ARLINGTON, Va. – While change and consolidation have become well-recognized watchwords in ATM and EFT networks over the past few years, similar consolidation pressures have been felt among the nation's independent ATM deployers and are leading to further significant changes in the ATM world. Although independent organizations deploy over 50% of the ATMs in the U.S, occasionally on behalf of financial institutions, significant developments and change in the sector have largely gone unnoticed by many financial institution executives. It's only been lately, when larger independent deployers such as E*Trade, based in Menlo Park, California, and Cardtronics, based in Houston, Texas, have begun taking part in surcharge free networking with firms like ATM National, based in Rockville, Maryland, and Credit Union 24, based in St. Petersburg, Florida, that the broader financial services industry has begun taking notice of the changes that have been taking place among the independents. "There is definitely a wave of consolidation going on and we have been looking to take advantage of it wherever it makes sense for us to do so," reported Doug Deitel, executive vice president of Cardtronics. His firm recently upped the number of machines it owns by 1,100 by buying out the ATM portfolio of a firm based in Buffalo, New York. The purchase moves Cardtronics to more than 11,000 machines available, and makes additional machines available for ATM National participants. Cardtronics has moved from 3,600 machines at the end of 2000 to over 11,000 in June of 2003, according to Deitel, and the firm looks to add to that number by the end of the year. Sector wide, Cardtronics has not been alone. None of the firms on a list of the top 10 independent ATM deployers in 1999 are on a similar list today and, most significantly, the largest deployer on that list would rate only the third from the bottom on the 2002 list, according to data provided by Dove Consulting, a leading financial analysis firm headquartered in Boston, Massachusetts. "We have definitely been seeing a lot of consolidation and it's hard to see a downside to it," noted Ben Psillas, president of ATM National's Allpoint Network. Psillas pointed out that while the consolidations might reduce the number of options available to firms seeking to deploy an ATM in their facilities, the larger deployers should also be able to take advantage of some economies of scale and add more resources to networks like Allpoint. Gene Polito, president of EFT services for the CO-OP Network, based in Ontario, California. Polito reported that CO-OP entered into a relationship with an independent deployer, Access Cash, and has maintained the connection after eFunds, based in Scottsdale, Arizona, bought the deployer. Polito said the relationship with eFunds has allowed the Network to expand its surcharge-free geographic footprint for cash dispensing and allowed it to focus on building the relationships with financial institutions that usually have more full-service machines that can take deposits and offer other services. But J. Michael Brown, CEO of Innovus Inc, an independent ATM deployer, processor and service organization headquartered in New Orleans, La., sees a definite limit to how far the consolidation trend can go and also sees the trend as creating more opportunities for innovation and start-up efforts. "It's been my observation that once a deployer gets to be above a certain size, they stop being able to offer their clients the sort of service they deserve and which helped the firm get to that size in the first place," Brown said. He said that Innovus, which is the smallest of the contemporary big-seven independent deployers, plans to continue growing through acquisition, but also to do so strategically and in a way that plays to the firm's strengths. Currently the firm owns or manages 5,500 ATMs around the country and might decide to go to 13,000 before the end of the year, Brown said. Brown observed that the rush to greater sized firms in many parts of the ATM world overall, whether networking, independent deployment, or servicing has led to opportunities for start-ups and niches for smaller firms. He pointed out that Innovus began getting involved in ATM servicing when it became clear that NCR and Diebold, even with their greater size, had left room for firms that could offer speedier and more tailored service. He said Innovus had also gotten involved with processing when it became clear that larger processors were taking three weeks to do things like changing surcharge levels at machines or adding new terminals. "We do the same things momentarily," Brown said. "The other guys were just getting too big too fast. There were always be room in this industry for smaller firms," he added. Impact On The ATM World No executives from credit union-based ATM networks would comment on the eventual impact of the consolidation wave among independent deployers, but long time industry observers like Tony Hayes, senior analyst for the financial services practice at Dove Consulting, said more time was needed to measure the trend's full effect. He noted that many of the current consolidations have been among firms whose founders and CEOs have been entrepreneurs. In the classic entrepreneurial cycle, Hayes observed, the entrepreneurs started independent ATM deployment firms, grew them to a certain size, and then sold them to cash out and do something else. In that sense there is something "natural" about the consolidation trend, he noted. He also noted that part of the consolidation trend represented some natural splits in the ATM world. Hayes explained that a financial institution and an independent deployer of ATMs are likely going to have different goals for their machines. The former are going to seek to primarily offer services to their customers or members, while the latter are going to want to make money for their investors from the machines. This split will tend to favor deployers who can deploy and service machines most efficiently, and may even result in a greater percentage of financial institutions deciding to contract their ATM fleets out to independent firms. Psillas also declined to speculate on the trend's ultimate impact, but he said he doubted whether the wave of consolidation among deployers would ever reach the level it has with networks. "There is a world of difference between going from dozens of ATM deployers down to a big 15 and going from 15 large ATM networks down to five or less," he said. [email protected]