Landings CU doesn't have to worry about fixing its ATMs anymore.
The Tempe, Ariz.-based credit union outsourced the management of its four machines to Dolphin Debit Access, an ATM management firm in Houston.
"We had ongoing issues with our ATMs going down for various reasons," said David Rindone, director of marketing at the $136 million CU. "There's never a good time for that, but it always seemed to be on the weekends or other inconvenient times. The ATMs were older, and the constant maintenance plus the inconvenience to our members really made it a big issue for us."
Under Dolphin Debit's business model, the company owns and operates the ATMs, while credit unions lease them. "The bottom line is that [credit unions] just don't need to worry about their ATMs anymore," said Ben Allen, president of Dolphin Debit. "All the maintenance, service, and updating is taken care of for them. That frees them to focus on what is most important, serving their members or customers."
Terry Pierce, senior product manager for CO-OP Financial Services in Rancho Cucamonga, Calif., noted that while ATM outsourcing has been around for years, the service has recently gained more attention as credit unions look for ways to reduce operating costs and increase revenue. "Increases in compliance and security requirements, such as ADA, PCI, Windows 7 and EMV, have led financial institutions to consider ATM outsourcing," Pierce noted.
CUs that outsource their ATMs generally remain surcharge-free within the CO-OP ATM network, according to Pierce. "However, they also continue to surcharge transactions that are non-CO-OP as an additional source of non-interest income."
Thomas Rogers, president and CEO of Memorial CU, which outsourced management of all 16 of its ATMs earlier this year, explained that his decision was sparked by new regulations that would have required Memorial to replace all ATMs with new versions anyway. "Replacing every unit just wasn't feasible for us," Rogers said. "We might have been able to afford the replacement, but we still would have had to manage the program."
Rogers further noted that managing the CU's ATM program amounted to a "huge chore."
"It was very time-consuming and labor-intensive, and we always felt that time...could have been better spent in other areas," he added. "I didn't lose anything by giving up ownership [of ATMs]. We are saving labor and staff hours, and it really has been a stress-free change."
Last October, Statewide FCU also handed over its ATMs to Dolphin Debit."We had our own ATMs for probably 25 years, and we had come to look at them as a necessary evil, something we had to have because we have branches," said Paul Armstrong, Statewide's general manager. "I'm not a big fan of ATMs, and it was just a business I didn't want to be in anymore."
Armstrong said he regretted purchasing refurbished ATMs a few years ago. "We had lots of problems with those machines. Service people were out every week. Something was always breaking on them. We got all kinds of complaints that the machines took members' cards, didn't give them a receipt, or didn't give them their money."
Now, Statewide FCU has new machines at each of its branches. "We see more usage, and the machines operate much faster," he said. "Also, Dolphin Debit keeps up with the maintenance, the compliance, and the regulations. That is a major burden if you own your own machines. We expect to save about $5,000 to $6,000 a year, plus the savings in employee time and aggravation, not to mention member happiness. Now employees don't have to spend a lot of time with the ATM and can do something productive."
Big Strategy for Small CUs
Outsourcing can also be a strategy for small CUs that might otherwise not be able to offer ATM service. The cost factor of maintaining ATMs is a big issue for small CUs, CO-OP's Pierce noted. It requires in-house expertise that understands the processing environment and can ensure that their ATMs remain secure, compliant, and keep up with evolving technology while maintaining availability and uptime. "This is in addition to managing multiple third-party vendors that the credit union contracts with to maintain their ATMs," she added.
Altier Credit Union has outsourced eight off-site ATMs while maintaining control of its in-branch ATMs. "These [off-site ATMs] weren't high-volume machines, but they seemed to have high-volume problems," said David Skilton, Altier's senior vice president and CFO. "And because we were dealing with multiple vendors it often meant we had to go out multiple times."
In addition, Dolphin Debit provides security and fraud prevention at the ATMs by using PCI-compliant PIN pads, encrypted point-to-point VPN communications, as well as other security measures to prevent ATM attacks.
The CU still can monitor the ATM's performance and maintain relationships with the outsourced ATMs by providing vault cash and also stay involved in cash balancing.
But Dolphin Debit itself will manage cash forecasting, cash ordering and the responsibility for all costs associated with armored car services. Furthermore, Dolphin Debit incurs all costs related to compliance, including software upgrades and equipment replacements.
Overall, Dolphin Debit estimates that it can reduce ATM operating expenses by 30% and eliminate capital costs associated with purchasing and maintaining ATM equipment.
A white paper by ATM Marketplace, a news website for the ATM industry, recommended that most financial institutions outsource their machines because "managing the logistics of an ATM program is an expensive and complicated exercise in an area that isn't necessarily part of their core business."
Similarly, a report by The Paragon Group, a firm that consults financial institutions, indicated that outsourcing ATMs can benefit both smaller and larger credit unions.
"Outsourcing has the potential to reduce operation costs and lower stress between front and back-office resources," Paragon wrote. "It also has enhanced customer experience and minimized regulatory compliance complications."
