HOUSTON—The growing demands from regulatory compliance and technology upgrades are making ATMs a “money pit,” says one cash machine expert.
“Providing ATMs for the convenience of members has always been a solid and smart credit union strategy,” said Gary Walston, co-founder of Dolphin Debit. “But in today’s environment of increased compliance concerns and continual needs for machine upgrades and updates, credit unions that own and maintain their own fleets of ATMs are seeing dwindling returns on their investments.”
As the machines have become more sophisticated and full-featured, and their networks more complex, the task of properly managing a fleet of ATMs has become burdensome, and in some cases overwhelming, for all but the largest credit unions, said Walston.
“But there is no doubt that compliance, whether with legal and regulatory requirements or with the dictates of network and software providers, is creating the greatest burden,” he said. “That burden is both financial—as credit unions face huge bills for the coming Windows software changeout—and managerial, making sure all ATMs are not only operating properly on a daily basis, but in line with every rule and regulation.”
Compliance-Driven Changes
For the last decade, ATMs have gone through a two-year cycle of compliance-driven change. There was the need to change over to accept EMV cards, and before that the ending of support for Windows XP in favor of Windows 7.
“Prior to that, we saw the changes required by the Americans with Disabilities Act, and before that PCI compliance,” noted Walston. “Now. we have the end of support for Windows 7 as Microsoft is sunsetting that operating system in January 2020 and credit unions will have to deploy Windows 10 on their ATMs.”
The cost of that change will depend in part on the age of a machine and its existing processor and memory, but credit unions can expect to pay a minimum of $1,700 to $3,000 each, said Walston.
“We have even heard of an ATM manufacturer quoting a credit union $12,000 per machine for implementing Windows 10. And then some machines will be deemed too old to upgrade, so that will require more capital investment for new ATMs,” he said.
Gary Walston
Sticker Shock
Facing such a bill will likely induce sticker shock for many credit unions, driving even more shops to seek ways to “dig out from the money pit” they have gotten themselves into, Walston believes.
“It is no wonder that more and more credit unions are getting out of the ATM ownership and management business completely in favor of outsourcing the entire operation,” he said.
In an outsourcing relationship, the ATM management company takes on all the responsibility for managing machines on a daily basis and absorbs all the costs connected with that two-year upgrade cycle. The cost becomes consistent and predictable, with no further need for capital investment, and the credit union continues to receive the foreign surcharge income, Walston explained.
“In our case, Dolphin Debit clients generally save 20% to 30% through outsourcing compared with the total cost of owning and managing their own ATM fleet,” Walston said. “But even apart from the savings, relief from the management burden makes the strategy worthwhile for them.”
Rule of Thumb
Credit unions are also able to make better, more productive, use of the time they used to spend dealing with ATMs, added Walston.
“As a rule of thumb, a credit union with ten ATMs that moves to outsourcing can recover the equivalent cost of about half a full-time equivalent employee on an annual basis. That can mean $20,000 to $25,000 or more worth of employee time that can be devoted to taking care of members rather than taking care of ATMs,” he said. “ATMs have always been about providing convenience and added service to members, hopefully in the most cost-effective way possible. Increasingly, credit unions are finding that outsourcing—and avoiding the periodic cost surprises—is the best way for them to meet that objective.”