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Canadians are among the highest per-capita users of ATMs in the world, making Canada historically an attractive market for "white-label" ATMs deployed by the non-bank third-party companies.
Recently, however, the white-label ATM market has soured.
The market, for example, faces the challenges of complying with mandatory security upgrades. These include the Triple Data Encryption Standard, Visa Inc.'s PIN-entry device standard, the EMV chip-and-PIN smart card security standard, and stringent anti-money laundering regulations, which together make it much more expensive for owners of white-label ATMs to operate their machines.
Competition also is growing from low-cost bank- and credit union-owned ATMs. For example, credit unions and some banks have formed an alliance that enables their customers to withdraw from each others' ATMs surcharge-free. Some politicians also are pressuring government officials to reduce ATM fees.
As a result, the rate of white-label ATM growth in Canada has slowed the last two years, says Chris Herbert, an analyst with Retail Banking Research LLC, a strategic ATM-marketing firm based in London.
Canadian companies deployed 20,261 white-label ATMs in 2003, increasing to 30,246 in 2005. Between 2005 and 2006, however, they deployed only 4,107 new white-label ATMs, bringing the total to 34,353, Herbert says. Canada first permitted white-label ATMs into the country in 1997.
"Some white-label ATMs have been withdrawn or sold to other deployers as a result of the high costs of EMV and PIN-entry device migration," Herbert says. Canadian ATM deployers, like card issuers, acquirers and payment-terminal operators, are required to complete their migration to EMV by 2012.
TNS Smart Network Inc. is the largest nonbank ATM processor in Canada. TNS handles 4 million transactions per month from the 13,000 ATMs on its network.
From 10% to 20% of the ATMs connected to TNS will have to be replaced because they are too old to be upgraded to comply with the EMV standard, says Mischa Weisz, president and CEO of Toronto-based TNS.
Low transaction volumes also are an issue for deployers of white-label ATM deployers, says Dave Lott, an analyst with Speer & Associates Inc., an Alpharetta, Ga.-based consulting firm.
"Canadian white-label ATMs have significantly lower transaction volume than bank-operated ATMs," he says. "I estimate that the average white-label ATM in Canada is handling about 300 transactions a month compared with bank-owned ATMs that perform as many as 4,000 transactions every 30 days."
The challenges for white-label ATM deployers in Canada are much the same as in the United States, Lott says. "The white-label ATM business is one with narrow margins, and this factor, coupled with low transaction volumes in most locations, has required the deployers to charge high transaction fees," he says.
Canadians are heavy users of ATMs, with an estimated 96% of debit cardholders having initiated an ATM transaction, according to the Bank of International Settlements, the Basel, Switzerland-based international organization of central banks.
The Bank of International Settlements says in 2006 each Canadian on average initiated 32.6 ATM cash withdrawals, second only to Sweden's 33.5 per-capita average.
Those transactions represent revenue for ATM deployers and card issuers.
According to the Financial Consumer Agency of Canada, a government agency that enforces consumer-protection laws, the total fees consumers can pay to withdraw cash from a white-label ATM can add up to US$4.99 (C$6.15). The charges includes a typical C$3 surcharge the white-label operator imposes. The card issuer also may charge a C$1.25 foreign-ATM fee plus a C$1.90 Interac network-access fee. Interac is Canada's ATM and debit switch.
The largest white-label ATM operators in Canada are Direct Cash Income Fund Calgary of Alberta's Access Cash of Toronto and Frisco ATMs of Montreal. Access Cash, which bought rival Ezee ATM in October, says its ATMs perform more than 20 million transactions annually.
"The ATM industry in Canada is very competitive, with both nonbank deployers and financial institutions vying for high-value locations and high-transaction volumes," says Nick Hames, Canadian vice president of financial industry sales at NCR Corp. "In addition to deploying ATMs in traditional locations such as retail stores, both nonbank ATM deployers and financial institutions are now seeking opportunities to add new footprints in locations such as airports."
The ATM-installation business in Canada is largely a replacement market, as deployers are upgrading or replacing ATMs to comply with EMV-migration requirements, Hames says.
And finding new locations to deploy off-premise ATMs in Canada is getting more difficult, warns Vern McLean, Canada sales manager for Triton Systems of Delaware Inc., a Long Beach, Miss.-based ATM manufacturer.
"In some cases, Canadian banks have closed down branches in small communities and taken away their ATMs," he says. "These bank ATMs have been replaced by white-label ATMs."
McLean points out that, while bank multifunction ATMs cost about C$25,000, white-label ATMs primarily are single-function cash dispensers and cost about C$4,000.
In response to its challenges, the white-label ATM industry has consolidated. In June, for example, Direct Cash bought Toronto-based Inkas Financial, a private ATM processor. And having acquired Ezee ATM, Access Cash says it has sufficient capital to enable it to acquire other Canadian ATM deployers.
Canadians Loyal To Bank ATMs
Despite the widespread availability of white-label ATMs, however, Canadians remain loyal to their own bank's ATMs. "In 2007, 75% of Canadian ATM transactions were 'on-us,' meaning that only 25% took place at an ATM not owned by the cardholder's financial institution," says an Interac spokesperson.
To provide convenience to their members while avoiding the need to deploy extra ATMs, Canada's credit unions operate two rival ATM-sharing networks, The Exchange and Acculink. HSBC Bank Canada and Bank of Montreal also belong to The Exchange. Credit-union customers using either network are not charged an Interac network-access fee or surcharge or foreign fees. The fact that financial institutions' customers can withdraw their cash more cheaply from their own institution's ATMs or, in some cases, from another financial institution's ATMs, presents a challenge for deployment of white-label ATMs, says Kate Monahan, an analyst with Boston-based Aite Group. ATM
