Though transaction growth and earnings have been slow this year for companies that deploy automated teller machines at merchant sites, manufacturers of those machines say they are finding other growth opportunities.
Some say they are trying to capitalize on growing demand for machines that can refill prepaid accounts and pay bills. Others say they are focusing on parts and service. And some say merchant demand for ATMs is still healthy, even if transaction volume is not, because the machines can drive foot traffic.
Still, executives say the glut of machines has hurt their sales.
"I do tend to agree with the statement that the glory days are over," said Mike Hudson, the general manager of NCR EasyPoint LLC, the merchant ATM subsidiary of NCR Corp. "I tend to think that this ATM market is in a fairly steady maturity phase, and it will probably continue."
Mr. Hudson said that he and his counterparts have been wrestling for several years with the issue of whether there are simply too many machines in the field, but that may not be the best way to evaluate the industry.
Instead, it should be measured by "the number of transactions per machine, and whether or not you've got sufficient number of transactions on a per-machine basis to sustain the model that you're undertaking," he said.
"Even though we're seeing some overall decline in total ATM transactions versus POS transactions over the last year," there is still "a huge number of ATM transactions," Mr. Hudson said. "And the fact is, that's indicative of a cardholder base that wants convenient, quick access to their cash. They continue to use ATMs, and use them quite frequently."
Mr. Hudson, like the other executives interviewed for this story, would not provide specific sales figures for his company. However, by most measures the merchant ATM market has fared poorly.
According to ATM&Debit News Data Book, the average monthly transaction volume per ATM has fallen every year for the past decade, from 6,399 in 1996 to a projected average of 2,131 for this year. Those figures include both bank-owned machines and merchant ones, which tend to handle far fewer transactions. Some studies have said the monthly transaction average at merchant ATMs can sometimes be around 300.
This year's ATM transaction total is expected to fall about 4% from last year, to about 10.1 billion, according to the Data Book. The number of merchant machines in the field is expected to fall about 2.6%, to 260,000.
Several factors have been cited as contributing to the drop in merchant ATM volume, notably the growing use of debit cards at the point of sale and the ability to get cash back from the merchant in a debit transaction.
Hansup Kwon, the chief executive of Tranax Technologies Inc. of Freemont, Calif., said that merchants want ATMs in their stores, whether or not the machines generate significant volume.
Merchants are at a "disadvantage" if they do not have a machine in their stores, he said. "The ATM used to be an optional item. It's no longer an optional item. It's a must have."
The ubiquitous ATMs are like some busy intersections that have gas stations on all four corners, but a "well-placed ATM attracts the customer," Mr. Kwon said. "That becomes the regular place to go."
Mr. Hudson said that retailers have "gotten accustomed to the idea of providing cash to their customers, and not because they're making tons and tons of money on the transaction fees or the surcharge income." They have gotten used to the idea "because they're making good money on people coming into their store, getting cash, and then spending some of that cash in the store."
The "incremental sales" and profits from having ATMs is why merchants still want them in their stores, he said.
According to Mr. Hudson, there are several other reasons for merchants to keep ATMs in their stores. For example, he said, even though they may be generating less income from surcharges and interchange, it is still income; in contrast, the merchant must pay interchange when customers use a credit or debit card at the register.
Also, many small and midsize merchants do not offer cash back at the point of sale, because it requires them to increase the "cash availability in the till," which exposes them "to bad guys with guns who want to take that cash."
Eric Park, the chief operating officer of NexTran Group LLC, said his Hackensack N.J., company is "surviving," but that ATM shipments have dropped this year.
Parts and service have been among NexTran's profit drivers, instead of sales, he said. "This year many people made more money on parts than selling ATMs. Everyone was busy trying to get Triple DES kits out."
The mandate from Visa U.S.A. and MasterCard Inc. that ATMs comply with the Triple DES encryption standard prompted a major wave of upgrades and replacements, which now are largely complete, though merchants have been lagging.
NexTran trains its sales force to remind merchants that having ATMs can boost incremental sales, but most merchants still "want to make money out of those machines," Mr. Park said.
One area that remains a potential source of revenue for ATM vendors is kiosks that can do more than dispense cash, such as the NCR-made Vcom machine at 7-Eleven Inc.'s convenience stores.
NexTran has been testing the sale of phone cards and movie tickets at one of its machines, and its transaction volume has increased every month, Mr. Park said. Because NexTran's machines are PC-based, merchants can download new applications for them for free, he said.
Some portion of the merchant market wants to offer other functions at ATMs, such as bill payment and check cashing, Mr. Hudson said, though he would not speculate on the demand.
"I think there are a number of retailers - clearly 7-Eleven is one of the largest out there - that will want to compete with that same kind of product offering, if not in their entire organization, then certainly in a select segment of that organization," he said.
