5 things ATM operators should consider before buying into bitcoin

As the economic impact of the COVID-19 pandemic spurred central banks to print more money, and as the trend continued, reputable strategists are now suggesting that cryptocurrencies like bitcoin will persist to propagate in the markets.

Popularized by Millennials and the unbanked, bitcoin offers a safer alternative investment as the markets adapt to accommodate the latest challenges in this ever-evolving economy.

As a result of the current environment, you might be thinking to yourself that now is an excellent time to consider adding bitcoin to your ATM offerings. And you would be right about that, but there are a few things you need to consider before implementing bitcoin kiosks.

It might seem like choosing an ATM provider is simple enough. From high-dollar payouts to supposed "guarantees," you might feel like the choice is obvious for you. Of course, with the right marketing and advertising, any of those providers can sound like the perfect fit; however, as with most things, "too good to be true" is very true. Here is a closer look at the five main things to consider when thinking about adding bitcoin service to your ATMs:

Good banking and regulatory relationships

If you are looking at a bitcoin provider whose AML compliance team (or lack thereof) leaves much to be desired, like no functional relationships with key regulatory authorities and banks, proceed with caution.

Make sure the bitcoin provider is fully compliant and audited annually by an experienced BSA/AML auditor, not an ordinary fact checker. In fact, you should even evaluate the reputability of the auditors themselves. Do they thoroughly review and document the bitcoin provider's AML program, or do they just push paper through to get the job done? All this must be considered when reviewing regulatory relationships of a bitcoin provider.

Questions to ask your potential bitcoin provider:

• Who is your independent BSA/AML auditor, and how much experience do they have in banking and cryptocurrency?
• How many dedicated compliance employees do you have, and how do you determine adding new compliance investigators as the company grows?
• Who are your primary MSB banking relationships, and what documentation can you provide to prove you are in good standing to grow nationally?

No conflicts of interest between management and compliance

Bitcoin companies and providers have three main priorities— increase revenue, protect customers against fraud, and instill strong controls against money laundering. If the provider you are evaluating does not have a strong corporate governance structure, that should be a red-flag as customers could be at risk of fraud and bad actors could get away with money laundering.

Companies that value revenue over protecting their customers pose a major regulatory risk. Before long, you might find yourself in a partnership with an unethical or illegal enterprise that cares more about revenue than protecting its customers and business partners.

Questions to ask your potential bitcoin provider:

• What policies or board resolutions do you have in place to prevent "conflicts of interest"?
• What policies and systems do you have in place to prevent customers from falling victim to scams?
• What compliance and fraud prevention policies do you have that proactively ban customer accounts?

Dynamic product and software development teams

Adding bitcoin to your service offerings is not just a decision for this moment in time; it's a significant move forward in the future. If the bitcoin provider you are considering lacks a proven internal product and software development team, you can expect lackluster product performance.

Inexperienced development teams will not be able to iterate on their software efficiently to keep up with the bitcoin point-of-sale industry's ever-changing needs. What that means for you is that your ATMs' bitcoin offering is not evolving with the times, leaving you with less impressive features, options, and platforms, and unable to compete with the other Bitcoin providers out there. Before long, as cash-to-bitcoin ATMs become commoditized, people will steer clear of your outdated ATMs because your bitcoin provider cannot innovate, improve, and grow with the current times.

Additionally, it's important to note that you should avoid "white-label" bitcoin providers that use third-party outsourced software. Those particular bitcoin providers pass off product development to outsourced teams who have a limited understanding of the product capabilities and features needed for your specific end-users.

Questions to ask your potential bitcoin provider:

• Who owns the underlying software, and how much control do you have over the products and feature iterations?
• What products and features are you considering in the business's next phase to ensure the kiosks are always profitable?
• What are the core technology team's backgrounds, and how long have they been building your company's software?

Strong management team

Your bitcoin ATM provider needs to have a management team with a robust background. It takes substantial experience within the banking industry to build a sustainable enterprise in the bitcoin industry.

What makes many bitcoin companies particularly prone to having an inexperienced management team is the sheer newness of the bitcoin financial space. Many of these inexperienced bitcoin providers were in the right place at the right time about five years ago, catching the proverbial "lightning in a bottle," without their bearings beneath them or even a competent understanding of how to run their companies. They might have been fortunate enough to achieve initial success financially in a growing industry, but that does not mean they are in it for the long haul in terms of compliance, sustainability, and profitability.

It is critical that management teams have experience within the legacy banking industry because successful bitcoin providers need to collaborate with banks, compliance processes, state regulators, armored carriers, and law enforcement.

Questions to ask your potential Bitcoin provider:

• What business and compliance experience do the founders have prior to operating their bitcoin company?
• Who are the leaders of the compliance team, and what banking experience do they have?
• Who are the official advisors and board members of the company to help steer enterprise growth?
• What core competencies do the management team outsource, and how do they manage that risk?

The best fit

Choosing the right bitcoin provider for your locations is not easy, nor is it a decision that should be made haphazardly, without thoughtful deliberation. Do your homework to weigh all the pros and cons and carefully compare and contrast the last four points discussed above between your prospective bitcoin providers. The right fit for you and your company is not necessarily the one who will pay you the most; in fact, it probably should not be that one since the crypto industry is not just another commodity at this time.

You're in an ideal position

Overall, adding bitcoin to your ATMs is a win-win for you and your customers. Physical bitcoin kiosks are in high demand while such locations remain in low supply.

As the pandemic's impact persists through 2021, and younger generations continue to normalize bitcoin as a currency that is just as common and useful as, or even more so than, credit cards and cash, you are in an ideal position to leverage your current relationships with a variety of optimal retail locations (e.g. convenience stores, gas stations, currency exchanges, grocery stores, etc.) for revenue share that is equivalent or even superior to traditional ATM business on a net earnings basis.

If you pick a reputable bitcoin provider using the aforementioned points as your guide, the provider handles all the BSA/AML compliance, so you won't have to worry about that complicating your daily ATM operations.