Rapidly Consolidating, ISOs Tighten Their Grip on U.S. ATM Deployments

Although their rate of deployment has slowed somewhat, independent sales organizations continue to install ATMs at a rapid rate and now control nearly half of the 394,500 machines in service in the U.S., according to a new study from Tremont Capital Group Inc. Moreover, the Boston-based investment advisory firm's report says the once highly fragmented ISO market, which exploded nine years ago with the nationwide lifting of surcharge bans, has undergone “massive consolidation,” and predicts the trend will continue. “Virtually all of the nation's top ISO portfolios have been created through acquisitions during recent years,” the report says, pointing to last year, during which the two largest portfolio deals in the history of the ATM business took place. “Rapid consolidation will likely continue in the near-term until consolidators acquire the nation's remaining viable small to mid-sized ATM portfolios.” In June 2004, E*Trade Financial Corp. sold its ATM business for $106 million to Cardtronics Inc., a deal that was followed a few months later by eFunds Corp.'s $150 million sale of its portfolio to TRM Corp. With the ability to levy surcharges on all transactions, ISOs quickly deployed thousands of machines in a wide variety of retail locations across the country. These nonbank entrepreneurs now control 49% of all U.S. deployments, Tremont estimates, up from 46% a year ago. While ISOs continue to deploy machines, the population of ATMs installed by banks has actually dropped somewhat over the past two years, the report says. It attributes the decline to three factors: 1) bank mergers and resulting consolidation; 2) banks' determination to take out marginally performing machines; 3) banks' decisions to turn to ISO programs for off-premise deployments. Of the 194,000 ATMs controlled by ISOs, Tremont estimates some 18%, or close to 35,000, are also owned and serviced by ISOs. The balance, the firm estimates, are owned or leased by merchants, with ISOs providing processing services. With both banks and ISOs becoming increasingly concerned about the effect of ATM saturation on per-machine transaction averages, deployers will likely seek out markets that still offer low penetration rates. The least saturated markets, Tremont says, are Arkansas, West Virginia, and Mississippi, which have 978, 1,041, and 1,093 ATMs per million population, respectively. The most saturated markets are Washington, D.C. (2,897), Nevada (2,116), and Montana (2,007). Copies of the Tremont report are available for download at www.tremontcapitalgroup.com