In bid to buy Cardtronics, NCR aims to reinvent the ATM

When rumors broke that ATM and payments technology maker NCR was attempting to buy Cardtronics, operator of the surcharge-free Allpoint ATM fleet, NCR's chief executive Michael Hayford broke from the script.

"Typically we would not respond to market rumors, but we felt it was important to update you," said Hayford, who is also NCR's president, in a call with investors this week. NCR is trying to acquire Cardtronics, offering $39 per share, exceeding a $35 per share offer from funds affiliated with Apollo Global Management and Hudson Executive Capital. "It's possible we may not get the deal," Hayford said. NCR would not answer questions in an email and Apollo did not return a request for comment by deadline.

Why so much attention on an ATM company when banks in some parts of the world, such as the U.K., are running away from ATMs? Cardtronics can address NCR's goal to preserve ATMs by turning them into fintech machines that enable mobile payments and other digital financial services for banks, credit unions, retailers and other companies.

"It may appear counterintuitive to think that investing in cash dispensing ATMs has a bright future given the slow decline in the overall use of cash," said Sara Grotta, director of debit and alternative products advisory service at Mercator. "But ATMs are increasingly becoming a part of financial institutions' overall digital strategy. They continue to play a key role to process less complex transactions during the pandemic, as many branch locations close."

Financial institutions and retailers are challenged to maintain access to cash while automating and responding to reduced foot traffic. NCR hopes Cardtronics can add scale via its surcharge-free Allpoint ATM network, which NCR thinks will be attractive to companies that are downsizing physical locations. Cardtronics has used Allpoint to serve fintechs and challenger banks that lack a branch structure, signing Varo, N26 and Oxygen. An acquisition would provide an attractive route for NCR to reach mobile payment companies that are diversifying into financial services.

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"There is no additional hardware revenue for this transaction," Hayford said. "This is all recurring revenue and subscription revenue."

Fiserv's MoneyPass and FIS' Sum networks are also using third party ATM services to remove overhead for cash access while providing a multi-functional digital touchpoint that links to digital wallets. As bank technology vendors, Fiserv and FIS have worked for the past two years to add transaction rails and merchant services to their menu of products for card issuers through a series of mergers with payment processors.

NCR has a similar challenge as it evolves from an ATM and point of sale hardware provider to a full-service IT firm that focuses more on software-driven upgrades and connections to third parties. Other NCR initiatives include an API that connects businesses to marketplace aggregators, such as tying a restaurant's digital point of sale system to Grubhub.

NCR in the past year has added a platform that automates supermarket payments using assisted and self-checkout, and adds third-party services such as data management. The company additionally introduced digital connected services to manage point of sale devices and ATMs, using Microsoft's Azure to tap machine learning, spot emerging trends toward contactless or digital usage and identify maintenance issues for POS devices and ATMs. Adding Cardtronics could combine that strategy with Cardtronics' fintech connections and ATM automation.

"This proposed [Cardtronics] deal is an acceleration of our plan," Hayford said. "We'll be able to jointly introduce products and cross-sell into banks and retailers."

NCR faces competition from emerging fintechs such as Stripe and Rapyd, which offer digital access to businesses wishing to accept online payments. NCR's traditional rivals are Diebold Nixdorf and Ingenico. Worldline and Ingenico in 2020 made a deal to merge, hoping their combined software innovation will deemphasize terminal hardware as a business model.

Other firms are using ATMs as a portal to broader innovation for retailers. DCP recently received certification to launch payment processing in the U.S., and uses a model that upgrades ATMs to support cash deposits followed by loads to digital wallets.

ATM technology firms can also lean into the quandary retailers or banks face when weighing how best to automate cash machines. "They are considering whether to invest in ATM upgrades, hardware or software, to facilitate more transaction sets, or if the best route is to outsource some of their ATM fleets to a third party," Grotta said.