ATM manufacturers’ top executives have complained quarter after dismal quarter this year that they have had difficulty persuading some financial institutions to take a look at their intelligent-deposit ATMs, let alone buy any. As ATM sales have stayed flat because of the economy and tight credit, manufacturers have started promoting outsourcing agreements in hopes of encouraging small and midsize banks and credit unions to deploy advanced-function machines.
NCR Corp., for example, this week signed a three-year outsourcing agreement with Co-op Financial Services. The agreement will enable Co-op’s credit-union members to lease instead of buy new ATMs, thereby eliminating a major capital expense for participating credit unions.
NCR will lease ATMs to the credit unions through GE Capital, a Norwalk, Conn.-based leasing company, Bill Allen, NCR marketing director, tells ATM&Debit News. Co-op ATM Managed Services, a unit of Rancho Cucamonga, Calif.-based Co-op Financial Services, will manage the institutions’ leased ATMs.
NCR, which is based in Duluth, Ga., also will provide first- and second-line maintenance on all of the leased machines. The services include remote monitoring ATM operations and when needed dispatching a technician to the ATM location. The services also include ATM processing options, ongoing upgrades to maintain compliance and state-of-art functionality and a single point of contact for all issues related to managing the ATM fleet.
“If the ATM breaks down, we fix it,” Allen says.
Through its agreement with NCR, Co-op is offering interested members a program in which ATM maintenance and service is outsourced, Bill Prichard, a Co-op spokesperson, tells ATM&Debit News. Co-op operates a network 37,000 ATMs. Nearly 3,000 credit unions nationwide are Co-op members.
NCR signed the deal to provide credit unions with an alternative to buying machines. “Leasing ATMs is a lot more attractive for some financial institutions because leasing agreements are not carried on the books as a capital expense,” Allen says.
Prichard believes the NCR deal is a good one for Co-op’s members. “We believe that this is going to make it easier for credit-union members to own new ATMs,” he says. “Time and the economy will tell us whether it will work, but we went forward with the agreement because we are confident Co-op members are interested in this program.”
NCR’s agreement with Co-op Network is unique, says Kate Monahan, an analyst with Aite Group LLC, a Boston-based consultancy.
Although NCR has sold ATMs to BECU, formerly Boeing Employees Credit Union, Washington state’s largest credit union, manufacturers have promoted their ATMs to banks because the companies saw more opportunities within the banking sector, Monahan says. “A credit union only may have one ATM compared with a community bank that may have eight. Now it appears manufacturers are reaching out to every sector of the financial-services industry,” she says.
NCR will promote its SelfServ line of intelligent-deposit ATMs to the credit unions when the outsourcing program begins in early 2010, Allen says.
The move to ATM outsourcing also is well under way at Wincor Nixdorf and Diebold Inc., two other large ATM manufacturers, says Bob Meara, senior analyst for Celent LLC, a Boston-based consulting firm. “There’s been a clear move towards ATM outsourcing, and ATM manufacturers have initiatives in that area,” Meara wrote in an e-mail message to ATM&Debit News. “Manufacturers have introduced additional services as hardware-sales growth has been increasingly challenged across the globe.”
The reluctance of regional banks to buy ATMs opened the door to new opportunities for Diebold’s Integrated Services Unit, which focuses on outsourcing ATMs to banks and other financial institutions, Thomas Swidarski, Diebold president and CEO, told analysts Nov. 3 during the North Canton, Ohio-based manufacturer’s third-quarter earnings call.
“We’ve had a lot more activity in terms of [requests for proposal] and responses, and we’ve had symposiums across the United States where we’ve gotten momentum in that regard, and we’ve seen a lot of that turn into some activity her in 2009,” Swidarski said.
But signing ATM-outsourcing agreements involves a much longer process compared with signing sales agreements, Swidarski said. “Because these decisions end up being five-year contracts, they are much broader decisions than buying a piece of equipment or one piece of integrated services versus the holistic approach,” he said. “As such, it takes time to get through the process, and you pitch at the very highest level of the bank.”
Diebold is managing 1,000 bank-owned ATMs, Swidarski told analysts. Besides the U.S. Diebold also has signed outsourcing agreements with banks in China, India and in the European Union, says Swidarski adding that Integrated Services has grown more than 15% from the first three quarters of last year in terms of total contract value.
Diebold’s emphasis on Integrated Services signals a shift for the company away from its primary role as a hardware manufacturer, Meara wrote in his blog earlier this year.
The shift also represents a new business model for ATM makers, Meara says. “Diebold’s moves replace significant capital expenditures with more easily obtained operating funds,” he says. “Collectively, Diebold, NCR and Wincor Nixdorf are making it easier for financial institutions to replace aging cash-dispenser ATMs with more capable self-service devices.”
Paderborn, Germany-based Wincor Nixdorf AG devoted five pages to explaining its outsourcing business in the company’s 2008/2009 annual report.
