Diebold Nixdorf's bankruptcy filing emphasizes the squeeze on hardware

Ty Wright/Bloomberg

The unrelenting retreat from static points of contact in the payments and financial services industries is pushing at least one traditional terminal maker to a breaking point.

Diebold Nixdorf, which sells ATMs, payment terminals and other technology, on Tuesday announced it will file for Chapter 11 bankruptcy. The Hudson, Ohio-based company is seeking $1.25 billion in financing to pay certain obligations in full. It hopes to reduce its debt and other financial leverage while building a capital structure to pay vendors and suppliers. Diebold Nixdorf will additionally undergo a broader restructuring.  

"With the support of our creditors, we have reached an agreement to restructure and strengthen our balance sheet, enhance liquidity and position Diebold Nixdorf for long-term success," said Octavio Marquez, Diebold Nixdorf's chairman, president and CEO, in a release. In an email, Diebold Nixdorf's public relations office said the restructuring of its balance sheet will enable "the operating funding and financial stability necessary to focus our resources on driving our solid operational performance." 

Diebold Nixdorf's intended filing comes amid a decline in ATMs and a reduced reliance on retail terminals that only collect payments. The number of ATMs in the U.S., for example, fell to 451,000 at the end of 2022 from 470,000 in 2019, according to Euromonitor International, which notes that there are about 3 million ATMs globally. 

The point-of-sale terminal market is expanding to reach $14.1 billion by 2028, growing at about 6% per year, according to ReportOcean. But as terminals grow, so is the pressure to add technology that supports mobile point of sale, contactless payments, soft point of sale (softPOS) technology that enables store staff to use their own devices to accept payments and eventually checkout-free retail. Many of these innovations are coming from Diebold Nixdorf's competitors. 

 "The hardware side of the payments business has been under pressure for many years," said Jordan McKee, director of the fintech research and advisory practice at 451 Research/S&P Global Market Intelligence. 

Diebold Nixdorf competes with point-of-sale technology firms like NCR, Ingenico and Verifone. The competition between these companies will increasingly focus on ATM maintenance as banks put off replacing machines as cash usage declines, according to Richard Crone, a payments consultant. 

"Because the ATM installed base is so old, banks and other ATM deployers can no longer kick the can down the street and put off making the strategic decisions as to whether to run their own ATM network or not," Crone said. 

Diebold Nixdorf and its traditional competitors also face threats from Stripe, PayPal and Block, which offer payments technology and financial services such as credit to both merchants and consumers. The newer firms do not have a past in fixed point-of-sale hardware and have offered relatively inexpensive mobile hardware and application programming interfaces to support payments and other services such as cryptocurrency trading.

The terminal makers have responded by adding new technology of their own. Diebold Nixdorf in 2022 launched Vynamic, a cloud-based retail payments and management service that enables merchants to quickly update their point-of-sale systems. Ingenico earlier this year forged partnerships with buy now/pay later lenders Splitit and Klarna to add financing, and collaborated with biometric firm Fujitsu Frontech to bolster security. 

Verifone, which has also undergone a multiyear digital transformation, was taken private in 2018, partly to speed work on automation. Ingenico was taken private in 2022, following an earlier acquisition by the payments processor Worldline. 

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Why NCR is splitting in half

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NCR spent most of 2022 considering strategic options, then decided to split in half, with one firm managing digital commerce and the other manufacturing ATMs. In a press conference at the time, NCR executives said digital commerce is expanding quickly, and the company's split — which is scheduled to be executed this year — will carry less debt and enable ATMs to be managed with less expense. NCR, Ingenico and Verifone did not provide comments for this article. 

"While hardware plays an essential role in the payments industry, true value today comes from the software layered on top of it," McKee said, adding that software is what drives margins and differentiation. "Most hardware-centric payments technology vendors are moving in the direction of software, but the pivot is not an easy one. It requires significant changes to not only strategy but culture and talent." 

In addition to the pressure to support software, the need for payment hardware of any kind could soon fade. A growing number of companies, including Ingenico, the card networks and Stripe, Block and PayPal, are adding softPOS, or technology that allows store clerks to use their own smartphones to accept payments. 

Apple and Google provide most of the technology that supports softPOS, but these companies do not process payments. That leaves some room for payment companies to provide software or API connections to card issuers and merchants, but it further deemphasizes payment-specific technology, putting those companies at a disadvantage.

"It's 'bring your own device to work.' Anyone who works at a retail job can log into the retailer's system and take payments on its behalf [with softPOS]," Crone said, adding that softPOS is a transition to checkout-free retail, which relies more on using in-store cameras to check consumers into stores rather than accepting payments at checkout.