DirectCash's Canadian ATM business....a primer As someone who knows a few ‘owners’ of DirectCash ATMs (primarily in Convenience Stores), let me take the time to explain some of the challenges that DC is facing in the Canadian Market.
DC’s main source of ATM revenue is a fee called Interchange. This fee, set by Interac, is $0.75 per transaction. A basic example of how the model works: DC sells an ATM to a C-Store. The C-Store operates their ATM (loads with their cash), and for every transaction, the ATM owner makes money on the Surcharge that they charge the customer – for which, they are allowed to set the amount. In addition to the surcharge amount that shows on the ATM screen, the customer’s bank charges a fee for ‘other ATM use’, normally about $1.50. Of that amount, the customer’s bank has to give $0.75 to DC.
If, for example, the ATM performs 500 transaction a month and the surcharge is set at $2.00, (the customer ends up paying $2.00 in surcharge plus $1.50 to their bank) the ATM owner, in this case the C-Store, receives $1000 in revenue, and DC makes $375. DC may also provide service coverage for the ATM, based on $0.25 per transaction. Although there are a number of other models, such as DC owning the ATM and paying the store a rent, the above is the most common scenario.
In my opinion, where DC’s future problems lie is their current approach to the business. As it has been stated, the Canadian ATM market is saturated, and is highly competitive. DC is by far the largest single company, and has been very aggressive in buying out smaller competitors over the past decade. However, the barrier to entry is very low. Many small ‘mom and pop’ companies can and do provide a service exactly like, and often better, than DC does.
What DC is doing, unfortunately, is treating their existing customers as, well, ATMs. This past year, to raise revenue, they have started charging a ‘Monthly Processing Fee’, and, more recently, a ‘Monthly Deposit Fee’. This is in addition to a ‘Monthly Statement Fee’, and often, very high fees for parts and service.
In the short term, DC raises more revenue. In the long term, however, the competition sits back is able to pick off disgruntled owners whose contracts have expired. Most competitors do not charge these additional fees, and often offer a portion of the Interchange, free service and the like.
So…..if you’re a struggling C-Store owner, and you’ve been inundated with fees and more fees from DC, and a smaller, hungry and aggressive competitor comes knocking when your contract is ready to expire, you’ll definitely consider leaving DC. And….even if you don’t leave DC because DC matches the competitors’ offer, DC will have seen its revenue decrease on that site. Multiply this by the hundreds of locations per year, and one might see where there is likely to be ongoing revenue reductions in future quarters.
There’s much more to the story, and I’ve only scratched the surface. As there are lots of DC ATMs around, it’s easy to pop in and talk with an owner. Chances are, they’re not very happy with DC. And the financials prove this out. DC ATM growth in ‘The Americas’ seems to have stalled and is now reversing, despite recent acquisitions within the Canadian market.
Bottom line is that a 28% year-over-year reduction in revenue in your home market is an ugly story. The above provides some explanation as to why some of it may have happened.