Two-Phase ATM Investment Strategies
Hello again. I hope everyone is healthy and staying safe.
My well wishes and applause go out to all of our healthcare workers, first responders, and everyone who is working in the essential business sector and food and beverage industries.
This week, I am discussing ATM machines as an investment opportunity.
The definition of banking has gradually changed over the past several decades, and even more so during these crazy times with the Covid-19. Things may never be the same again regarding social distancing and how people handle even the simple tasks, such as stopping by the store or the bank.
More and more people in working society are having paychecks automatically deposited. Auto pay or computer transfers to pay bills or purchase on-line articles is the new normal. The local ATM machine is the quick access to cash now, and also a great investment strategy.
The Following is captured from the ATM Investment Summary “Prestige Fund D” provided by Dave Zook, CEO and Founder of The Real Asset Investor www.realassetinvestor.com.
The 'public exchange space' involves kiosks interacting with consumers through a two-phase strategy. It is considered a quasi-real estate play, as the initial strategy is to access a portion of the most coveted real estate (i.e., Tier 1 cities, convenience stores, travel plazas, etc.) in the U.S. by leasing floor space and installing ATMS that have predictable and attractive returns. Subsequently, the second phase of the implemented strategy is targeted towards a disruptive monetization strategy.
ATM Model Overview
The core strategy is to participate in a mature and stable ATM space that has historical strong operating margins. This is done by accessing attractive real estate locations for ATMs that are strategically positioned for capitalizing next generation revenue opportunity, augmenting current and healthy surcharge operating margins through an enhanced monetization strategy.
ATM Ownership
The investor owns the ATM assets and the Company outsources the placement and management of ATMs with qualified management companies through "best in class" negotiated ATM Management Agreements. The acquired contracts have been historically owned and controlled by private equity or hedge funds that are attracted to this sector, due to the ATM's strong operating margins and tangible hard-asset title to the ATMs held as collateral.
Role of the Management Company
The management company will source lucrative contracts with the location owners and then provide a fully managed program of the ATMs.
All operating, maintenance, replacement, insurance, liability and general management are the responsibly of the management companies.
Management companies typically contract with Fiserv and Elan for processing, Banksource or Burroughs for maintenance, Loomis or Brinks for the armored services, and US Bank and WSFS to provide the cash for the ATMs.
Management Companies Partners/Competitive Advantages
Our Management Company partners are winning these lucrative contracts, based on various strategic and competitive advantages as listed below. Following are a few of the competitive advantages our Management Company partners possess that present a strong value proposition to merchant retailers:
Uptime/Service: ATMs with our Management Companies perform 98.8% continued operational status, compared to the industry standard at less than 96.5%.
New and Compliant ATMS: All ATMs in the portfolio are PCI, ADA and EMV compliant, compared to over 60% of non-Financial Institutions ATMS in the US that are not compliant with one or all three of these.
Digital Screens: Provide retail merchants short advertising slots on digital signage toppers, as part of a package to promote host in-store products/sales.
Social Awareness: Philanthropic opportunity for the hosts.
ATM Deployment Cycles
With future new tranches, deployment cycles generally take approximately 75 days per investment tranche until ATMs are installed and operational at merchant location and will play out as follows:
First, the investment capital is wired to Management Company on or before 15th of the month.
ATMS are then procured and shipped to warehouse by the Management Company.ATMs are then staged (upgraded to bank standard vaults, wraps installed, programmed for user options, implemented with technology, etc.)
Then shipped to geo-specific warehouse, where the installation company will pick up to install. Subsequent to installation, PFD receives Bill of Sales inclusive of ATM serial numbers.
“Core ATM Function” Viability Overview
While the ultimate intent is to monetize the ATM with advertising revenue, the core financial model and practicable relevance of an ATM is very strong. While it’s not typically our peer demographic that uses an ATM, there is a large demographic of people who are increasingly using ATMs. This demographic could be generally characterized under one or multiple of the following summary points:
Lack of credit and thus credit card access.
Has credit capacity, however, distrusts credit cards given security and hack breaches evidenced by an uptick in usage with security breaches at larger retailers in the past two years.
Use ATMS for EBT cards (government moved to debit cards in recent years and Tier 1 ATM EBT use is strong and stable and will continue).
Use Prepaid Debit cards as they fall under the underbanked or unbanked demographic.
Use ATM for transferring funds or other bank functions, in lieu of doing online given security concerns.
Core ATM function generates a revenue stream from transaction surcharges that the Management Company 'pools/aggregates' from the performance of multiple ATMs in the portfolio to bring cash flow to investors. For example, $2/$3 surcharges with revenues being split between investors, the real estate owner and the Management Team to operate, insure and maintain the machines. This provides a reliable and strong cash flow stream to investors.
Other ATM users that generally do not fall in this demographic but use ATMs frequently, are those who will routinely go to a neighborhood ATM for their banking needs as part of their daily errand ritual and identify as habitual users because:
Are heavy cash users and use convenience of ATMs vs. going into a bank branch.
Use ATM, in lieu of bank branch, given the migration from employers over the last decade to ACH of weekly paycheck. These users no longer go to a bank branch to cash a payroll check and would rather use ATMs. ATMs are beginning to be considered as a “bank branch in a box” and most banks are seeing branch traffic decreasing over the last decade, thus increasingly embracing this Kiosk model.
Others use ATMs for emergency needs and impulse buying when shopping adds to the user base.
Immediate and near future ATM users:
We all know the popularity of a bank drive thru. However, drive thru’s are open only during banking hours. An ATM replaces the need to go to a bank drive thru as it operates 24 hours a day, 365 days a year, without the cost of an employee.
We have multiple ATMs in pilot programs right now, and we will have the capability of implementing new technology into all our ATM machines. This technology allows users to utilize ATMs to access cash using mobile phones versus traditional ATM cards. Many banks are now viewing an ATM as a bank vault that can distribute cash and provide quick/easy access.
As a smart investor it pays to think outside of the ATM Box
For more information contact info@restlessinvestments.com
Disclaimerisclaimer
This summary is for informational purposes and not intended to be a general solicitation or a securities offering of any kind. Prior to making any decision to contribute capital, all investors must review and execute all private offering documents.