ATM Outsourcing in the Banking Industry

Traditional banks and credit unions have always struggled to find a balance between providing an expanded network of ATMs to their customers while also maintaining profitability. According to recent data from the Dove Consulting report on ATM terminal deployment, financial institutions lose an average of $242 per month on each of their off-premise ATMs. In fact, between 2001 and 2003, revenues generated by off-premise ATMs fell by 11%. Consider this erosion in profit and the expense of regular ATM operations and it is clear that ATM management can place a major drain on financial institutions, especially small to mid-sized organizations. With a decrease in transaction volumes and a push to maintain brand awareness amid the growing competition in the banking market, institutions have begun evaluating how outsourcing all or part of their ATM network can help achieve the necessary balance.

Because there are many services associated with operating an ATM, including deployment, cash replenishment, maintenance, monitoring and armored car support, financial institutions have the option to manage individual ATM services through separate providers or to outsource the entire ATM program to one provider.

“Having focused on the ATM industry for more than eight years, we have come to understand the challenges that financial institutions face when trying to maximize brand and ATM exposure while minimizing costs,” explained Haze Lancaster, President of ATM USA, a nationwide provider of full-service ATM placements. “We created our turnkey ATM placement program with custom bank branding to simplify the outsourcing process. The ATM USA program provides all the services and the equipment needed to maintain the ATM while also allowing the banks to use their name and logo on our machines. Many ATM companies do not provide this option, but we feel that helping our clients maintain strong brand visibility is important to the success of their business.”

The full-service option is particularly compelling for small to mid-sized financial institutions that are struggling to justify unprofitable ATM placements in their off-premise ATM portfolio. It is not uncommon for banks to have misjudged the viability of a placement or discover that a once profitable ATM placement has experienced a steady decrease in transactions over time. Many times when financial institutions negotiate their ATM portfolio, some low-volume placements are packaged with more profitable placements, thus creating pockets of costly ATM operations.

“Every bank has a certain percentage of their off premise ATM placements driven by business relationships which under normal circumstances fall outside the parameters of typical placement location requirements,” said Lancaster.

However, the advent of full-service outsourcing makes managing these challenges easier and more cost-effective. Outsourcing with a single partner enables businesses to reduce expenses and increase the availability of equipment and capital. But perhaps the greatest benefit is that this can all be achieved without sacrificing branding and market share in a very competitive banking industry. Custom branded ATMs through ATM USA are a seamless extension of any network. Cardholders are not charged a fee and will not be aware of any change in providers.

Because third-party ATM deployers like ATM USA have greater scale and specialized focus, the company operates ATMs at a lower cost than most banks and thus passes these savings onto its customers. ATM outsourcing also allows banks to focus on their core business and target specific markets for visibility. By paying a nominal monthly fee, a bank can custom brand one of ATM USA’s 1200 turnkey placements nationwide and ATM USA will take care of all equipment and service elements. This opportunity enables financial institutions to quickly and cost-effectively expand into a profitable area without the undue risk of buying and operating a new ATM. With this option, banks can move into areas with a documented transaction history while avoiding the hassles of negotiating with merchants and contract expirations.

Banks can also partner with companies like ATM USA to target specific retail outlets that may help promote the bank’s marketing objectives. Some retail portfolios may offer undesirable placements in secondary markets as part of the package. With turnkey placement and custom branding, banks can focus on the primary markets without the obligation of taking on less profitable ATMs.

Dove Consulting published a report on full service outsourcing (FSO) in 2004 discussing how the FSO model works with third-party providers like ATM USA. According to the report, the third-party handles all functions required by a bank or credit union including deployment, maintenance, cash replenishment, driving, monitoring and all ancillary functions. With a flat monthly per-ATM fee, banks can reduce ATM management demands, gain visibility in target markets and improve convenience for their customers – all for less than the cost of owning and operating a single ATM.

The Dove Consulting report demonstrates the popularity the FSO model has gained among small to mid-sized bank deployers. According to the report, 7% of large banks and 13% of other banks use this service model while 13% of large credit unions and 18% of other credit unions employ this method as well. The report suggests that “in almost every market segment, the number of financial institutions employing full-service outsourcing is set to double.” While the smaller institutions represent the most significant FSO market, the Dove report also reveals that major institutions like Bank of America and Royal Bank of Canada have already announced large ATM outsourcing projects.

Despite the challenges ATM management poses to banks and credit unions, ATM networks are proven to help attract new customers and promote self-service banking and convenience. For these reasons, banks will always need to deploy off-premise ATMs as part of their branding and service efforts. The decreasing profitability of bank-owned and operated ATMs has made full-service ATM outsourcing an ideal means to achieve the balance between revenue and visibility. ATM USA, the nationwide service leader among third-party providers, offers full service branding placements that helps banks and credit unions cut costs while increasing market share.