What's the future hold for IADs?

Independent ATM operators have taken hits on multiple fronts the past few years. With falling cash withdrawals, customer resistance to fees and acquisitions, there are many pressures on IADs. What does the future hold for these operators?

David Dove, president of Brink's Global ATM, discussed what the future looks like for IADs at a session at ATMIA held from Feb. 14 to 16 in Las Vegas.

Current pressures

Dove began by discussing how COVID-19 gave a major punch to the industry, as in March 2020 when there was a 45% decline in volume.

"We lost just shy of 50% of our volume over that three-day period in March, in the blink of an eye. I'm surprised we kept half," Dove said.

However, surprisingly the industry began to recover its volume in June 2020.

"In many places, if you had ATMs in the right places, volume was up 10 or 20%. By end of year, volume jumped again, reflecting the stimulus Congress passed. But in Canada, U.K. it did not have this activity. It went below COVID levels. By comparison, we got away from this thing pretty scar free," Dove said.

The volume continued to increase until January 2022, when transaction volumes returned to normal levels.

"COVID had really bad and really good results for IADs, but mostly it was a roller coaster. A lot of the rises and drops were driven by factors we couldn't control," Dove said.

The roller coaster continued into 2023, as transaction volume continued to decline and stayed negative throughout the year with only momentary bumps. Dove said this activity gave IADs, "no ability to plan."

Interest rates

The second punch to the industry Dove discussed was soaring interest rates by the Federal Reserve, which rose rates from close to zero to nearly 5%.

"It's not just that Federal Reserve raised interest rates from near zero to almost 5%, but they did it in such a short period of time. None of us could respond quickly enough," Dove said.

If you look at the math, Dove said that ATM cash costs go from $0.08 to $0.58 per withdrawal and from $16.67 to $116.67 per month. This is only for the cash itself, not for the other costs such as loading and replacing cash.

Surcharge increases

In response to these pressures, IADS began raising surcharge fees, with current rates among IADs sitting at $2.96 and the overall average for ATMs at $3.15. However, Dove pointed out the industry is at a point now where these surcharge increases are driving more customers away and as a result are decreasing volume by as much as 12% in the fourth quarter of 2023.

When looking at the current state today, Dove pointed out cash has gone up 700% in costs, and there's no relief from interchange or merchants, since, "we have trained them to rely more by the size of the check we give them rather than how much foot traffic we generate for them."

How to respond

So, what to do as an IAD? Dove gave a few recommendations. First, stop raising surcharge fees. Instead, partner with surcharge free networks such as Allpoint, since that will increase volume.

Second, renegotiate with merchants for lower payments. Dove said in Europe this has been done quite successfully where IADs are paying 50% less to merchants because merchants don't want to lose the foot traffic if an ATM is removed from their locations. Dove also brought up possibly giving merchants all the money from surcharge fees and setting a standard fee for the merchant to pay to the IAD to "set your revenue."

He also recommended gaining partnerships with banks, such as putting their branding on the ATM or giving surcharge free access to customers and adding other products to ATMs such as bitcoin, which offer small volume but high margins on every purchase.

What's the future hold?

When looking at the future of IADs, Dove said that "25% of ATMs will go away." However, IADs that know their markets will be able to survive, especially because "banks want to get out of the ATM business. They don't understand what it takes to run it, you do."

Lastly, Dove said that while many worry about the future of cash, he pointed out that to this day on midnights on most paydays, ATMs see a massive increase in volume.

"At midnight on payday, we got a five times bump in volume. The same as cashing paycheck. That is testament to vitality of cash," Dove said.