After Prolonged Development, A Startup Begins to Vend Prepaid Cards from ATMs

After five years of development, an ATM technology company with its eyes on the prepaid card market says its business model of selling prepaid cards through ATMs is ready for prime time. As evidence, Better ATM Services Inc. on Tuesday announced it would enable the sale of a Discover-branded gift card with nine national merchant sponsors that initially will be dispensed at an Arizona credit union’s ATMs.

The Discover deal isn’t the only thing on Mesa, Ariz.-based Better ATM Services’ plate. Up next are possible deals with financial institutions that want to sell Visa-branded prepaid cards through ATMs, according to chief executive Todd L. Nuttall.

Better ATM Services first appeared on the radar in 2007, but it has spent most of the time since then working with ATM manufacturers, plastic card providers, financial institutions, networks, and payment processors to enable ATMs to dispense modified prepaid cards through an ATM’s cash slot. The company provides hardware and software to make that possible, but the behind-the-scenes work is complex.

The process involves producing cards flexible enough to move past rollers and other ATM components without jamming the machine, but strong enough to be used at the point of sale. Better ATM Services’ technology uses cards slightly narrower than a conventional credit or debit card, one-third the thickness (10 mils, or 10 one-thousandths of an inch versus 30 mils for regular cards), and made of a different plastic. The cards typically take one or two trays in the ATM, leaving the majority of trays for cash.

Nuttall says retrofitting an ATM for the system typically costs a few hundred dollars to $1,000. On the software side, the company gets a fee depending on the level of service provided.

Apart from the physical modifications, dispensing prepaid cards through ATMs involves getting approvals from the card networks and processors, which can be a long and arduous task, working with service providers, and persuading financial institutions and retailers that selling prepaid cards at their ATMs is a good idea.

“We’re kind of the group in the middle that gets everyone to dance together,” says Nuttall, adding that the world now has 2 million ATMs, including about 400,000 in the U.S. “All of these new ATMs are looking for new revenue streams, and prepaid card [providers] are looking for more distribution.”

What Better ATM Services calls the world’s first ATM-dispensed “multibrand” prepaid card is one of the early fruits of a half-decade of work. The card, called the myGift card, is issued by MetaBank and is a hybrid with characteristics of the prepaid card industry’s two main divisions: open-loop and closed-loop cards. It has the Discover logo, which would seemingly make it open loop, but it’s good only at its nine sponsoring merchants, making it a semi closed-loop card.

The sponsor merchants are Macy’s, Cabela’s, Express, Lowe’s, Flemings Prime Steakhouse, Roy’s Hawaiian Fusion Cuisine, Carrabba’s Italian Grill, Bonefish Grill, and Outback Steakhouse. The card is the handiwork of prepaid card services provider InteliSpend Prepaid Solutions LLC, which works with merchants on cards for specific markets and needs. InteliSpend’s system, says Nuttall, could be used to design prepaid cards for national merchants, but also for groups of mom-and-pop merchants in one locale.

“What’s key about this launch is bringing that ability to group symbiotic entities together,” says Nuttall.

The test sites for the Discover myGift card will be ATMs at 11 locations of Banner Federal Credit Union, a credit union for employees of the Banner Health System, a big health-care provider in Arizona, and some smaller medical firms. Fifty cents will be donated to Banner’s foundation for every prepaid card sold through March.

“Because prepaid cards have become the gift of choice for any occasion, we can now offer our members the flexibility to make one stop for all their banking and gift-giving needs,” Banner FCU president and chief executive Roger Swanson said in a statement.

Meanwhile, Nuttall says his company has received approval from Visa Inc. for expansion of Visa-branded prepaid card sales from ATMs following tests at three Arizona credit unions. That could open up a big new market. “We’re in discussion with numerous FIs” as well as non-bank ATM owners, he says.