Why Invest in ATMs?
Automated teller machines, best known as ATMs, are tucked in the corners of convenience stores and other locations around the United States and the world. While they may look unassuming, ATMs collectively represent a huge investment opportunity that many investors have failed to take advantage of.
Why are ATMs such an attractive investment opportunity? And what exactly would investing in ATMs look like? Here’s a rundown of ATM investment opportunities, including details on how to access ATM funds for your investment portfolio.
Who Uses ATMs?
ATMs serve a large and growing market. There are about 40 ATMs for every 100,000 people around the world, and each ATM is used about 300 times per month. Who exactly is using these machines? ATM users are typically:
Individuals with poor credit or no credit who do not have credit cards.
Individuals who are using prepaid cards on a regular basis.
Individuals using electronic benefits transfer (EBT) for accessing SNAP benefits (among other reasons).
Individuals who need to transfer funds or conduct other transactions (as opposed to online banking).
The ATM services market in North America reached a value of $6.8 billion in 2020, and it’s expected to grow at a CAGR of 6.5% rate through 2028 — mostly driven by users who fit the profiles listed above.
How Do ATMs Make Money?
As anyone who uses an ATM discovers, there are fees attached to almost any function performed on a machine. These fees run between $2 and $3 on average, and core transaction volume of machines across a fund or portfolio drives cash flow for investors.
Because this cash flow is powered by underbanked individuals who use ATMs as their primary option for services, transaction volume on any given ATM is considered stable even at times of economic downturn or other unexpected events (like shutdowns related to COVID-19).
Who Owns ATMs?
ATMs are owned primarily by two different types of groups.
Small Businesses: These mom-and-pop style operators are aware of the opportunity presented by placing ATMs in new locations. However, performance is less predictable due to a lack of historical transaction data and less optimized placement. Also, these smaller operators struggle to scale their businesses, even though their ATMs often drive high profit margins.
Institutional Operators: that have established multi-property location contractors with major retailers. The size of their funds and portfolios helps drive massive amounts of historical transaction data that can be used to reduce risk. These large operators are often controlled by private equity firms, hedge funds and large institutions.
How to Invest in ATMs
The fastest path to investing in vetted ATM opportunities is through a fund. Individual investors can participate in a fund that is made up of thousands of ATM machines, that are spread out geographically, which offers instant diversification based on the quantity and different locations.
When you participate in an ATM fund, you invest capital only. There are no operational duties or obligations, which makes it a fully passive investment. Most ATM funds plan to hold their investment for a specific period of time (like 7 years, for example), and they pay out monthly or quarterly distributions.
The Benefits of Investing in ATMs
Most investors explore ATMs because they can potentially outpace returns available through securities or other investments. So, why are ATM funds a good investment?
A large and growing base of users
Relative stability of monthly transaction volume
The opportunity for consistent cash flow (though nothing is guaranteed)
The potential for returns that outpace other investment vehicles
Depreciation-related tax benefits due to the shorter (compared to real estate) 10-year-or-less lifespan of ATMs
Recession resiliency when compared to other investment opportunities (an ATM is a non-correlated asset, which means that its value does not change along with movement in traditional markets)
Diversification of investors’ portfolios
Traditionally, ATMs have generated reliable cash flow and attractive returns, which is why they are growing in popularity as an investment option.
Equally as important as the information above, real estate investing is capable of producing attractive returns, but it does require a high degree of risk, including illiquidity of the investment and loss of principal. Always consult your financial advisor to determine whether investing in private funds is the right investment option for you.
The Drawbacks to ATM Investing
There’s risk with any investment, and ATMs are no different. Potential drawbacks to this type of investment might include:
Zero equity: As noted above, ATMs last for 10 years or less. That’s great for depreciation, but there’s not equity to be gained like there would be in a real estate fund.
Inexperienced operations: For ATM investments to be successful, you need to find the right operators with track records of success in this space.
Nothing guaranteed: ATMs are an illiquid investment, which means they can be difficult to sell. As noted above, recognize both the risk and the opportunity before jumping into ATM investing.
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