North Canton ATM Giant Diebold Facing Money Problems, Looks Beyond Cash
Unless you like standing in line at the bank, chances are when you need cash, you are going to visit an ATM. And with almost half a million ATMs in the United States—at banks, and bars, and convenience stores—you probably won’t have to look too far. While that ubiquity makes ATMs convenient, it also presents a challenge for firms like Diebold Nixdorf.
Roughly a third of the world’s 3.3 million ATMs were made by Diebold, according to estimates by the banking research firm RBR. Yet, despite Diebold’s dominance in the industry, the firm has been struggling in recent months.
During its quarterly earnings call on Oct. 31, executives announced that they were in the process of laying off 1,600 employees globally. And, a couple of months ago, Diebold found itself, ironically, short on cash when a wave of shareholders for Wincor Nixdorf (a German firm which Diebold acquired back in 2016) asked for their money back following disappointing sales figures in the second quarter.
Diebold managed to come up with the funds, thanks to a $650 million loan from a pair of private equity firms. However, that series of events has refreshed an existential question for Diebold and other companies that do a large part of their business selling ATMs: how will they manage in a world where digital transactions are becoming more popular and cash is optional?
The lobby of Diebold Nixdorf’s U.S. headquarters in North Canton, Ohio. [Adrian Ma / ideastream]
From Safes to Sales Kiosks
Diebold Nixdorf was founded in Cincinnati about 160 years ago. Back then, the company was known for making safes. And, the story goes, after hundreds of Diebold safes were recovered intact from the ashes of the Great Chicago Fire of 1871, demand for its products skyrocketed. About a century later, Diebold moved into the business of Automated Teller Machines.
Just as Diebold went from making safes to manufacturing ATMs, the company is continuing to evolve and diversify its business, said Devon Watson, Chief of Marketing at Diebold Nixdorf. Beyond boxes that dispense paper currency, the company in recent years has become increasingly focused on selling software and services, which make up over half of its revenue.
In addition, since 2016, when Diebold acquired Wincor Nixdorf, Diebold has seen a growing chunk of its revenue come from self-service and point-of-sale devices—the kind you may have seen at a grocery store or restaurant—that let customers order through a touch screen.
“Prior to the acquisition of Wincor Nixdorf, [Diebold] was really focused on the banking sector,” Watson said. “When we acquired Wincor Nixdorf, we picked up the retail business.”
It's an investment that seems to be paying off so far. While Diebold’s revenue only grew one percent year-over-year, according to the company’s Q3 earnings report, revenue from its retail segment grew about seven percent over the same period.
Still, many investors seem to believe that the company's efforts to diversify and grow aren’t enough. After a poor Q2 earnings report in July, the company’s stock dropped sharply and has remained depressed, despite assurances by company executives that it has been cutting costs and seeing growth in its Americas Banking segment.
As of early November, the company’s stock is about 80 percent lower than it was a year ago.
[Credit Suisse / ATM Marketplace / RBR]
Upgrading the Automated Teller
Although sales to banks might have slowed in recent years, Diebold has one trend working in its favor: as U.S. banks continue the trend of downsizing their branches, replacing human tellers with terminals often means banks upgrading to fancier machines.
“The industry as a whole is shipping fewer devices but more complex solutions,” Watson said.
These newer machines often come with features you don’t find on the terminal at your local gas station, said Watson: apps that run in the cloud, the option to video chat live with a banker, the ability to interact with the terminal using a smartphone, or the ability to deposit large stacks of cash.
Eventually, said David Tente, an Executive Director at the ATM Industry Association, “the operation of the ATM will be much more like what you experience with your smartphone and your tablet.”
Banking on Cash in Emerging Economies
Since the Great Recession, the U.S. market for ATMs has been relatively slow, Tente said.
“I wouldn’t call it saturated, but it’s quite mature,” Tente said. Although the overall number of ATMs has marginally increased in recent years, sales to financial institutions have been flat.
For that reason, American ATM companies are looking to expand their presence in developing countries.
Although Asian-Pacific (APAC) countries have seen a surge in the number of ATMs, Diebold has struggled to find a profitable way to compete with homegrown, often lower-cost, competitors. [Payments and Fin-Tech Data Book 2018 / Credit Suisse]
The world’s ATM machines are mostly made by a handful of companies. Diebold Nixdorf’s machines make up about a third of the global market, according to RBR, followed by Atlanta-based NCR (27 percent) and Korea’s Hyosung (9 percent).
Although the U.S. market for ATMs in the United States and in Europe may have reached maturity, there are plenty of opportunities for growth in developing countries in Asia and Latin America, “many of which are just starting to get their ATM populations kicked up,” Tente said.
However, selling into an increasingly competitive global market may have a limited upside, said Paul Condra, who used to follow the payments industry for Credit Suisse.
“There's definitely going to be some growth, but it's not going to be really profitable,” Condra said, before citing two major headwinds for Diebold and NCR.
First, ATM hardware has become commoditized, he said. Therefore, it is easy for homegrown, lower-cost manufacturers to make them for less. Indeed, during the Oct. 31 earnings call, a Diebold executive cited that competitive pressure as one reason the company would be pulling back on its efforts to expand in Asia.
A second reason why global growth will not be easy for U.S. ATM makers: the growing popularity of mobile payment apps in places such as China, India, and Kenya. In those countries, Condra said, “You might have this leapfrog effect where the digital money grows quicker than cash via ATMs.”
Cash Is Still Popular, But For How Long?
“Cash is still king,” is a common refrain among ATM industry folk. Indeed, as Tente points out, the amount of U.S. cash in circulation keeps growing. According to the Federal Reserve, it is currently near a record $1.7 trillion.
And although the growing pool of cash may simply be a function of the country’s growing population and growing Gross Domestic Product, an annual survey by the Federal Reserve, called The Diary of Consumer Payment Choice, suggests that the paper stuff is still very popular.
For some businesses, too, “Cash will always be the top,” said Anne Harrill, owner of Océanne Studio and Boutique in Cleveland’s Gordon Square neighborhood.
Years before opening a brick-and-mortar shop, Harrill said she made her jewelry out of a spare bedroom and sold her wares at street festivals. Back then, it was an all-cash business. The nice thing about operating in paper, she said, was that she avoided the typical 2-3 percent fees that come with processing card payments.
Anne Harrill, owner of Océanne Studio and Boutique in Cleveland’s Gordon Square neighborhood. [Adrian Ma / ideastream]
On the other hand, Fed surveys suggest that paper transactions are a gradually shrinking piece of the payments pie. In 2017, a Boston Federal Reserve survey found that, in a typical month, consumers made nearly 66 percent of their payments with a card or an online bank account. That’s about three percent higher than a decade ago. By comparison, the proportion of cash and check payments decreased by roughly three percent over the past 10 years.
Harrill has seen digital payments make up a growing share of her business as she expanded beyond selling at street fairs. Nowadays, she said credit and debit card sales make up about 90 percent of her revenue. While she pays a fee on each transaction, there is a certain convenience to it, she said.
“The credit card, bam, it goes straight to your account,” Harrill said. Plus, at the end of the day, she doesn’t have to bundle up all her cash to take to the bank (or the ATM).