Retail ATMs not only seem to be as durable as the Energizer Bunny -- but they are starting to show the pink rabbit's predilection for hopping from place to place.
Retail ATMs not only seem to be as durable as the Energizer Bunny -- but they are starting to show the pink rabbit's predilection for hopping from place to place.
While a thriving market for used ATMs has existed for years, it was populated almost exclusively by the high-end machines typically deployed by banks and manufactured by Diebold, NCR and Fujitsu.
In the past year or so, however, more retail ATMs are showing up on the resale market.
Opportunity knocks
Many of them are machines reclaimed by leasing companies after merchants have defaulted on loans. The industry experienced a spike in this activity after Credit Card Center, once the nation's largest ISO with at least 15,000 ATMs under contract, filed for bankruptcy in June.
Merchants typically paid leases in excess of $260 a month under the CCC business model, with the promise that they would receive most of it back under revenue guarantees. When CCC folded and the guaranteed returns vanished, many merchants could no longer afford to keep making their payments.
"A large number of merchants got burned by the CCC debacle, and now those merchants and their leasing companies find themselves in a position where they need to make deals," said Bruce Kreeger, president ofATM Center, a Mine Hill, N.J.-based ISO.
Noting that "every problem for some entity creates an opportunity for others," Kreeger said that ATM Center is working with several large leasing companies to repossess those machines.
Once pulled from the former CCC locations, Kreeger said the ATMs are generally deployed in one of three ways:
They are remarketed to new merchants and financed through the original leasing company. The merchants, many of whom have credit records that prevented them from obtaining financing for an ATM in the past, make monthly payments similar to those under the CCC deals or somewhat less, depending on the age and condition of the ATM and the age of the original lease agreement. The merchant receives all of the surcharge.
Or ATM Center retains ownership of the ATM and places it in a location where it assumes most of the responsibility for the machine, including cash replenishment. The merchant pays nothing but receives no fee revenue or only a small percentage, depending on transaction volumes.
While such placements once were options only at high-volume sites, Kreeger said the lower cost of a used machine makes it economically feasible for ISOs to consider placements at lower-volume sites.
Kreeger said that used ATMs even pave the way for the installation of multiple machines at some higher-volume locations, a rarity in the retail world.
"We have some placements where it's been preferable to use two or three single-cassette machines rather than one multi-cassette machine. You don't have as many customers waiting in line, and it's easier to keep the machines stocked with cash," he explained.
Under the third scenario, ATM Center retains ownership of the ATM. The merchant pays what Kreeger calls "a nominal fee" to rent the machine and agrees to replenish the cash. In return, his portion of the fee revenue is larger than that he will receive under a placement but smaller than if he purchases the ATM.
Leasing companies aren't the only source for lightly-used ATMs, Kreeger said. "Some processors will identify machines that are not functioning but that are just sitting out there. We're willing to go out and find out why."
Needs work
Charlie Samons, vice president of sales and marketing for Whippany, N.J.-basedAccess to Money, said his company also works directly with some leasing companies and with repossession companies hired by leasing companies to reclaim former CCC ATMs.
In return for de-installing the ATMs, Access to Money usually gets "right of first refusal" on the machines. In many cases, Samons said, the leasing companies find buyers willing to pay more elsewhere.
"They might come back and say 'we have a bid of $2,000 on this (Tidel) is1000' and ask us if we want to match it," he said. "There are people out there who don't understand the marketplace who will offer $2,200 or $2,300 for a machine like that and think they're getting a bargain, but we won't pay more than $1,500 to $1,700."
While $2,300 may sound like a good deal for a used ATM that wholesales for $3,500 to $4,000 new, Samons said what many small ISOs or investors don't realize is that they may have to spend several hundred dollars on repairs before the machine is ready to re-deploy.
Kreeger agreed, estimating that about 40 percent of the CCC machines repossessed by ATM Center require major repairs, such as replacing the cash dispenser or motherboard. In addition, he said many require major cosmetic touch-ups such as paint jobs.
In fact, Kreeger said his company now refurbishes ATMs for other ISOs in addition to its own machines at its 16,000-square-foot location in New Jersey and a 6,000-square-foot facility in Richmond, Va.
"Some of our fellow ISOs have relied on their technical staff primarily for new installs and they have no idea what to do when they pull a machine out," he said.
Sitting pretty
Unlike Kreeger and Samons, Steve Lovelace of Charlotte, N.C.-based Carolina Teller Systems has had better luck with ATMs pulled from poor locations when buying machines to resell – especially compared with units entering the resale market after their full contract, typically a five-year agreement, expires.
"When you get a machine that's been in a lousy location, the printer is still generally solid, the display looks good, even the finish sometimes still looks good," Lovelace said. "With a machine that's been sitting in a pretty good location for four or five years, you're going to find all kinds of problems you've got to fix and it's going to look pretty rough."
He added, "I'd rather pay a little more for a machine and not get all of the wear and tear. You're obviously better off with a machine that has 1,000 lifetime transactions versus one with 25,000 lifetime transactions."
Traditional refurb shops have largely remained out of the post-CCC fray. They buy and sell few, if any, retail ATMs.
"Quite frankly, those machines aren't designed to be readily refurbished," said Henry Dorfman, vice president of sales and marketing for Cincinnati-basedATM Exchange, which markets a small number ofrefurbished Tritons in addition to the more bank-oriented brands."You can't crack open a printer or a dispenser and rebuild it, the way you would with an NCR or a Diebold. With a Triton or a Tidel, the components are basically designed to be disposable. The modules snap in and out, and you replace the entire module."
Rolling up a sale
Not all retail ATMs being resold are part of the CCC fallout. A significant number of machines deployed in 1996-97 are being removed from successful sites and replaced with newer machines.
In many cases, merchants with a year or so remaining on their contracts opt to roll the remaining balance into a new lease agreement. Because retail ATM prices have fallen dramatically in the past few years, the merchant can get a new machine for far less money.
"It's like leasing a car," said Russell Harty, Triton's national sales director. "You don't want to have to wait until the day the lease ends to get a new car."
To capitalize on the burgeoning replacement market, Long Beach, Miss.-basedTritonjust introduced an upgrade program for its distributors. Under the new program, ISOs can sell merchants a new machine at a price point comparable to a used one by recycling the cash dispenser from the existing unit, typically a 9500, and installing it in a new Triton, which is shipped from the factory with no dispenser. Many ISOs keep a number of dispensers on hand to use for maintenance and repairs.
Because the De La Rue dispenser used in the 9500 is also found in many other popular retail ATM makes and models, Harty said Triton distributors will gain an edge in convincing merchants to switch brands.
Harty acknowledged that Triton is facing increased competition from used units – both its own machines and those of other manufacturers. In fact, he said, Triton management has begun to joke that the engineering department didn't get the memo to start making its machines less durable.
But, Harty said, the older models do not offer as much functionality. As more distributors consider ATM advertising and other means of generating revenue, "That's when it really becomes a no-brainer to go with the value adds you get with a new machine," he said.
Playing it safe
Neil Johnson, president of Euless, Texas-basedInternational Merchant Services, believes it may be worth an ISO's piece of mind to pay more for new machines that will fulfill any regulations mandated by the government or card issuing networks.
The federal government is expected to issue new amendments to the Americans with Disabilities Act (ADA) by the end of this year, including a possible requirement for audio capabilities on most or all ATMs. And Visa is spearheading an effort to require new and more secure encryption standards at ATMs. It's unclear as to which older machines, if any, will be exempt from these requirements.
"We're hearing different views espoused on what these new requirements will be," Johnson said. "We've known about these changes for several months now, but we don't know yet exactly who or what will be involved."
Market impact
Hansup Kwon, chief executive officer of Fremont, Calif.-based manufacturerCross Technologies, is concerned about the cannibalization of new equipment sales. "This industry has a maximum capacity of so many units a month, whether they are new or used doesn't matter," he said.
He added, "I'm concerned about distributors buying machines based on price alone rather than features and functions. They're getting used to purchasing equipment at a dumping price."
Kwon fears that the downward price pressure may slow the acceptance of retail ATMs that offer advanced functionality, such as his Mini-Bank 3000, Triton's 9800 and Tidel's Chameleon.
"The infrastructure to support these more advanced machines can be built more easily with more of them out there," he said. "If there are only a few machines out there, it doesn't make economic sense to build the necessary infrastructure."
He worries that some ISOs may make false claims about the equipment. "A merchant won't know whether a machine was busted, stolen or replaced," he said, noting that several merchants have contacted Cross to find out more about a used machine's history before buying. "We can at least tell them when the machine was shipped based on the serial number so they know how old it is."
Kwon said that Cross may eventually buy back some of its own old equipment, outfit it with the latest software and sell it at a discount, perhaps with a 90-day warranty. He believes such a program, similar to the "factory certified" sales offered by luxury car manufacturers such as BMW, would help maintain the value of Cross ATMs.
It's all good
Unlike Kwon, Cathy Chapman, general manager ofATM Wholesale, a new division of Jackson, Miss.-basedFinancial Technologiesthat specializes in refurbished retail ATMs and parts, believes that used ATM sales may ultimately help boost new ATM sales.
"The price difference is creating two entirely different markets," Chapman said. "Our primary customer is the ISO just getting into the business who may put in 10-15 machines a year. By helping them build their business with used machines, we think we can upsell them with new equipment in a year or two."
She added, "By getting more people into an industry and a sales cycle, you make the market stronger for manufacturers."
Like Chapman, ATM Center's Kreeger doesn't think that the lively resale market will have a lasting negative impact on new ATM sales. "Any belch in the industry will yield a short-term effect, but I don't see it as a long-term problem," he said.
