Recent reductions in merchant debit card interchange rates and the threat of shrinking bank-branch networks raise troubling issues for ATM operators, but certain aspects of the changes could be positive for third-party ATM deployers.
A new, lower debit-interchange rate policy that went into effect Oct. 1 caused some “collateral damage” for the ATM industry by bringing the cost to accept cards for purchases closer to that cash, which merchants still prefer, Steve Rathgaber, CEO of ATM independent sales organization Cardtronics Inc., told analysts Feb. 2 while discussing fourth-quarter earnings.
But as the effects of the so-called Durbin amendment to the Dodd-Frank law that essentially led the Federal Reserve Board to halve debit-interchange rates for purchases set in, banks increasingly are finding it less cost effective to operate ATMs, creating fresh growth and acquisition opportunities for ATM specialists such as Cardtronics, he said.
Cardtronics on Jan. 25 said it hired Todd Clark to fill the newly created position of senior executive vice president, sales and relationship management. One of Clark’s missions is to expand relationships with financial institutions, Rathgaber told analysts. Clark previously was vice president and general manager of strategic accounts at First Data Corp., overseeing the processor’s Bank of America Merchant Services business.
The Houston-based ATM ISO within the past year announced several acquisitions, and on Feb. 2 Valero Energy Corp. agreed to make the ATM operator its exclusive ATM service provider at Valero convenience stores (
Cardtronics, which acquired its first operations in Canada last year, also is beginning to eye the possibility of expanding in Europe beyond the United Kingdom, such as into Germany, and eventually to move into Asia, Rathgaber said.
In the U.S., ATM economics are still in flux as electronic funds transfer networks continue rejiggering pricing strategies following the new pricing mandates, said Rathgaber, a former president of the NYCE EFT network.
While certain networks have changed ATM interchange rates in a way that favors large card issuers over ATM owners or acquirers, at least one network recently introduced a new pricing model “that rewards nonsurcharge transactions with a significantly higher interchange commingled with other interchange reductions,” Rathgaber said.
Unlike with card purchases, where the merchant acquirer pays the card issuer interchange, issuers pay ATM acquirers interchange when their cards are used in the machines.
If other networks follow the lead of the undisclosed network, “it will actually lighten the risk associated with this interchange issue and perhaps downstream create the possibility of some upside,” said Rathgaber.
Turmoil in the banking industry that has caused some financial institutions to announce plans to close branches could reduce demand for ATMs, but Rathgaber also sees a silver lining there.
As banks trim costly facilities and new entrants, including providers of reloadable prepaid debit cards are expanding their offerings and driving demand for cash through new locations and channels, Rathgaber suggested, pointing to the recent introduction of the Approved Card from financial guru Suze Orman (
“The number one item on her flyer is free access to (Cardtronics’ Allpoint surcharge-free) … ATMs,” Rathgaber said, noting that the recent rise of reloadable prepaid debit cards is a positive for Cardtronics because of the ubiquity of its ATMs nationwide.
Asked whether Cardtronics is concerned about future technological hurdles facing ATM operators as part from the U.S. movement to the EMV chip standard, Rathgaber said it is too early to tell.
MasterCard Worldwide on Jan. 30 disclosed its roadmap to U.S. EMV adoption (
Visa unveiled its EMV roadmap last August (
“The scope ranges from MasterCard talking about a 2013 date including ATMs with a giant caveat, to the Visa announcement being a 2015 launch without including ATMs at all,” Rathgaber said.
Calling EMV “a mediocre technology that would provide very limited returns” on investment to solve a problem that “doesn’t quite exist yet,” Rathgaber suggested the U.S. migration to EMV so far is shrouded in “mushy” statements that make it difficult to tell exactly how it will affect ATM operators.
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