Where Did All the Money Go?

  It's harder to make money in today's business environment, and automated teller machines are no different. The Federal Reserve is raising interest rates and proposing changes to cash handling and cross-shipping, and regulatory compliance and technology advancements are increasing the cost to support ATMs. As costs continue to rise, ATM deployments are peaking and transaction volumes and margins are decreasing. Profits are stagnant or declining even for the largest domestic deployers ("Lots of Cash, Little Profit," August).
  Executives and industry experts are looking at underperforming ATMs and asking: How can this device make money? Should we raise surcharge revenue? Should we add other revenue-generating transactions like stamps and prepaid card services? As usual, the answers lie within.
  When introduced, banks expected ATMs to save them money by reducing the number of tellers while maintaining service levels. In 1996, surcharging was introduced but only a few entrepreneurs and financial institutions realized the revenue opportunity. And ATMs were damned to their current fate.
  Typically, the focus on ATMs is external. Organizations invest in equipment, telecommunications, and tools to process additional transactions. Occasionally, they invest in cash management, monitoring, and software distribution solutions. It's rare, however, for organizations to invest in the back-office aspects. With the "customer service" mantra firmly etched on ATMs, the focus is on the customer experience. This lack of back-office support is the primary reason ATMs do not generate the desired profits. But how can profits be increased without an intimate knowledge of a channel's operations?
  Effective back-office management is the key to improving profitability. ATMs must be viewed as a channel or business unit, not just a customer-service device. A comprehensive understanding of operations and a cohesive strategy are needed. Strategic management will improve cost controls; use, purpose, and placement decisions; and operating revenue.
  Few organizations have sound ATM channel strategies and the required back-office infrastructures. But these rare organizations have the tools and data necessary to analyze network performance and make appropriate adjustments, and have eliminated most of the internal effort required to maintain disparate systems.
  Implementing cohesive ATM strategies and creating the required back-office infrastructure takes planning and investment, but generates immediate results by enabling organizations to manage operational demands based on a strategic view of the entire network. This is critical to ATM profitability since daily demands must be supported, but not at the expense of overall strategy. It's not enough to solve one operational issue without understanding the channel-wide impact.
  When closely analyzing typical ATM operations, it's common to find more than 10 "systems" implemented to solve specific operational issues. These systems maintain independent data and require separate input and maintenance, making it nearly impossible to understand the strategic impact of individual decisions. But organizations can typically identify three profit-improvement opportunities if adequate management tools are in place:
  * Improved Cash Utilization. Cash is the single largest expense for ATMs. Improper cash utilization can erode profits from even the highest-transaction locations. Optimizing cash replenishment amounts based on terminal volumes, adjusting replenishment cycles based on current interest rates, and managing transportation costs and armored carriers can significantly reduce expenses. There are several products on the market to manage and optimize ATM cash.
  * Improved Placements with Defined ROI Analysis. Placement determines an ATM's profit fate. Return-on-investment analysis, which is lacking in the ATM channel, provides a clear understanding of the dynamics of and return on each location, including the type of terminal to deploy, the transactions to offer, and the off-premise lease or revenue-sharing agreement that can be supported profitably. ROI analysis should be performed monthly or quarterly, and the effort required to generate a financial statement on each ATM should be invested.
  * Improved Service and Vendor Management. Managing service calls by tracking the number of and reason for calls will determine true maintenance costs. This information also can determine which terminals operate less expensively or should be replaced, and when maintenance problems were not fixed the first time. Integrating transaction volumes will allow first- and second-line coverage hours to be adjusted to match locations. But it's extremely difficult to monitor service calls and improve expense management by tracking, analyzing, and reporting expenses without an integrated system connecting each site.
  The number of ATM transactions may remain relatively the same, but ATMs are not going away. In my opinion, ATMs, while fundamentally designed to service customers and members, remain a viable revenue opportunity if organizations view them as a true channel or business unit, and provide the operational support and infrastructure required to proactively manage them in terms of service and the bottom line.
  Tyson Nargassans is vice president of sales and marketing at Norwood, Mass.-based e-ClassicSystems, a Jack Henry & Associates Inc. company that provides ATM management software and services. He can be reached at tnargassans jackhenry.com.