ATMs Generate Returns

US dollar money stack dispensed from imaginary atm cash machine

ATMs have always been valuable tools for c-stores, and with the possibility of rising debit card fees, that value figures to rise.

By Howard Riell, Associate Editor

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In an economy where more and more U.S. consumers have less access to big bank accounts, ATMs are still considered a viable commodity in the convenience store channel.

“ATMs are important to the c-store business,” said Bill Welch, general manager of Wood Oil Co. in Vacaville, Calif. “More and more, all c-stores and grocery stores are fighting for the one-stop shop. ATMs allow our customers to make more purchases onsite 24 hours a day; no running off to the bank to get more cash and possibly not coming back.”

Throughput for the ATMs at Wood’s four stores is around $100,000 a month. Approximately 25% is spent at the stores after customers have made a withdrawal.

“This equates to around $25,000 a month in sales, or up to $300,000 a year,” Welch said. “We also receive a fee for the use of the ATM.”

In all, there are about 1,600 transactions a month at all four stores, Welch said, and while the fee is a modest $1.95 it still adds up to around $3,120 a month, or about $37,000 a year. “All the transactions just add to our business,” Welch said.

The 2016 National Association of Convenience Stores’ (NACS) State of the Industry (SOI) report noted that ATMs generated $984 per month in 2015—more than $11,800 per year—among locations in its sample, second only to Lottery/Lotto as an in-store Other Income generator. Data presented at the NACS (SOI) Summit is preliminary and derived from company submissions as of March 31.

“There is considerable value,” noted David Tente, executive director-USA for ATMIA (the ATM Industry Association), an independent, non-profit trade association in Orlando, Fla. “We know for a fact that the presence of an ATM increases the cash-spend in a store.”

Exact numbers are difficult to arrive at because there are so many variables, Tente added. “It may only be a few thousand dollars from ATM fees, but you can’t forget about the increased spend.” Indeed, he cited research from Europe indicating that an ATM increased cash-spend as much as 65%.

“At Kum & Go, we like to provide the convenience of having ATMs on site for our customers so they have one fewer stop to make in their day, and an easy way for them to withdraw funds if they prefer to pay for their purchases with cash,” added Kristie Bell, communications director for Kum & Go L.C., in West Des Moines, Iowa, which operates 430 stores in 11 states. “We’re not looking at any

widespread upgrades or changes to our ATMs.”

 A recent Technavio market research study identifies advances in ATM

technology such as using smartphones right at the machine instead of a card as one of the emerging trends expected to propel the growth of the global ATM market. Consumers simply use their phones to log into an app—possibly by using a fingerprint reader—for what amounts to a one-time use code. Security is also enhanced; the phones help defeat so-called skimmers, slots that are covertly placed over ATM card slots that hack the stripe data.

Major banks including JP Morgan Chase and Bank of America have been moving in that direction. Both Bank of America and Wells Fargo are working on installing Apple Pay options in their ATMs.

Increasingly, ATMs’ uses include person-to-person payments and money transfers, pre-paid card purchases, mobile and other pre-paid cards and charitable donations.

“The more friendly and high-tech ATMs become, the more users will gravitate toward them—even the unbanked and under-banked,” Tente said. “And as other types of transactions are added to the ATM, new revenue-sharing streams may open up for the c-store owner.”

A case in point is bitcoin, he added.

“The bitcoin ATM population is showing strong growth,” Tente said. “However, most of that is in dedicated bitcoin ATMs.  Regulatory challenges are still keeping most ATMs operators from considering the addition of bitcoin transactions.”

Steven Montgomery, president of b2b Solutions LLC in Lake Forest, Ill., said he doesn’t necessarily agree, and noted that the typical c-store customer profile and that of bitcoin users don’t overlap to any significant degree.

“Second, with many ATMs being owned by c-store retailers I don’t see them investing in ‘loading’ bitcoin, whose value can fluctuate,” Montgomery said. “Bitcoin’s value is very volatile. Finally, unless the retailer is going to accept them for purchases there will be no indirect income.”

Complications may lie ahead. On May 8, House Financial Services Committee Chairman Jeb Hensarling (R-TX) revealed a plan to overhaul significant parts of the Dodd-Frank financial regulations. NACS responded with a statement noting:

“Without the vital protections in debit reform, higher debit-card fees would not only add to prices for consumers but also represent a tremendous additional burden to smaller merchants—especially convenience store owners, whose customers often engage in multiple transactions at the gas pump and within the store. Card fees are the second-largest operating cost for many retailers, preventing them from expanding or hiring.”

Mike Pierce, who has owned and operated Mike’s Store and Mobil in Hartland, Vt., for the past 19 years, said that while ATMs help reduce credit card fees every time customers withdraw cash to pay for items, many choose to use their debit cards to get cash back after a purchase, meaning the store is still charged a transaction fee.

“Because we are an ExxonMobil location we have to allow cash back on a debit card,” he noted. “A lot of people do get cash back on their debit cards; they use those cards to charge first to get that money, versus just going to the ATM machine, getting the money and then coming and paying for their sale.”

Many times, Pierce continued, a customer will come in just to buy a $2 or $3 item and then get back $40 or $50 in cash to avoid the ATM fee. “If they get cash back, I am getting hit with a fee on the purchase part.”

That said, an ATM remains a money maker for c-stores, Pierce confirmed. “I’ve had ours since day one. You can make anywhere from $300-$500 a month, but you have to pay for your ATM out of that amount.”

This is the third ATM Pierce has owned, and he recently spent $2,000 upgrading it to read card chips. Because of that expense, he is less than eager to upgrade again for additional services.

Access to cash obviously cuts down on the number of credit card transactions. When the 21-year-old Quechee Mobil Mart in Quechee, Vt., closed its doors and filed for Chapter 7 bankruptcy status in mid-May, citing the high cost of fees associated with accepting credit and debit cards, it was clear to Pearce that an alternative path was needed.

With credit card companies charging $1-$4 per transaction, he realized that the profit margins were so low on a lot of his merchandise that on small sales his store was actually losing money due to the swipe fees.

Pierce believes retailers should try and encourage consumers to get their cash from the ATM rather than as cash back at the register.

“As I said, we have to give cash back because we’re ExxonMobil. But when people get money out of the ATM there is a fee that you are saving by them not using your credit card system,” Pierce said.  “If anything it’s just a convenience thing; people like to pay with cash.”