For a variety of reasons, merchants who put automated teller machines in their stores are relinquishing control of those machines to the independent sales organizations that sold them the ATMs in the first place.
In 1996, when the Plus and Cirrus networks - owned by Visa U.S.A. and MasterCard International respectively - dropped the ban on surcharging at ATMs, the boom in ATMs at merchant locations began. But at the time, few ISOs could afford to own hundreds of new ATMs themselves, so the ISOs sold the machines in small numbers to the merchants, many of them mom-and-pop stores.
As ISOs have grown and gained more experience in the business, they have begun to buy back more and more of the ATMs in their networks, and to place those ATMs in the stores of larger, national retailers.
Cardtronics LP, a Houston company with an ATM network of about 10,000, has bought nearly 4,500 of them in the last two years. In October of 2001 it bought a portfolio of 1,200 ATMs from McLane FSP, a grocery distributing company and subsidiary of McLane Co. Inc.
Originally, Cardtronics acted as a middleman, buying ATMs from manufacturers and selling them to retailers. "But we recognized that if we were going to grow more, we needed to change the business model," said Doug Deitel, a Cardtronics executive vice president.
"Under the old model, the big players like Circle K, Rite Aid, and Hess didn't buy from ISOs," Mr. Deitel said. "They bought from banks, because they wanted a name brand. If you're a Wal-Mart or Target, you didn't want an independent little guy, who'd go out of business in six months."
Most of the larger national brand retailers demand that the ISOs own and maintain the ATMs, he said, because maintaining ATMs, depositing cash into them, and keeping it stocked at the proper times is such a chore.
"There's a significant amount of cash involved," Mr. Deitel said. "To alleviate risk of theft and risk to the employers, larger corporate clients prefer someone else manage the program."
The company always had some ATMs it owned, but with its acquisitions over the last two years, the ownership part of the business has grown dramatically, and what was a 20-employee company in 1998 now has a work force of 85. Cardtronics also won a bid to place 540 ATMs in Circle K convenience stores in Texas and Oklahoma. The ISO bought those ATMs as well.
The company has begun to place ATMs it owns in larger retail chains, such as ExxonMobil gas stations and Rite Aid pharmacies. Cardtronics now has enough scale to "negotiate sufficient contracts to meet the demands of our customers for profits without us feeling the squeeze," Mr. Deitel said.
Not everyone sees ATM ownership as the defining trend. Bob Bandy, the president of First Bankcard Systems Inc. in Little River, S.C., predicts a shift back to ISOs selling ATMs to merchants, largely because the cost of buying a merchant ATM has dropped from about $9,000 to as little as $4,000 for a bare-bones machine.
"Placement companies did quite well when the cost of the hardware prohibited the merchants from acquiring an ATM," Mr. Bandy said. "Because the hardware has come down dramatically, they're taking a long, hard look at how much money they made in the past versus what they can make with a $4,000 investment."
First Bankcard Systems has sold about 3,200 ATMs to merchants, and processes transactions for 1,400 of them.
Mr. Bandy said that with the merchant owning the ATM, he can get most if not all of the surcharge fees, instead of a percentage of the surcharge, when the ISO owns the machine. First Bankcard makes its money strictly on the interchange fee between the card issuer and the merchant.
Most ISOs are willing to move in any direction that the merchant wants. Momentum Cash Systems, a subsidiary of Innovus Inc. of New Orleans, both buys ATMs and sells them to merchants. It has been in business since 1994, and at various times it has emphasized selling to merchants or owning ATMs.
Gary Walston, the vice president of sales and marketing at Momentum Cash, said there does seem to be a movement again toward ISOs owning the machines and fully serving them. Momentum Cash has about 4,500 ATMs, 50% of which it owns. The remaining are sold to the merchants.
"Now it's a mixed bag - it all depends on the strategic focus" of the merchant, Mr. Walston said.
While many merchants are getting more familiar with the workings of the ATM business and seeking more revenue through ownership, others who have owned the ATMs "have experienced some challenges to owning the machines," Mr. Walston said. Many merchants do not want the "hassle of operating the machine and the cash-control issue."
Gregg Zastrow, the vice president of product management for ATM solutions at EFunds Corp. of Scottsdale, Ariz., said there is a third way to do business with merchants, a hybrid of the two models. More and more, he said, merchants want to own the machine itself but have someone else deal with cash stocking and other maintenance.
EFunds is the largest ISO, with just under 17,000 ATMs in its network. It owns 2,300 to 2,500 of them itself.
"The merchant might want to own the ATM but outsource everything else to some third party," Mr. Zastrow said. "Typically, the more responsibility the merchant takes on, the more revenue they'll receive. If the merchant wants to take on everything, they'll get more of the revenue slice."
