he 2001 bankruptcy of Credit Card Center, at one time the country's largest ISO, caused some leasing companies, including well-known players like Advanta Corp. and Newcourt Financial, to stop financing ATMs and discouraged others from considering it.

The CCC scandal was an uppercut to the industry. Certain market realities, including a shortage of credit-worthy customers and falling equipment prices, are more like a series of small, painful jabs.

"The [leasing] climate is as bad as it's ever been," said Doug Falcone, President of Access to Money. "Not a whole lot of new people are getting into it, and the people already in it are buying conservatively because they've been hurt."

"It's so hard to get anything written," said Gary Walston, General Manager of Momentum Cash Systems, a division of Innovus. "[Leasing companies] only want 'A' credit and folks that have been in business two years or more."

Price Pressures

Dennis Latora, Business Development Officer for Popular Leasing USA, said that while those factors are important, the biggest downside for Popular has been the steady decline in ATM prices.

Popular began offering ATM leasing in late 1996 or early 1997 and "rode the crest of the product cycle," Latora said, experiencing a final strong year in 2000. The company has seen a significant drop in ATM volume every year since then.

"Where we were booking 150 to 200 leases a month a few years ago, now we're doing maybe 40 to 50 a month," he said.

Because the price of most entry-level retail ATMs is now in the $3,000 to $4,000 range, more business owners choose to pay cash for a machine or even put it on a credit card rather than entering into a lease agreement, Latora said. The average monthly lease payment for ATMs has fallen from more than $200 to $79 or $89, he added.

"Eight years ago, when ATMs were $10,000 they were a nice small-ticket product for us. Now they're a micro-ticket item, and we're not a micro-ticket company," he said.

Because of the large number of retailers who do not have the desired two-year business record, Popular offers leases with more stringent-than-usual rates and requirements for those types of applicants.

Retailers who have been in business at least a year and have good credit will pay 10% down on a machine and get a 60-month lease, provided the ISO that sold the ATM has agreed to assist Popular in case of a possible default.

For retailers with similar business histories who buy machines from ISOs with no such agreement, a 25% down payment and 36-month lease is "the best I can do," Latora said.

Access to Money's Falcone understands companies like Popular's position. "It takes as much effort and expense to manage a $3,000 lease as it does a $20,000 lease," he said.

Not on the "A" List

More worrisome from Falcone's perspective is leasing companies' desire for clients with "A" or "B" credit ratings. While understandable, it is a problem in a tightening market. "There is a huge market for 'C' and 'D' stuff, but nobody wants to write that paper," he said.

About two years ago, Falcone began writing his own leases for such sales: "not out of want, but out of necessity," he said. He estimates that his company currently funds about 20% of its ATM sales, with the remaining 80% funded through Lease Consultants Corp., his longtime leasing source.

Because of a background in automobile sales, Falcone knew his way around a lease. The risk is somewhat minimized because "we control the revenue stream," he said. "We manage the transaction, we cut the commission check, and we deduct the lease payment before the merchant ever sees it."

Momentum's Walston said his company has talked to companies willing to write leases for merchants with less-than-stellar credit histories, but only if Momentum agrees to cover any possible defaults. "We prefer to put the merchant and the finance company together and get out of it. We're not interested in being the guarantor for the merchant."

A Place for Placements

Popular's Latora said he's been getting more inquiries about ATM placements, where an ISO rather than the retailer owns the machine. Popular is largely uninterested in such deals, he said, because more paperwork is required and the risk is higher. "We get more delinquencies when the owner is not on site with the machine."

Not all companies share that view, however. Little Mountain Leasing, a subsidiary of WRG Services that provides funding for roughly half of the company's ATM sales, deals mostly with placements, said Tammie Langworthy, WRG's Director of Sales and Marketing. WRG distributors that receive funding from Little Mountain must process their transactions through WRG.

More established distributors often prefer placements, Langworthy said. "Once they get income coming in from a couple of placements, they'll pay for a machine in cash rather than leasing it, which is a bonus for us."

Distributors with placements also have a direct interest in ATM profitability, Langworthy said, and are more inclined to move underperforming machines to new locations rather than default on leases. "If a machine isn't working at a certain location, it's in a distributor's best interest to move it somewhere where it's going to make them more money."

Langworthy believes the CCC aftereffects have begun to diminish in the past year or so. "Right after CCC, you couldn't get an ATM lease for anything," she said. "Now it seems to be getting a little easier, and there are even a few new companies out there writing leases."

New Blood

About half of WRG's sales are funded through one such company, Lease Corp. of America. LCA had some concerns about the ATM business, said Brian Kemp, the company's Senior Vice President of Sales. However, they alleviated them by working with manufacturers like WRG and Tranax Technologies to gain referrals.

LCA was already serving ATM-friendly businesses such as c-stores, gas stations and restaurants by funding point-of-sale equipment, lottery machines and other items, Kemp said. "It was a natural fit for us because we were already underwriting those risks."

Unlike Popular's Latora, Kemp sees lower ATM prices as an advantage. "We were comfortable getting it because people aren't overpaying for this product anymore," he said. "And the machines are better manufactured now, which means they are holding more residual value. We're getting a fair price if we have to repossess and remarket them."

The creditworthiness of ATM buyers is a concern, said Kemp, noting that LCA approves about 50% of its applications for ATM leases, compared to approval rates of more than 80% for photocopy machines. "We would obviously like higher credit approvals," he said.

LCA typically also contacts a site owner after a deal has been approved to ensure no "side deals" have been made with an ISO in which the ISO claims it will assume responsibility for payments if a machine doesn't perform up to expectations.

"We want to make sure people know they are still liable for the payments, even if they aren't making enough surcharge revenue to cover it," Kemp said.

Despite the need for this kind of follow-through, LCA is glad it entered the ATM arena, largely because of the symbiotic relationship between the two industries.

"When we solicit new vendors, we sometimes have to sell them on the benefits of leasing. Not ISOs, for most of them, cost justifying the expense of the equipment based on a monthly payment is already an integral part of the sales process," he said. LCA also welcomes the trend of consolidation among ISOs, Kemp said. "We're not dealing with a bunch of trunk slammers anymore."

Momentum's Walston hopes more companies like LCA will consider funding ATMs. "The more options we have out there, the better," he said.

Original: www.atmmarketplace.com/news_story.htm?i=20261