Growth at the Top

  Consolidation among ATM independent sales organizations continues to occur at an unprecedented pace in an industry struggling with a downturn in transaction volumes, according to a new survey by ATM&Debit News.
  The number of ATMs operated by the top 10 ISOs is up 36.5%, to 85,208 machines in May from 62,481 in April 2004. That compares with an 8.2% increase in machines operated by the top ISOs from June 2003 to April 2004, according to the Cards&Payments sister publication.
  Consolidation played a large role in the top ISOs gaining a bigger share of the market. The largest acquisitions involved TRM Corp.'s purchase of Scottsdale, Ariz.-based eFunds Corp.'s portfolio of 15,700 ATM contracts and Cardtronics Inc.'s purchase of 15,000 contracts from E*Trade Financial Corp.
  While Houston-based Cardtronics and TRM combined operate 17.6% of the estimated 263,000 off-premise ATMs and 12% of all ATMs deployed in the U.S., both report lackluster transaction volumes. While Cardtronics says its transaction activity is "stable," Portland, Ore.-based TRM says its monthly transaction volume fell 10.1% as of the end of 2004. During a conference call with analysts, TRM CEO Kenneth Tepper attributed the decline to poor-performing locations from the eFunds portfolio.
  J. Michael Brown, CEO of Innovus Corp., says he is not surprised by reports of sluggish transaction activity. After reviewing its own ATM portfolio, the New Orleans-based ISO sold off 1,200 of its lowest-performing ATMs, reducing its fleet to 3,000 machines.
  "Anyone who tells you that they are not struggling with transaction volume is lying," Brown says.
  Some ISOs believe consolidation is a means to maintain usage levels. "We're pushing twice as many machines to keep our transaction volumes," says Maya Fuentes, vice president of Access To Money Inc. The Whippany, N.J.-based ISO operates 4,500 ATMs, about twice the number it operated two years ago.
  Some ISOs have targeted niche markets. After experiencing its own steady transaction decline, International Merchant Services began going after ATM contracts with U.S. casinos. "It took us a few years to get into that market, but now we are seeing a much greater increase, almost a 25% increase in transaction volume," says Neil Johnson, CEO of the Euless, Texas-based ISO.
  In December, Hackensack, N.J.-based Money Marketing Inc. began dispensing prepaid cellular telephone minutes on 100 ATMs deployed across New York City. The machines captured $7,940 in total revenue over three months, which equated to 23% of the interchange revenue the machines generated.
  No matter the tactic used, ISO executives agree that good ATM fleet management is the best way to keep profits stable during a time of stagnant activity. "EFunds is a great example of a portfolio that wasn't well managed, and now TRM is struggling to turn that portfolio around," says Phil Rock, CEO of ATM Network, a Minneapolis-based ISO. "We have seen organic growth, primarily through creating a company merchants can trust and careful management of our portfolio."
  Rock says constant ATM performance evaluations now should be a mainstay of any off-premise ATM business.
  Some ISOs are finding that dropping the assessment of surcharges on their machines by joining surcharge-free networks is an effective way to keep volumes stable. NetBank Inc., the third-largest ISO with 8,224 ATMs under contract, for example, reports stable transaction volumes because of such a move.
  The Atlanta-based ISO is a partner in the Bethesda, Md.-based Allpoint surcharge-free network. "Being part of a surcharge-free network has helped," says Tommy Glenn, president of NetBank Payment Systems.
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