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As surcharging, dual pricing and other forms of differential pricing become more popular, many merchants are looking to add a true cash option by placing an ATM in their business.

This week, we discuss ATMs with Yonas Marcos from Star Financial ( https://www.gowithstar.com ).  This is a segment of the market that continues to grow and evolve.  Learn how you can land new merchant accounts and increase your margins on existing merchant accounts with ATMs.

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ATMs often get overlooked by ISOs and agents. After all, residual splits on card processing fees are the bedrock upon which their merchant portfolios have been built. However, this attitude ignores one important fact. Cash remains a common form of payment, and consumers and merchants prefer to be given choices. 
 
Data collected by the Federal Reserve reveals that consumers, on average, made sixty-eight payment transactions a month in 2020, and fourteen of those payments were made with cash. Credit cards were used for an average eighteen payments; the average for debit cards was twenty-three.
 
Where does all that cash come from? Quite often it comes from ATMs. In fact, as more workers get paid electronically (by Direct Deposit to bank or prepaid debit card accounts) and more banks shutter branches, ATMs have become consumers’ go-to place for cash access.
 
Placing ATMs with merchants offers ISOs and agents opportunities:
 
  • To tap into the demand for cash.
  • To generate new revenue streams in the form of residual splits on surcharges.
  • To generate new revenue streams in lease and maintenance fees. 
  • To generate stickier relationships.
 
Merchant locations with ATMs benefit from higher spending. Studies have shown that consumers who withdraw cash from an ATM at a retail location are 50% more likely to spend some or all that cash at that location. Other research indicates that cash customers who obtain cash from a merchant’s ATM spend about 25% more than those who walk in off the street with the cash in their pockets.
 
ATMs also make it possible for ISOs and agents to generate income from merchants who may not want to, or can’t, accept credit and debit cards. Examples of this are merchants selling marijuana, CBD, and other cannabis products. Because of the mismatch between state and federal law and card brand prohibitions on boarding merchants that sell cannabis and other products, these are cash-only businesses. By offering customers the ability to withdraw cash from ATMs in their stores, these merchants benefit from more sales.  
 
“Small, family-owned convenience, grocery, liquor, and tobacco stores are among the most common locations where we place ATMs,” said Yonas Marcos, President & CEO at Star Financial. Star, the sponsor of this Merchant Sales Insight, has built a book of business installing and servicing ATMs at retail locations. It has ATMs installed at retail locations in thirty states. 
 
“We see ATMs as a complement to card acceptance. And in some cases, like CBD shops, ATMs are a necessary alternative,” Yonas explained during a recent Merchant Sales Podcast. 
 
Cash takes on added importance as more merchants move to cash discounting.  Offering an ATM is a way to make money (a share of the ATM surcharge) when merchants’ customers choose to save money by paying with cash. It also may make those customers rethink their decisions. After all, ATM surcharges can range from $3 to $5; the noncash adjustment on a $50 purchase averages about $2. An advanced degree in math isn’t necessary to choose the better deal.
 
Assessing the Business Model: 3 Questions You Need to Ask
 
“Selling ATMs is different from selling merchant services. It’s actually easier,” Yonas says. 
 
The most likely prospects are businesses that don’t accept credit cards. Maybe they don’t want to take card payments. Pitching them on installing an ATM allows you to make some money, while proving your worth as a partner when they do decide to accept card payments.
 
Perhaps you have a prospect who can’t accept card payments because of card brand rules, as is the case for marijuana dispensaries and CBD shops. The laws and card-brand rules around cannabis sales will change someday. When the change comes, the ISO/agent who placed an ATM in that shop has a good chance to get that merchant account.
 
Another good idea when selling ATM services is to look for businesses that have a lot of foot traffic: 
  • liquor stores, 
  • bodegas, 
  • neighborhood grocers,
  • shopping malls. 
Now, here are the nitty gritty details. There are three variables that contribute to the overall profitability of offering ATM services. Let’s examine each.
 
1.   Who Owns the ATM?
 
There are several options, each with its own revenue model. 
 
  1. An ATM ISO, like Star, can retain ownership of the machine, placing it in the store in exchange for a monthly rental fee.
  2. The ISO can lease the machine to the store owner.
  3. A reselling ISO or an individual agent can purchase and lease the ATM to the store owner
  4. The store owner can purchase the ATM outright and pay for maintenance.
 
“ISOs/agents working with Star can be involved as little or as much as they want,” Yonas explains. “Most work as referral partners, leaving installation and maintenance to Star. They receive a referral fee and a share of the monthly revenue stream.”
 
2.   Who Services the ATM?
 
ATM maintenance includes replacing and restocking cash, paper, and ink, as well as handling problems like jammed currency and paper. 
 
Obviously, the more of the maintenance workload merchants assume, the more money they make from the ATM. Some, especially those with many cash sales, may want the option of loading cash into the ATMs in their stores. But they would rather not deal with other maintenance tasks. Most prefer to leave all the maintenance to the pros: the ATM company. 
 
Whatever the merchant’s preference, there is money to be made by all parties involved.
 
3.   Who Makes Money & How?
 
The money to be made from an ATM will depend on how involved each party is in the installation and servicing of the machine.  
  • When a merchant purchases an ATM from a company like Star, the referring ISO/agent receives a share of the purchase price. 
  • An ISO/agent may purchase the ATM directly from Star and sell the device to the merchant at a markup. 
  • If the merchant chooses to lease the ATM, the referring ISO/agent benefits from that residual stream.
In all these situations, the merchant will likely need a service contract, which creates another residual opportunity for the ISO/agent.  
 
ATM surcharges (convenience fees) are yet another revenue opportunity. The average ATM surcharge was $3.08 in 2020, according to the website Bankrate. In many metropolitan areas, it was even higher. ATM surcharges in Atlanta, for example, averaged $5.23. In Phoenix, the average was $5.17. In Dallas, it was $4.46. 
 
The ATM owner retains the bulk of the surcharge fee. When the owner is an ATM company, the merchant and any referring ISO/agent gets a share of the surcharge. 
 
“When an ISO/agent works with us, all they must do is write the deal, nothing else. We do all the heavy lifting. They can collect $0.50 to $1.25 on each transaction,” says Yonas.
 
Obviously, when the ISO/agent owns the ATM, the ISO/agent receives the bulk of the surcharge revenue.
 
The Future of ATMs
By Patti Murphy
 
In the payment space, old ways of transacting never die. They simply adjust to new market dynamics. That’s why, despite prognostications about the “cashless society,” consumers continue to spend trillions of dollars using greenbacks every year. In 2020, roughly one out of every five consumer purchases was paid using cash, according to the Federal Reserve.
 
Today, most consumers go to ATMs for cash. ATMs can do so much more than just dispense cash, however. We’re already seeing ATMs that allow consumers to pay for added minutes on their mobile plans and to buy and reload prepaid cards. Dynamic currency conversion is common in regions frequented by foreign tourists. Some ATMs even offer an option to purchase and sell cryptocurrencies, like Bitcoin and Ether. 
 
Looking forward, I would expect to see more value-added services available through ATMs. And there will be exciting opportunities to emerge from the integration of ATMs with mobile technologies. Think in terms of device-to-terminal pairing to support cardless cash withdrawals.
 
“Our fleet of ATMs is always evolving,” explains Yonas. Upgrades are regularly and readily done with side carts and software changes. The actual hardware typically gets replaced every 3-5 years.
 
Conclusion
 
The first ATMs were deployed more than fifty years ago, and they remain a popular way for consumers to quickly access cash on the go. 
 
There are residual streams to be earned by ISOs and agents who cater to this demand by placing ATMs in retail locations. This can be an especially crafty way to boost residuals by making cash available for consumers who want to take advantage of cash discounts. 
 
Think of it as putting the cash in cash discounting.
 
Contact Star Financial today and learn how they can help you expand your portfolio of merchant services and build a more profitable book of business.