Even as payment technologies advance, ATMs are here to stay and are expected to evolve even more in terms of customer services. To cash in, convenience retailers must decide which management model works best for them.
By Brad Perkins, Contributing Editor
As credit card companies seek stronger security by adding chips to cards, and companies like Apple and Google introduce secure, nearly hack-free payment technology, what will become of ATMs? Most experts agree cash remains a necessity. And as cash remains king, ATMs will remain not just a means for customers to get cash, but a popular money-maker for convenience stores.
“I don’t see ATMs going away,” said Daniel Burrus, CEO of Burrus Research Associates, a research and consulting firm that monitors global advancements in technology-driven trends. “We aren’t going to be completely cashless, even though the way we pay is going to change. People still like cash. Cash is still needed.”
In fact, there is more cash in circulation in the U.S. than ever before, according to the National ATM Council, which estimates there are 420,000 ATMs in the U.S., two-thirds of which are owned by entities other than banks. For convenience store owners who own their own ATMs, that means increased profits from fee-based ATMs and a break from credit and debit card swipe fees.
It also means an increased responsibility in maintaining and filling the machines.
But in communities where a bank branch may not be close by, having an ATM in the local convenience store can provide access to money that may not be available elsewhere. And while owning and operating ATMs independently mean that chains can offer fee-free ATMs, not all want to, especially because ATMs with surcharges increase profits and don’t deter traffic to the stores or the machines.
“I’m aware many chains offer fee-free ATMs to drive traffic to their stores,” said Bill Kent, principal of Midland, Texas-based Kent Oil Co., which operates 36 Kent Kwik Convenience Stores in west Texas, Oklahoma and New Mexico.
“We have discussed this a number of times, but I can’t let myself say goodbye to $1 million a year in ATM earnings on the hope we can build traffic to our stores,” Kent said.
In addition to removing surcharges, some companies also advertise their ATMs. But even without advertising or fee-free machines, convenience store owners can use ATMs to drive traffic into stores, as customers know they’re there and will use them regardless of whether they are at the store to buy other merchandise or gas.
“ATMs are used to just get cash and leave, but many come to the store, buy merchandise or gas first, then get their cash before they leave,” Kent said. “It’s a win-win, we think, either way.”
BENEFITS OF OWNERSHIP
Kent Kwik has 47 ATMs across its chain, with five stores having two each. The company used to lease its ATMs from a bank, but took the leap 10 years ago to leave the profit-sharing agreement it had when Kent went to a National Advisory Group (NAG) conference and learned of the profits other chains earned from owning their machines outright. He directed the chain to move toward owning, operating and filling the machines themselves and profits from the ATMs skyrocketed.
“That first year we went from making about $60,000 a year on our sharing arrangement to over twice that amount owning them ourselves,” Kent said. “Today, our ATM’s generate roughly $1 million per year in income to our company.”
And that trend is growing. According to Bruce Renard, National ATM Council executive director, nearly three out of four ATMs are owned independently, either by owners who do everything themselves or by those who use ATM companies to provide and service the machines.
Either way, it translates into greater profits for convenience store owners from surcharges the ATMs charge the user as well as payments operators receive from the debit or credit network used for the transaction. Because those payments dropped in recent years, surcharges passed along to users remain popular—and accepted—ways to generate revenue.
With rising ownership and maintenance expenses and ongoing security concerns from skimming, hacking or theft, owners would be right to question whether to own the ATM outright.
But profits from surcharges combined with enhanced security both in-store and on the ATM offset those concerns. Kent Kwik, for example, uses video cameras at ATMs and installs the machines in visible in-store locations to deter theft or fraud.
As concerns about credit card data hacking increase and mobile payments not yet prevalent, more customers may want to use cash. So offering an ATM is more than just convenient—it can be a profitable means of meeting customer expectations.
“It’s more of a question of what the merchant wants,” Renard said. “Do they prefer to own and operate the ATM or would they rather someone else own it and simply pay the retailer a commission?”
As payment technology continues to evolve, ATMs will evolve, offering even more security and general banking options, including the ability to make deposits or pay bills. This will drive additional traffic to convenience stores as customers will be able to shop and bank at the same place.
“I think there is a growing recognition in the industry that there is a shift toward more advanced ATMs or supplemental devices that can provide a wider array of traditional banking functions beyond just dispensing cash,” Renard said. “But as these advances occur, convenience stores will need to evaluate the various options before rushing to adopt new technology.”
That’s a view shared by many convenience store operators who bank on ATMs that the machines provide a basic supplemental service to customers that may not be readily available to them elsewhere.
“I do believe ATMs are here for the foreseeable future,” Kent said. “As the trends change, we will tend to be more a follower, than a leader in most of those trends. When it comes to automation, electronic payments and other tech-driven issues, we haven’t had the best luck being at the front of that charge, so we tend to see if the trend is viable, lasting and economical before we jump in.”
In fact, the Texas c-store’s business plan for its financial services segment is to stay in ATM services and upgrade machines as required, providing it with a competitive advantage over other area retail chains.
In addition to the decision whether to own or lease ATMs, c-store owners will soon be challenged with choosing what type of technology is necessary and if their stores can support more than one ATM. Despite stories about hacking, security breaches and other issues, one thing is clear—people still need cash.
“Much has been written about the longer-term move to mobile payments, but the reality is there is more cash in circulation than ever before,” Renard said. “As long as Americans love cash, there will be a need for ATMs.”
Kent agreed, adding that ATMs are an important part of a store’s success.
“Own your own,” he said. “I’m a big believer in that. And if you have a tremendously high volume store, don’t hesitate to add a second machine. If the volume is there and the existing machine can’t keep up, add a second.”