That ATM at the back of the bar may soon get eighty-sixed

Own­ers face dead­lines to con­vert to chip card tech­nol­ogy “There are many ATMs out there that sim­ply can­not be up­graded”

Bloomberg Businessweek (North America) - - CONTENTS - Olga Kharif and Brooke Fox

That ATM in the dark cor­ner of the bar could be on its way out. ATM own­ers in the U.S. are un­der pres­sure to re­place or up­grade their ma­chines so they can read the se­cu­rity chips em­bed­ded in newer debit and credit cards. The MasterCard and Visa net­works plan to make own­ers re­spon­si­ble for the cost of fraud per­pe­trated at ma­chines that can’t read chips. But the up­grade is so ex­pen­sive that some cash sta­tion op­er­a­tors plan to shut down their less prof­itable lo­ca­tions.

Abe Ayesh, chief op­er­at­ing of­fi­cer of FAM ATM, which man­ages 8,000 ma­chines, says re­vamp­ing his ex­ist­ing fleet will cost $4 mil­lion—his com­pany’s en­tire an­nual earn­ings be­fore such charges as de­pre­ci­a­tion and taxes. But for some hard-to-up­grade ma­chines in low-traf­fic ar­eas, it might take years to earn back the cost of a re­place­ment. In those cases, “it’s

not worth it,” he says. Ayesh ex­pects to drop about 40 ma­chines.

In gen­eral, costs to up­grade an ATM’s hard­ware and soft­ware start at $300 and go to $3,000 for a full re­place­ment. Some 410,000 ATMs in the U.S. have to be up­graded, ac­cord­ing to re­searcher Aite Group.

Up to 10 per­cent of so-called re­tail ATMs—those not owned by banks and of­ten found in con­ve­nience stores, ho­tels, and bars—may be thrown out in­stead of souped up or re­placed, says James Phillips, a vice pres­i­dent at ATM maker Tri­ton Sys­tems of Delaware. “There are many ATMs out there that sim­ply can­not be up­graded,” he says. “They end up in land­fills. It could have an im­pact for some card­hold­ers in ru­ral ar­eas where there’s only one to two ATMs that they have ac­cess to.”

Card is­suers typ­i­cally eat the cost when some­one uses a coun­ter­feit card at a cash ma­chine. Start­ing in Oc­to­ber, MasterCard will shift that li­a­bil­ity to ATM own­ers that don’t adopt chip tech­nol­ogy. In Oc­to­ber 2017, Visa will en­force a sim­i­lar rule.

The chip tech­nol­ogy is de­signed to make it harder to use fake cards and to thwart skim­ming—crooks mod­i­fy­ing cash ma­chines to col­lect users’ PIN codes and card num­bers. Re­tail­ers have also been chang­ing their equip­ment to use the tech­nol­ogy.

So far only about 20 per­cent of U.S. ATMs read the se­cu­rity chips, ac­cord­ing to MasterCard. By Oct. 1 that will creep up to 35 per­cent, says Bruce Owens, a se­nior vice pres­i­dent at MasterCard, and it could hit 60 per­cent by mid2017. Even ATM own­ers that are will­ing to pay for the up­grade may find it hard to meet the Oc­to­ber dead­line. The big­gest chal­lenge for com­pa­nies like Ayesh’s right now? “It’s get­ting the up­grade equip­ment,” he says.

The bot­tom line New se­cu­rity chips in debit and credit cards make fraud harder, but get­ting older ma­chines to read them can be costly.

Edited by Matthew Philips and Pat Reg­nier

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