ARLINGTON, Va. – In less than a year, credit unions around the country are going to have to have ATMs in place that are not only capable of performing transactions at a new higher security encryption standard, but actually perform them. But with an estimated $200 million price tag across the industry for needed ATM upgrades attached to the requirement, many credit unions are still lagging in making their needed purchases according to firms which either manufacture or remanufacture the machines. "We expect a 25% increase in our business over last year," said Woody Alderman, CEO of ACG, an ATM manufacturer headquartered in Alpharetta, Georgia. ACG specializes in purchasing used ATMs from deployers and then refitting, upgrading and refurbishing the machines for sale to other financial institutions. "And it's our sense that a good number of institutions haven't made their purchases yet." Pressure to make the purchases is rising from a requirement promulgated by VISA and MasterCard that, as of April1, 2005, all ATMs in the U.S. have to meet new security requirements that will triple encrypt the transaction data from the cardholder onward. Such an approach will make ATM transactions almost completely impervious to tampering for many years in the future, but it means significant upgrades to ATM technology have to be made. Key among these is the encrypting pin pad, a keypad at the ATM that will triple encrypt the personal identification number in a way that cannot be captured and decrypted by thieves, along with other upgrades that might be needed to support the keypad. Both NCR and Diebold, the largest ATM manufacturers, sell kits that include the keypads and associated changes. Alderman said ACG has been remanufacturing its ATMs with the kits. He was a little worried, however, about may happen during the rest of the year as the deadline grows closer and the number of banks and credit unions still trying to upgrade remains large. Alderman estimated the time frame for getting a machine that has been upgraded to meet the Triple DES standard at 75 days, but warned that this number could creep up as more institutions stop procrastinating and move forward. Alderman estimated that the Triple DES upgrade will add $1000 to $3000 to the cost of a remanufactured ATM, but added that ACG's remanufactured machines will still significantly undercut the cost of most new machines. One point of pressure might be that ACG relies on NCR and Diebold for its upgrade kits and lately service providers and companies that refurbish ATMs have reported the two big ATM manufactures have lengthened their time frames for getting the kits. But Alderman said he expected to still be able to get the kits. Triton, the ATM manufacturer which has traditionally specialized in the cash dispensing sorts of ATMs but which has been making ground with more full service machines, said it is also expecting about a 25% increase in its business as credit unions and community banks both upgrade their ATM fleets. Anita Nobles Arguelles, manager of marketing and product management said that the Long Beach, Mississippi, based firm had seen an increase in the interest among financial institutions and other deployers regarding the Triple DES changes. The Triple DES deadlines had driven some of their customers taking a first look at the company, she said. She also anticipated that a crunch might be possible if too many financial institutions waited too long. All the manufacturers and remanufactures reported that they had seen some credit unions and banks take advantage of the Triple DES upgrade to rethink their ATM strategies. A white paper issued in February by CO-OP Network recommended that credit unions evaluate their machine needs in light of the sort of traffic the machines generated and the needs of their users. Robert Evans, director of industry marketing for NCR, said that the Dayton, Ohio, ATM manufacturer reported seeing that sort of thinking among some of his customers. He recounted that he had recently given a presentation to a financial institution in the southeast (not a credit union) with a fleet of about 200 ATMs. The executives had been involved in just the sorts of redeployment questioning that CO-OP Network had advised credit unions to do. But Evans said NCR did not necessarily expect a spike in its sales from banks or credit unions having procrastinated in making the changes. "Many of our credit union customers tend to be larger institutions which may have been more likely to have made some of these upgrades already," Evans explained. "So we expect that we probably have seen the heightened interest over time." NCR had been talking to its institutional customers for two years about the coming need for upgrade and had offered plans, which have since ended, for customers who came forward to purchase early, he explained. Diebold spokesperson Tiffini Bloniarz said that the North Canton, Ohio, manufacturer had a program in place for discounts on machines being purchased as part of Triple DES upgrades, but that the program had ended on March 31. She wasn't sure whether it would be extended or renewed. -

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