Summary
Key Implications: Cardtronics expands its geographic reach, market share and transactions volumes with the acquisition of C-store 7-eleven's ATM fleet of 5,500 ATMs and financial services kiosks for $135 million. 7-eleven owns and operates the largest C-store ATM fleet and provides financial services via its financial services kiosks to a large portion of the 80 million unbanked/underserved consumers, who lack a bank account or banking relationship and turn to C-stores such as 7-eleven to pay their bills, cash their checks, top-up their prepaid mobile phones, make cash withdrawals and transfer money to their relatives back home. In the U.S., ATM ISOs account for 195,000 of the approximately 400,000 ATMs and Cardtronics acquisition will expand their ATM portfolio to over 30,000 ATMs, with transactions volumes averaging over 400 transactions per ATM in 2006 and the 7-eleven deal may significantly increase their per ATM transactions volumes, market share and branding contracts.
Analysis
Comments/Perspective:
Cardtronics has grown its ATM portfolio and revenues through acquisitions, with the largest acquisition of the ETrade fleet of 15,700 ATMs and through branding negotiations and "surcharge free" networks with Chase, PNC, ING-Direct, Hess Corp. and Winn-Dixie grocery stores. With the acquisition of 7-eleven's ATM fleet, Cardtronics may be able to reverse the trend in the ATM ISO(Independent Sales Organizations) industry of consolidations, sell-offs, ownership decline, financial loss, shrinking transactions volumes and surcharge revenue at the ATM.
1. Cardtronics has taken steps to reverse the decline in transactions volumes by shifting its ATM portfolio to company owned rather than merchant owned ATMs, which has shown greater transactions volumes and FIs and merchants such as J.P. Morgan Chase, PNC, ING-Direct, HSBC, Hess Corporation and Winn-Dixie have negotiated branded contracts with Cardtronics to expand their ATM network and offer its customers "surcharge free" access and more banks may seek out ATM ISOs to operate their ATMs, which may save them as much as 40% in ATM operations costs and may improve their uptime as well
2. Cardtronics acquiring costs will increase as a result of acquiring 5,500 ATMs from 7-eleven, to ensure the machines are Triple DES compliant and if not upgrade the machines with Triple DES conversion kits which will encrypt the PIN pads of each ATM machine to ensure customers' PIN numbers won't be compromised by fraudsters and could costs as much as $1,800-$4,500 per machine, based on whether the machines must be retrofitted to accommodate the encrypted PIN pads to comply with Visa and Mastercard
3. The acquisition may allow Cardtronics to grow its branding and outsourcing contracts with other FIS as they look for strategies to target the unbanked and underserved market, which is expected to grow to $12 billion, by installing their branded ATMs in 7-eleven C-stores. 7-eleven advanced-functionality financial services kiosks offer the unbanked and unserved market the convenience of financial services at their local C-stores without visiting a bank and Cardtronics may be able to take advantage of these industry trends
