s selling ATMs and related services becomes ever more competitive, some distributors hope to get ahead by adding new product lines to their businesses. Because of similar customer bases and some overlap in vendors serving the markets, credit/debit processing appears to offer a solid cross-selling opportunity for ATM ISOs.

In the past year several large distributors, including NetBank Payment Systems, Kahuna Business Group and WRG Services, have introduced such services.

"If you don't do it, you're just leaving money on the table for somebody else," said Tammie Langworthy Kuhn, WRG's Director of Sales and Marketing.

Kuhn, who tallied 13 years in the merchant processing business before joining WRG, said the Ohio-based distributor just received the necessary approvals from Visa and MasterCard to begin offering credit/debit processing through its sales channel.

"The more services you can offer him, the less likely a merchant will be to leave you," said Elbert Enrique, National Sales Manager/ISO Recruiter for Best Payment Solutions, WRG's merchant processing partner.

Kuhn has been attending credit card trade events to try to recruit those ISOs to sell ATMs. WRG just introduced its new credit card program to its established ATM ISOs in October. So far, Kuhn said, 10 of 100 companies have expressed interest.

WRG intends to focus on credit rather than debit, Kuhn said, largely because no additional hardware is required. "Most of our locations aren't interested in putting more stuff on their counters. They don't want that swipe terminal and PIN pad."

Different Direction

Some ATM distributors who have experimented with credit/debit processing say that it is not as vertically aligned with ATMs as it might appear.

"It's a very different kind of sale," said Neil Johnson, President of Texas-based International Merchant Services (IMS). "Companies that have tried to do both have typically done well in one business and not the other."

Johnson started his career in the check verification business but switched to the scrip market in the early 1990s because "revenues were higher and it required less effort."

Like many scrip deployers, he migrated to ATMs in the mid-'90s when surcharging became commonplace. He "inherited" several hundred credit card customers last year when IMS purchased First Bankcard Systems, an ATM ISO which had dabbled in credit/debit.

A typical ATM lease is $90 to $120 a month, Johnson said, while a lease for a card swipe terminal averages about $30 a month. "Many merchants mentally have a hard time making that kind of a leap."

One of the ATM industry's strongest markets, chain petroleum/c-stores, is largely off-limits to credit card ISOs, Johnson said, because corporate parents tend to offer their own branded card programs.

While he conceded it is difficult to penetrate the large petroleum/c-store chains, Enrique said there are plenty of smaller operations in need of credit/debit services.

And some large franchisees install second card terminals to handle transactions that do not involve gas purchases.

(Large chains with branded cards typically allow franchisees to offset petroleum costs with profits earned from card usage.)

Prepaid cards are a promising ancillary product for credit card ISOs, but Johnson said they tend to be popular in lower-income areas where ATMs traditionally do not perform as well.

Many credit card sales are made to new businesses; not so with ATMs, because of the difficulty of getting financing for merchants in business for less than two years.

Despite those concerns, Johnson has hired a credit card veteran to try to better develop IMS' credit/debit business.

"The revenues haven't panned out yet, but I'm not ready to give up on it," he said. The ATM industry "has got to find a way to integrate debit" because those transactions are experiencing healthy growth while ATM transactions are leveling off.

Service, Service, Service

"With the ATM business reaching a plateau, we obviously have to look at ways to expand our business," said Tommy Glenn, President of NetBank Payment Systems, an ISO with some 8,000 machines under contract that operated as FTI before it was purchased by Internet bank NetBank in late 2003.

Many popular ATM locations, including bowling alleys, restaurants and bars, present a "natural cross-selling opportunity" for credit/debit services, he said.

Glenn introduced credit/debit services at FTI before the NetBank acquisition. The company already has attracted some 2,000 merchant accounts. Glenn expects the number to grow quickly now that NetBank Payment Systems has begun doing its own underwriting and added products such as electronic check conversion. The key to making such a strategy work, Glenn said, is offering quality products across the board.

"You can't succeed with an excellent product here, and a mediocre product there. You have to have a comprehensive suite of payment products, and be able to service and support all of them."

Enrique said ATM ISOs will enjoy an advantage over their credit card peers because of their traditionally strong focus on customer service. "Some credit card ISOs never see the customer after the initial sale."

In the Trenches

ATM distributors are "already in the trenches and they're used to giving A-plus service," agreed Chris Schneider, Chief Executive of Texas-based Access ATM, a distributor with some 4,000 machines under contract.

The company is boosting its credit card profile after allowing the business to become dormant over the past several years, and hopes to add more merchant accounts to the 6,000 or so it already services.

Schneider ran a credit/debit company called Merchants Choice Card Services before switching to ATMs in the late '90s because of the higher margins. At the time, he said, most of his ISOs did not want to offer what they saw as a competing product.

Many ATM ISOs have developed a different perspective as the industry has matured, he said. "A lot of the same guys are asking me about doing credit cards."

Margins are lower on the credit card side, with per-terminal revenues that often do not exceed $15 a month, Schneider said.

"That's why it makes sense to offer a combination of products. Unless you are very big, it's going to be very tough today to just do credit cards."

Access ATM offers all types of credit and debit services and a number of check-related services including conversion, guarantee and electronic re-presentment. While few of its ISOs currently sell more than one product, Schneider expects that to change.

"If you can add it to the mix and it's not costing you more money to do so, there's business out there for the taking," he said.

Doug Falcone, Chief Executive of Access to Money, a New Jersey ATM distributor with some 5,500 machines under contract, gave credit/debit sales "a full-court press" for about a year and gained about 100 merchant contracts before deciding to abandon the effort.

"There are no margins left in the machines, and we were making less than $10 a month per terminal," Falcone said. "It was causing us to take our eye off the ball a little bit. We decided to focus on our core business and continue building on our good name in ATMs."

Unlike ATM ISOs, Enrique said, credit card ISOs make little if any profit on hardware sales. Margins on transactions are lower, but there is far more volume.

"ATMs are starting to see diminishing margins on hardware, which we've already experienced in the credit card world. But we haven't seen the decline in transactions that the ATM business has," he said.

"Point-of-sale transactions at any location are going to outnumber ATM transactions by far."

Different Animal

Jerrel Olive, a 30-year veteran of the merchant processing business, began selling ATMs three years ago.

"It was a lot easier for me to cross to ATMs than it's going to be for most ATM guys to cross to credit cards," said Olive, a general partner with Bankcard Service LLP. "Credit cards are an entirely different animal."

According to Olive, there are hundreds of different types of credit/debit transactions, with varying levels of interchange, compared to a relative handful of ATM transactions. Contracts are more complex.

Some businesses popular with ATM deployers, such as gentleman's clubs, may be off-limits because of problems associated with chargebacks.

Enrique said Best Payment Solutions hopes to help ATM ISOs narrow the learning curve by offering a turnkey program to ISOs through larger distributors like WRG.

"We want them to be able to rely on us as much as they need to for support; we can transition more of the business to them when they feel more comfortable with it," he said.

Olive believes that credit/debit can become an ancillary revenue opportunity for ATM ISOs, but he said most will need to undergo training before offering the services to merchants.

"With ATMs, you can pretty much learn as you go along," Olive said. "It's not that way with credit cards. It's like driving a model T and then getting into a Ferrari. You can drive it, but you need to know a lot more about how it handles or you could hurt yourself."

Original article: www.atmmarketplace.com/research.htm?article_id=21865&pavilion=50&step=story