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Rising gas prices, interest rates hit vault-cash providers

By Valerie Killifer, Reporter, LogoThis story was originally published on, July. 6, 2006; reprinted with permission. © 2006 NetWorld Alliance LLC. All rights reserved.

Jerry Gregory has been in the ATM business for 26 years. For most of his career, cash and fuel prices have remained steady. But that's not the case anymore. Gregory, like other ATM service providers, is taking a hard look at his bottom line.

"Fuel costs are having a huge effect on service companies and, as you know, everyone in America," said Gregory, Chief Development Officer for Richardson, Texas-based Cash Carriers USA. "There is no doubt in my mind that service companies of any nature are suffering, and pricing to provide such deliveries will incline."

Even though Cash Carriers picked up 1,000 new ATM contracts in 2005, it operated at a $267,000 loss, Gregory said.

What's Important

  • ISOs are renegotiating ATM contracts to balance expenses with rising fuel costs.
  • More FIs are working with one-stop-shop service providers for vault-cash replenishment, service and maintenance. As a result, many FIs are regularly replenishing ATMs when the ATMs are serviced.
  • And the advent of cash recycling at the ATM, Check 21 and the Fed's Currency Recirculation Policy are expected to re-shape how the industry handles its cash

To offset the loss, Cash Carriers placed a surcharge on new contracts. For its larger ISO customers, the company offered an option: accept a fuel surcharge of 8.67% or increase the per-call price. All of Cash Carriers' customers opted for the fixed-price increase, Gregory said.

"During the times that fuel got too high [in the past], I just ate it and went on. Cash flow just won't allow it for an extended period," he said.

Of the estimated 400,000 ATMs in operation in the United States, approximately 30,000 use vault-cash services. For some ATM operators, the expense associated with paying a third-party provider for vault-cash replenishment isn't always worth it, particularly during times of inflated gas prices and interest rates.

"The market is changing and adapting, relative to the fuel concern, almost daily," said Pete Silewicz, Senior Vice President of Banking for Houston-based Loomis, Fargo & Co. "In the near future I expect to see more focus on logistics and transportation requirements. We feel that as much as it is a strain on all of us, we're doing our level best to cut down on cost and become more efficient on the road."

Ron Schuldt, President of Dallas-based Columbus Data Services LLC, said he's noticed a decrease in requests for vault-cash services, especially from ISOs.

Sandra Hartfield, President and Chief Executive of California-based Palm Desert National Bank Electronic Banking Solutions, which provides or manages close to $8 million in vault cash for 16,000 ATMs and self-service terminals across the United States, echoed Schuldt. She said ISOs are reviewing and negotiating their vault-cash programs, particularly in the merchant-fill space, to cut ATM management and service costs.

And while rising fuel costs are hitting vault-cash providers, rising interest rates are slapping financial institutions (FIs). Hartfield said increasing interest rates are having a domino effect. "Now costs are rising, but income levels are staying the same, or in some cases dropping," she said.

FIs shift gears

The rising cost of cash is pushing FIs to focus more attention on cash-management procedures.

Bob Meara, an Analyst with Boston-based consultancy Celent LLC, said FIs are taking control by better managing the cash they have and placing fewer orders for more. "More banks have invested in software to keep a closer watch on cash positions in ATMs," he said.

FIs also are filling ATMs more often, the result of working with one service provider for vault-cash replenishment, service and maintenance, said Robert Malik, Senior Vice President of Efmark-Bantek, a cash-in-transit and ATM maintenance provider based in Westmont, Ill.

(Efmark-Bantek was created after Efmark Premium Armored Services and Bantek West Inc. merged in January 2006. It is now the U.S.'s largest independent ATM-service provider, servicing 100,000 ATMs and self-service terminals in 43 states.)

"Banks are challenging us to help them be more efficient. "We haven't seen a reduction in work; we've seen more of a partnership approach," Malik said. "Because we provide cash to ATMs, we can take a greater risk and load cash in between regularly scheduled fills, which makes it much more efficient for the bank."

Mitigating forces

Vault-cash providers are adapting, but industry and regulatory developments, such as the advent of cash recycling at ATMs and the Check Clearing House Act for the 21st Century, also are expected to lessen the blow of rising costs and rates by reshaping the way vault cash is handled.

"With check imaging, banks have a greater sense of what's been put into the ATM," Malik said. "Banks can be more efficient because they won't have to go every day to pull a deposit."

And the Federal Reserve's Currency Recirculation Policy, which takes effect this month, could have an impact as well, Celent's Meara said. The policy is expected to cut the amount of cash in circulation by reducing cross-shipping: the deposit and withdrawal of similar currency orders made within the same week by the same FI.

Under the new policy, FIs will be charged a fee for cross-shipping, Meara said. "That could lead up to tens of millions of dollars for some of the large banks if they don't change the way they do things."

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Article published in issue number 060802

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