After attending the ATM & Mobile Innovation Summit held last week in Washington D.C., the future of alternative payment methods continues to be filled with many options. While it is interesting to see the wave of potential choices, such as Bitcoin for digital
currency and mobile payment initiatives like Apple Pay, they will ultimately jockey for position in the already crowded arena. The impact of this could slow down the pace of mainstream adoption as multiple options cannibalise each other as opposed to one becoming
an out and out market leader. Meanwhile, cash will continue to be the dominant payment choice due to its situational advantages.
What is clear for ATM deployers, be it IADs or banks, is that there are several forces acting on the industry. Not only is there the wave of innovation coming from new technologies that present competition, challenges and hopefully opportunities, but this
is coupled with increased compliance and security regulations. It is clearly a time of change in the industry and this will put pressure on operating models and profit margins.
The toughest choices of all will come for IADs, which begs the question: As independence becomes tougher, how much longer will the “I” in IAD remain?
IADs are facing a future with increased operating costs and lower revenues. Customers are demanding quicker transactions with more available features yet issuers are expecting these transactions take place securely. If IADs aren’t prepared from both a financial
and time standpoint, they face the prospect of consolidation with a bigger deployer or worse; closure.
This preparation and future strategy needs to contend with the following issues:
Don’t underestimate the costs associated with EMV Migration – The costs of EMV migration will come in several forms, not only are there hardware and software costs to contend with but the further burden of compliance certification to prevent the liability
shift on fraudulent transactions from the issuer to IADs. IADs should (if not already) have a migration plan in place which includes conducting an estate inventory to evaluate what needs to be upgraded and/or replaced and the associated costs in order to be
prepared in time for the October 2015 deadline.
Contactless payments – NFC (Near Field Communication), QR codes, Biometrics. There is no denying that we are moving towards a cardless payment method at the point of sale and for access to cash. While contactless payments allow customers quicker and
more secure access to their cash, they offer limited additional revenue to the deployer. This will lead to a situation where any cost of upgrading may not be recuperated, however it could be only a matter of time until customers are expecting such technology
on an ATM as standard.
Incremental revenue opportunities will become necessary – In order to maintain a profitable operating model, incremental revenue opportunities could become an important, if not necessary, approach of offsetting increased costs. DCC (Dynamic Currency
Conversion) is the option most commonly referred to due to the relatively strong revenue it can provide with low initial capital expenditure. DCC allows the deployer to make the margin on the currency exchange of a foreign cardholder withdrawing US dollars.
The limitation of this is that it only becomes a viable option for ATMs deployed in areas where there may be foreign card usage: tourist areas, airports and ports will benefit the most, leaving the remainder to look elsewhere.
While other options won’t provide as strong a margin as DCC, there are possibilities to take advantage of. The idea of the ATM as a ‘financial products vending machine’ is something that can be toyed with – the inclusion to enable the purchase of pre-paid
cards and pre-paid cellular credit – where this falls short though is the potential scale required to generate a sufficient return.
Cost Control – As operating costs increase, especially due to one-off costs such as EMV migration, it becomes essential to audit and assess the current operating costs attached to your estate. While there are a number of fixed costs for an IAD, the
cash supply chain isn’t one of them. Studies indicate that IADs rarely change the volume of cash or the frequency of delivery nor are the costs associated with cash supply and delivery regularly evaluated. IADs can achieve significant savings of 30% or better
on the cost of supply by more intelligent forecasting, scheduling and supplier management. Managing all of the elements of the supply chain in-house may not provide IADs the results desired as they may lack the time and the tools.
Overall, there are a number of challenges for IADs in the future, and in order to remain independent, current operating models need to be stress-tested for the challenges that lie ahead. Until now the environment for IADs has been relatively favorable and
has led to the expansion and increased success of the industry. While technology, costs and regulation changes have always presented challenges, never on a level like this. IADs need to ensure they can successfully adapt and be prepared to face these challenges
in what will become a much different, more challenging industry landscape.