The Case for Outsourcing ATMs

David Dove
August 4, 2010 | COMMENTS

Why would any credit union outsource its off-premise ATM fleet to a third-party provider to manage all of the various required services? For years, this question has been bandied about the halls of our most venerable financial institutions and, for the most part, the answer has been, “We wouldn't.”

Superficially, that makes sense. After all, why would you let a third-party interact with one of your customers at an ATM with your brand on it? How can the third party run your system as well as you do? And they certainly don't know how to market to your customers as well as you do.

Wrong on all counts. Here's the simple fact of the matter: A number of third-party ATM operators conduct their business with better expertise and lower costs than do the vast majority of banks and credit unions in the U.S. today. It's time to get over the control hang-ups and look at the practical side of the question.

The sad but true fact is that ATM economics are no longer what they used to be. Transaction volumes have essentially stabilized, surcharges are under pressure and costs have continued to climb (if ever so slowly).

A recent study from Dove Capital Partners shows that large banks could save almost 20% on their direct costs per month per ATM by outsourcing to a third-party managed services provider. Using a hypothetical sample of 750 ATMs, annual savings would amount to more than $1 million.

A number of third-party managed services providers can deploy and manage many more off-premise ATMs than a credit union can and gives them a clear advantage when it comes to experience and unit costs. Managed services providers should be able to replicate what you already have in place, particularly around the customer experience. Depending on their level of sophistication, these companies should be able to add other elements of value, such as one-to-one marketing and campaign management.

Dove is managing general partner with Beaver Creek, Colo.-based Dove Capital Partners LLC, a venture capital and consulting firm. This is an executive summary from a more detailed article published in the online publication Banking Strategies at http://www.bai.org/bankingstrategies. Reprinted with permission.