.svg)
Businesses that provide access to cash are struggling to compete amid digital disruption and higher interest rates, as evidenced by the decline and potential fall of the world’s largest ATM maker.
Last week, as covered by VIXIO, global payments hardware giant Diebold Nixdorf was delisted from the New York Stock Exchange (NYSE) after filing for bankruptcy.
All of Diebold’s outstanding common shares were cancelled, leaving existing shareholders out of pocket and without “any recovery”, in the words of the NYSE.
The decision to file for bankruptcy was made when Diebold’s debt load became “unsustainable”, having climbed to more than $2.7bn at the time of the filing.
But as described by Michael Jacobsen, senior director of corporate communications at Diebold, that debt was long in the making.
Speaking to VIXIO, Jacobsen said that, since 2016, Diebold has spent more than $1bn on interest expenses alone, while at the same time its revenues tumbled during the pandemic years.
In 2019, Diebold’s full-year revenue was $4.4bn, but in 2022 this had dropped to $3.4bn.
“Clearly, this is not sustainable,” said Jacobsen. “The decision to file for Chapter 11 follows a careful review of all available solutions and represents the best mechanism to make our company healthier and positioned for long-term success.”
Despite its debt situation, Jacobsen said Diebold is “tracking well” towards its full-year sales targets for 2023 — namely the delivery of 60,000 ATMs, 35,000 self-checkouts and 134,000 electronic points of sale (EPOS).
Based on Diebold’s projections, hitting these targets could bring full-year revenue to up to $3.9bn, but what happens next is less clear.
Is there still life in the cash business?
Jacobsen argued that a larger ATM market is “very viable” and that cash usage and demand will “remain stable” in the years ahead.
“Much has been written on the ‘death of cash’, but it is clear that governments and financial institutions recognise that access to cash is critical to maintaining healthy economies, as is having a physical presence with branches and ATMs,” he said.
In the UK, Jacobsen pointed to the government’s Access to Cash initiative, while in Brazil, he noted that Caixa, the country’s largest bank, has opened 268 new branches and hired more than 4,000 new branch staff.
“While the pandemic did result in a dip in cash usage, and ultimately branch closures, research shows that these declines have subsided,” he said.
“There is a continued need for ATMs to handle the uptick in ATM cash usage globally, but more importantly, there is a need for smarter ATM technology that can adapt to changing trends in cash usage, like the current trend we see of increased average withdrawal amounts.”
Old hardware dies hard
Although Jacobsen is confident that Diebold can recover following its restructuring process, other payments industry observers are less convinced.
Richard Crone, CEO of Crone Consulting LLC, an independent payments advisory based in San Carlos, California, said that even putting its debt situation to one side, Diebold is ill-prepared to adapt to changing dynamics of the ATM market.
Speaking to VIXIO, Crone pointed out that Diebold’s three largest revenue streams are all “dominated” by hardware, and that hardware is ageing rapidly into an uncertain market.
“This is a hardware-centric business, and it's in the decline stage of the product lifecycle,” he said. “The proof point is in the average age of an installed ATM, which is well beyond the useful life of an ATM.”
At present, based on Crone’s internal data, the average age of an ATM globally is more than 12 years old, meaning that the majority of ATMs are in the latter stages of their lifecycle.
Although ATMs can be kept in service for as long as 20 years, their value depreciates as time goes by — not least due to the ”breakdown factor” but also due to demand factors and competition from newer, more efficient models.
Given these factors, Crone is doubtful that Diebold’s ATM business will be able to help the company correct course in the long run.
“Near-term sales might have an uptick, because of the need to replace some of these machines,” he said. “But that doesn't show up in the most important data point in their income statements, which is the slowing inventory turnover rate.
“That turnover rate shows you how elongated the sales cycle has become, and that's because the biggest deployers of ATMs — which are typically banks and credit unions — have slowed down and are taking a ‘wait and see’ approach.”
ATM-as-a-service to the rescue
The only “lifeline” available, as Crone sees it, is for Diebold to pivot to an ATM-as-a-service model.
This model, which is already offered on a small scale, would involve Diebold taking care of all deployment, back office, software, cash management and transaction management on the customer’s behalf.
NCR, Diebold’s closest rival, first adopted this model in 2021 following its $2.5bn acquisition of Cardtronics, a multi-service ATM specialist. Due to Cardtronics’ acquisitions of ATM National and Allpoint in 2005, NCR became the owner of the world’s largest ATM network.
“So NCR takes over these ageing ATM fleets and they either maintain them or they replace them,” said Crone. “And if they win a big ATM-as-a-service contract, then they have a guaranteed flow for their ATMs when they need to replace them.”
Hard times for hardware
In a similar way, Crone said that Diebold’s other revenue streams are set to be squeezed by new technologies and digital disruption.
Self-checkout systems will lose market share to autonomous checkout, he said, and EPOS hardware will lose market share to “bring your own device” alternatives, such as Apple’s Tap to Pay.
“Self-checkout is heavily hardware dependent, and that business is completely blown away by autonomous checkout,” he said.
“As a retailer, if you have cameras and sensors, you don't have to give up square footage when using autonomous checkout, since customers can just walk in and out and pay for goods via their device.”
Checkout-free shopping, however, is still in its infancy. Amazon Go, the largest example of this format, has also had a rocky start — launched in 2018, in March this year Amazon confirmed that it plans to close eight out of 28 Amazon Go stores.
There are also privacy challenges that are inherent to the format that are still to be resolved. In March this year, a class action lawsuit was filed in New York alleging that Amazon Go used biometric technology without informing customers, but as of this month, the case was dropped.
Nevertheless, Crone believes that autonomous checkout will eventually win out. “The real value of autonomous checkout is not in the checking out but the checking in”, he said “and all of the new data streams that this opens up”.
Similarly, EPOS hardware is trending towards being co-opted by the smartphone. “Small and medium-sized retailers are evolving towards products like Apple Tap to Pay or other platforms that allow you to use your phone to accept payments,” said Crone.
“Hardware is being obliterated here, and it's being radically decentralised.”
Looking ahead, Crone expects that the main “value transfer” in payments will be in the provision of networks, software and data analytics — all areas that Diebold is not ready, in his view, to pivot to.
