Outsourcing Your ATM Network: Is it the Right Move for Your Institution? i
CONTENTS
The ATM Money Sink
The Benefits of Outsourcing
Hardware & Software Maintenance/Improvements
Resource Management
Network Reach
Increased ROI
Outsourcing Options
Partial Outsourcing
Full Network Management
Selecting an ATM Management Provider
About Welch ATM
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Outsourcing Your ATM Network: Is it the Right Move for Your Institution? 1
The ATM Money Sink
“...as ATM portfolios grow, so, too do
profit-margin pressures.”
- Tracy Kitten*
ATMs were once a revenue generator. However, a flooded market
coupled with the current economic crunch has resulted in plummetting
profits. Yet despite the increased availability of cash back and
debit/credit card options at the register of many major retailers,
customers still rely on ATM availability for their transaction needs.
The dilemma now facing financial institutions has become:
How do we maintain or even increase our current
customer service availability through ATMs...without
breaking our budget?
A true solution would need to cover all of the worries and costs of ATM
operation including: Cash Management, Maintenance, Processing,
Installation as well as Technological and Compliance Upgrades.
Enter the ATM ISO and ATM Outsourcing...
* Kitten, Tracy, (04/24/2007). Mind on the ATM Money.
http://www.atmmarketplace.com/article/130750/Mind-on-the-atm-money
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“As an industry, we’ve probably been leaning
too hard toward thinking the only way to
[provide top-of-the-line ATM service] is to do
it ourselves.”
- Matthew Burns, VP of Electronic Banking
National City Corp.*
Hardware & Software Maintenance/Improvements
While customers often give ATMs little thought, they receive an immediate
negative impression the moment they need one and it is out of order. This is
not just an instance of poor customer service. ATM down time means loss of
transaction fees as well as additional maintenance costs.
Changing regulations and ATM techology are another concern. New ADA, PCI
and DES regulations as well as security provisions and technology require
ATM upgrades...too often for many financial institutions to keep up.
Outsourcing Solution:
Most ATM ISOs provide maintenance and compliance guarantees in their out-
sourcing contracts. This ensures your ATM fleet gets the regular mainte-
nance and service it requires to stay up and running plus emergency service
if any breakdown.
ATM ISOs also keep up-to-date with all of the latest information & technology
regarding upgrades, updates, virus notifications, regulation compliance,
security measures and technology so that your ATMs are compliant and
operational when your customers need them...all with no extra cost to you.
*Unknown, (10/12/2005). ATM Outsourcing Growth to Continue.
http://www.atmmarketplace.com/article/133218/atm-outsourcing-growth-to-continue
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Resource Management
Financial Institutions have to organize a multitude of processes in order to
manage their ATM network. All of these processes must function together in
order to provide a positive customer experience. This task can be made
more difficult as each process often means another vendor.
* Transaction Processing * Armored Car Services
* Cash Management * Monitoring
* Maintenance Services * Equipment/Software
If a network offers advanced services such as image processing or deposit
automation the task becomes even more difficult. All of this effort culmi-
nates into additional full time employee costs.
ATM ISOs offer all of these services and more in one package. Under an out-
sourcing contract, financial institutions need only deal with a single vendor
to make certain that their network is running efficiently. Fewer vendors
means fewer contracts, fewer calls when there are problems, less time, less
hassle, less money and lower employee costs.
“Fewer vendors means
fewer contracts, less time
spent by employees and
lower FTE costs.”
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Network Reach
“The ATM is a ‘must have’ customer service channel for financial institu-
tions.”* According to a 2011 Dieringer Research Group consumer study, 74%
of consumers consider ATM locations and 54% consider number of ATMs
important when selecting a financial institution. These numbers show that
having an ATM network is not just a convenience but a “strategic foundation
for customer service.”*
However, providing a reliable ATM network grows more difficult the wider
the network becomes. Distance from main branches can increase problems
with monitoring and make it more expensive for staff or vendors to deal with
issues. Research by electronic commerce company FirstData indicates the
total cost of operating a high-transacting ATM can reach up to $26,000 per
year per ATM for operational costs alone.* A similar study performed by Dove
Consulting indicates that ATM costs have a compounded average annual
increase of 6.7%.** Running a network is time consuming and progressively
more expensive.
** Dove, David, (08/01/2011), The Case for Outsourcing ATMs.
http://www.bai.org/bankingstrategies/distribution-channels/atm/the-case-for-outsourcing-atms
Convenient
Location of ATMs
Number of ATMs
6% 21% 74%
9% 35% 57%
0% 20% 40% 60% 80% 100%
Not Important Neutral Important
ATM Importance When Selecting A Financial Institution
Source: Dieringer Research Group Conjoint Consumer Survey, 2011
*Pit, Richard (2011). Evolving Options for ATM Outsourcing: Pooling Can Keep Your Channel Competitive.
Retrieved from http://www.firstdata.com/downloads/thought-leadership/Evolving-ATM-Options-WP.pdf
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“The nature of the off-premises network really
dictates that you outsource just about every-
thing. If [outsourcing] services didn’t exist, we
couldn’t even be 65 miles from here.”
- Chris Klein, Senior VP of ATM Systems
Bank Atlantic*
Outsourcing all or part of an ATM network consolidates services under one
contract with a single vendor, effectively staving off cost increases for the
duration of that contract. This consolidation also eliminates the hassle of
multiple vendors, decreasing the costs for full time employees and the
liability of creating a wider ATM footprint.
As ATM ISOs regularly manage extensive networks, they are capable of
leveraging their connections and expertise to alleviate the difficulties and
costs that a financial institution would encounter when expanding further
from their main branches.
“[Outsourcing programs are] very beneficial in areas where you need a
presence but you don’t want to spend the money to build business there,”
says Shelly Chandler, VP of Self Service banking for PNC Bank.*
Many ATM ISOs also maintain relationships with major retailers and utilize
these associations to place Financial Institution ATMs at popular locations,
ensuring higher transaction volume and revenue. Customers recognize the
convenience of surcharge-free transactions located at the retailers they
regularly shop.
*Unknown, (10/12/2005). ATM Outsourcing Growth to Continue.
http://www.atmmarketplace.com/article/133218/atm-outsourcing-growth-to-continue
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Increased ROI
It is clear that a dependable ATM network is important and strategic but,
due to the changing market, most financial institutions no longer consider
ATMs a core business. Rather, they have become a customer service expense
and a money sink.
* Dove, David, (08/01/2011), The Case for Outsourcing ATMs.
Competing with banking monoliths is about economy of scale and the same
is true of the ATM industry. ATM ISOs can operate ATMs for a fraction of the
cost it takes a financial institution to run them because they leverage the
management of multiple ATMs.
These savings are passed on to the financial institution by lowering monthly
operational costs and consolidating vendor-client interactions.
A recent study from Dove Capital Partners reveals that even large banks
could save up to 20% on their direct costs per month per ATM by outsourcing
to a third-party managed services provider.* That percentage increases
when considering the savings in employee expense. This increases the prof-
itability of potential costs at the client level.
“Save up to 20% on direct costs
alone by outsourcing to
a third party
provider.”
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Outsourcing Options
Partial Outsourcing
It is a long standing practice with financial institutions to outsource separate,
distinct functions such as cash management or hardware maintenance. Many
institutions select to segment rather than fully outsource due to concerns
regarding control, security and confidence in third-party providers. When
deciding to partially outsource, an institution must consider costs of vendors,
employee time and current versus resulting overhead.
Partial outsourcing may save time and effort while still allowing the financial
institution to maintain overall control of their network. However, there can
be drawbacks such as:
* Segmentation of ATM network services often results in a lack of
business intelligence in regards to overall performance and
cost of a network.
* Customer service and satisfaction problems can develop as ATMs
go down and it becomes unclear which service provider should
be held responsible.
Consolidating outsourced services to a single provider can help reduce these
issues. However, it can be difficult, even in-house, to create complete,
comprehensive reports without full ATM management. This results in contin-
ued use of employee time and effort for report collection and evaluation.
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Outsourcing Options
** Dove, David, (08/01/2011), The Case for Outsourcing ATMs.
“We can operate off-premise outsourced ATMs
for half of what it costs us to run our (onsite)
ATMs.”
- James Braddock, VP of UMB*
Full Network Management
Full network outsourcing hands off management of all ATM processes to a
third-party provider. As ATM ISOs are capable of running entire networks for
a fraction of the cost, many financial institutions select this option solely
based on price tag.
However, as most third-party providers have had years of focus in the ATM
industry, they have developed an expertise in ATM management and service.
An ATM ISO is not only more cost effective but also more likely to know the
ins-and-outs of the industry. Thus, they are capable of providing better,
more efficient service than a financial institution. This results in better
monitoring, better response rates and more up time.**
There is also the added convenience of consolidated reporting. A third-party
provider operating a fully outsourced ATM network is capable of providing a
complete report of all activity for each ATM.
Finally, there is the maintenance, service and upgrades... complete with
compliance guarantees. A third-party provider eliminates the extra costs of
maintaining an ATM network, making certain that it is operational and meets
regulations and security requirements including ADA, PCI, and DES.
* Unknown (2006). Outsourcing in 2006.
http://www.atmmarketplace.com/article/132788/outsourcing-in-2006
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Selecting an ATM Management Provider
When a financial institution is choosing a provider to manage it’s ATMs,
whether it be partial outsourcing or full network management, it is essential
that the provider have the expertise to fulfill the role. Here are some basic
recommendations for what to look for in a management partner.
Experience
The company should have prior experience running an ATM network including
all technical and business aspects of the industry. This ensures that they
have all of the knowledge to provide maintenance, branding, reporting and
ATM placement strategies to maximize a financial institution’s network.
Customization
As each client has different needs and requirements, the company needs to
be capable of designing sourcing strategies that meet the individual needs
of said clients. This includes being capable of providing partial outsourcing
and full management options.
Strategic Partners
A third-party provider should be capable of creating additional value for
clients such as offering network expansion through ATM placement with
retail partners at popular locations. Another worthwhile addition is expand-
ing the surcharge-free population of ATMS for cardholders.
Customer Care
Customer service is the focus and purpose of an ATM network. These values
should be reflected in how the company deals with financial institution and
retail clients.
“Customer service is the
focus and purpose of an
ATM Network.”
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About Welch ATM
Welch ATM is an independent ATM company founded in 1973. With over three
decades of ATM industry experience and service, we have developed rela-
tionships with over 1,000 financial institutions and major retailers.
Welch provides an array of ATM solutions including retail ATM branding,
equipment, transaction processing, managed services and more. Welch
strives to provide excellent customer service and works individually with
each client to create strategies that best fit their goals and needs.
Welch ATM is the one of the largest ATM companies and a leader in the indus-
try. Welch currently manages over 20,000 ATMs nationwide.
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