service personnel, but the larger, more frustrating variable is the lack of a common debit solution that would negatively impact routing choice."
“ATMIA has taken a leadership role on EMV," says Tente. ATMIA represents the ATM industry on the EMV Migration Forum, an independent body that is tasked with addressing issues related to EMV migration; holds regular meetings of our own EMV Committee to share information and discuss issues; and has produced educational materials on this topic. In addition, ATMIA recently issued a position paper on the matter, urging MasterCard to take a leadership role and join the Debit Network Alliance, which is a group of 10 U.S. debit networks that have come together to provide a structure for the governance, deployment and implementation of the EMV debit standard with the goal of protecting routing choice.
According to Tente, not much has changed in regard to EMV debit status or the Durbin lawsuit in the last few months. "There was oral testimony in the Federal Reserve Board’s Durbin appeal case last month, which seemed to favor the Fed. The panel judges indicated the 'Chevron doctrine' argument the merchants expected to make would not be sufficient."
As far as adoption of a common debit solution for the U.S., Tente says the same three debit solutions announced as of July last year are largely unchanged.
The survey revealed that IADs are anxious to find out more about EMV and what it means for the industry. Sixty four point eight (64.8%)* percent of respondents would like more information on the cost involved with EMV migration, while 47.8 percent would like to know what the upgrade paths will be for ATMs in the U.S. and 41.3 percent would like to know more about the implications of the Visa / MasterCard liability shifts.
Based on the 2013 IAD survey results, ATMIA and Kahuna jointly developed an in-depth white paper and webinar on EMV. The free white paper, The Long Road to EMV: An In-Depth Look at EMV & How It Will Impact IADs, covered the reasons the U.S. is moving to EMV, the importance of a common debit solution, the cost of fraud vs. the cost of migration, how EMV will / will not benefit independent ATM deployers (IADs), the move to mobile technology, the implication of the liability shift for IADs, and the need to education consumers on how to use the new technology.
In addition, the survey indicates that IADs are beginning to embrace the idea of contactless / mobile transactions at the ATM as part of their EMV migration strategy. In 2013, only 14.6 percent of those surveyed indicated they were developing a contactless / mobile transactions strategy. This year 34.7 percent of IADs said they were interested in contactless transactions.
When asked what they would most like to know about contactless / mobile transactions at the ATM, 46.7* percent of IADs cited how contactless transactions / payments could affect the ATM industry followed by how contactless transactions could benefit IADs (28.2%) and contactless ATM transaction options available from retail manufacturers (23.9%).
Reductions in Interchange & Surcharge Restrictions
One of the biggest threats to IADs in the U.S. is declining ATM interchange revenue and increasing fees. A common fear among IADs involves restrictions to surcharge. Combined with increasing operating expenses, any restrictions placed on the amount IADs can surcharge would hurt consumers by limiting the number of ATMs available in the marketplace.
Depending on the region where an IAD operates and the data source, the average interchange income has declined by 35 to 59 percent since 2004. Kahuna ATM Solutions reports a 35 percent decline since 2004, with average interchange income per transaction now at approximately $0.295 per transaction; while ATM Data Pro reports a 59 percent decline, with average interchange income per transaction now at approximately $0.275.
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 committees are addressing interchange concerns, taking the lead in defining ways IADs can work more collaboratively with banks and credit unions to address interchange concerns, and are working with the card networks to resolve the balance between supporting the needs of the issuer and the needs of the acquirer.
"ATMIA supports variable surcharging and lifting restrictions on surcharge imposed by many states — it is good for competition and good for the consumer," says Tente. "Variable surcharging provides ATM deployers with incentives that result in more choices for the ATM user and the convenience of an ATM in locations that might not otherwise be served.”
IADs are fearful of surcharge restrictions because, for most IADs, surcharge is the only real revenue source tied to the operation of the greatest majority of their ATMs. Any new restrictions on surcharge would be an immediate knock-out blow to the successful operation of a certain amount of ATMs, and possibly even some IADs, continues Tente.
Bauer agrees. “It simply doesn’t make sense to limit business or consumer activity with any surcharge restrictions. A consumer chooses to use, or not to use, an ATM based on the price of a surcharge already – we don’t need government for this. More importantly, a consumer also chooses an ATM based on the value of their time — this is the convenience factor — as well as other factors such as security. Government should not dictate what a consumer’s time or security is worth. This is essentially what surcharge restrictions do, since it ends the operation of certain ATMs," says Bauer.
Growth in a Challenging Time
As in previous years, IADs cited declining transactions (44.5%)*, ATM saturation (40.2%) and keeping up with changing technology (38.0%) as their three biggest non-legislative / compliance / network fears, worries or concerns regarding the health of the ATM industry.
“Despite the many issues facing IADs of all sizes, in the four years we've done this survey we continue to see IADs optimistic about the industry," says Bauer.
Thirty-two point five (32.5%)* percent of the IADs surveyed indicated they plan to grow their business greater than last year and 11.1 percent said they plan to grow their business equal to last year's growth during the next 12 months. Only 6.6 percent said they planned to sell their business or were unsure of their growth strategy for 2014.
When asked how they planned to grow their business, 20.3* percent of IADs checked that they planned to acquire additional portfolios and 12.5 percent said they were planning to align with another business to increase efficiency.
“As we can see from the survey, it is coming down to smaller versus larger. With declining transactions due to saturation, reductions in interchange and the pace with which technology is changing, it is more challenging than ever for smaller IADs, without the help of a company like Kahuna which helps IADs increase their profits and lower their expenses, to compete with larger IADs," says Bauer.
As the market changes, IADs have changed as well. Rather than rely solely on transaction income, many IADs have added additional products and services to their offerings.
According to the survey, the top five products and services offered by IADs, other than ATM transactions, are: 1.) credit card processing, 2.) advertising / ATM branding packages, 3.) professional support / managed services, 4.) surcharge-free network access and 5.) deposit automation.
Empowering IADs Through Education
IADs indicated the topics they were most interested in were: EMV education, the future of ATM interchange, contactless ATM transactions, branding / advertising at the ATM, and bottom line profitability and reducing transaction expenses.
"ATMIA is committed to providing our members with vital education through white papers, executive briefings, industry best practices and webinars," said Tente. "Based on the 2013 survey results, ATMIA and Kahuna jointly developed two white papers and webinars on the top IAD concerns — interchange reductions and EMV. We received a lot of positive feedback from our membership and plan to continue the series based on the 2014 survey results."
In addition, ATMIA recently launched the first-ever industry-endorsed online training certification for ATM operators (financial institutions and IADs). The new member training program, ATMIA Academy, consists of over 100 sessions divided into five courses that members can access individually or in teams. The material is based on intensive global research into current ATM operational practices and procedures.
Want to know more about the issues facing U.S. IADs?
Download the complete survey report, from the ATMIA or Kahuna websites. The two white papers produced last year based on the 2013 IAD Survey results — The Future of ATM Interchange and The Long Road to EMV: An In-Depth Look at EMV and How It Will Impact IADs — can also be found online.