ATMs

Imagine that you’re out at a dive bar on Saturday night. You order a drink and take out your credit card, and the bartender — she tells you they only take cash. And because you’re living in the 21st century, you don’t have any cash in your wallet. Just as you’re about to go grovel to your friends, the bartender points to a dimly lit corner, where you see your salvation: it’s an ATM.

ATM stands for “automated teller machine” — the name is a reminder that, long ago, people used to have to get their cash from a human teller at a bank branch.  Today, there are around half a million ATMs in the U.S. And most of them are those little standalone models that you find at nail salons, corner stores, and bars. They’re owned and managed not by banks, but by individual operators, who earn a living off of the surcharges that you have to pay to withdraw money. And anyone can get into the trade.

JON WEILBAKER: It’s not regulated. You don’t need a license. You just go out and buy one of these ATMs and, you know, find a spot at a barber shop, and you’re in business!  

For the Freakonomics Radio Network, this is The Economics of Everyday Things. I’m Zachary Crockett. Today: ATMs.

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America’s very first bank opened its doors in 1782. And for the next 180 years or so, pretty much anything you did involving a bank happened inside of a branch. If you wanted to check your balance, make a deposit, or withdraw some cash, you’d mosey on in and talk to someone behind a desk. But by the 1950s, this labor-intensive model was no longer a good fit with the way Americans were living.

Bernardo BATIZ-LAZO: You see this move to the suburbs and moving away from city centers. So, reaching out to these people with the old branch model was expensive.

That’s Bernardo Batiz-Lazo. He’s a professor at Northumbria University in the U.K., and he studies the history of financial technology. He says that, at the same time that people were moving away from the city centers, the economy was booming — which meant the banks were getting a lot of new customers. And they started having trouble serving them all.

BATIZ-LAZO: Who were they, broadly speaking? Working class people, who were getting into manufacturing, and another big group of people were women.  This is a little bit of the context of what is going on within banks and thinking how they’re going to reshuffle their business.

Banks in other countries were also facing challenges. In Europe, tellers were unionizing. Customers wanted to get their money on weekends, when banks were required by law to close. A crazy idea started to percolate in the banking industry: why not replace the bank teller with a machine? That vision first became a reality in 1967, when a bank in London introduced the first ATM. Two years later, Chemical Bank brought the idea to the U.S. with a machine in Rockville Centre, Long Island.

Those early machines were a far cry from the ATMs you see at banks today. They were activated with tokens rather than cards. They jammed easily. They sometimes dispensed the wrong amount of money. And, they were just weird looking.

BATIZ-LAZO: The first devices were very silly, almost — you can think of a science-fiction movie of the 1950s where you have literally lights and switches. They are really clunky to use. And it takes about 15 years for the devices to be really working on a regular basis.

Over the next two decades, technological improvements transformed the ATM from a rare gimmick into a ubiquitous utility. The machines got video display screens, better cash dispensing mechanisms, and a lot more functionality, like the ability to check your balance or move money from one account to another.

At first, ATMs had to be connected to a dedicated phone line — which meant that they could only be built at bank branches, or other places with the right infrastructure. But in the late ‘80s, ATMs shifted to digital telephony and Windows operating systems, which enabled much more powerful networking . You could access your money through any ATM — not just the ones associated with your bank. At the same time all of this was happening, cheaper, portable ATMs became available for the first time. A machine that typically cost a bank upwards of $15,000 could now be had — in smaller, simpler form — for around $2,000 bucks. This opened up a whole new market for independent ATM operators.

JON WEILBAKER: Yeah. We were — Pat we did some crazy shit back then, you know, Pat was bringing home $100,000 on the subway.

PAT TUZ: I put the brick of cash in a backpack and I would go load these machines, like somewhere in midtown. 

SASHA WEILBAKER: Yeah, I think growing up I really thought it was normal.

That’s Jon Weilbaker, his wife Pat Tuz, and their daughter Sasha. Together, they run a family firm called New York ATM. It’s one of hundreds of companies in the U.S. that own a fleet of ATMs — the kind you see in the corner at the bar. These independent operators run the gamut from 18-year-old kids who just own one machine, up to Cardtronics, a publicly-traded company that owns and operates more than 100,000 ATMs. By contrast, Bank of America only has around 16,000. Once only an offering at major banks, ATMs have been democratized.

Weilbaker and Tuz were among the earliest entrants into this business back in the late ‘90s. At the time, they were both working in advertising in Manhattan. One of Weilbaker’s clients was Chase bank.

JON WEILBAKER: When I saw that a Chase was closing across the street from our house, I figured out how to put an ATM in the drugstore next door. I asked Ivan the pharmacist, you know, “Ivan, you want to put an ATM in here?” And he said, “I’d like you to do it.” We put an ATM in his drugstore and it took off like crazy.

The larger ATM companies like Cardtronics had a near-monopoly on putting machines at major retailers, like CVS. So, Weilbaker went after small businesses with high foot traffic in areas where banks didn’t have local branches. Restaurants and delis… 24/7 gas stations… no location was off-limits.

SASHA WEILBAKER: My dad also had the ATM at my high school. Yes. Another embarrassing location for me.

Today, New York ATM oversees 1,500 cash machines in New York and surrounding states.

JON WEILBAKER: We’ll do what we call a full-service placement. We’ll put an ATM in a grocery store. We buy the ATM, we load the cash, and then we pay rent or a per transaction fee to the owner of that grocery store. Now when the owner of the grocery store wants to load his own cash, we will also sell him an ATM and handle just tech service, support, and processing.

When you think about the surcharges you have to pay to use that ATM, owning 1,500 ATMs might sound like a pretty good gig — and, it is. But it’s also a job that involves staving off thieves, fishing rodents out of machines, and finding customers in an increasingly cashless economy. That’s coming up.

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When you put your card in that ATM at the bar and request a $20 withdrawal, there’s a computer inside the machine, connected to the internet. This computer routes your request to a processor. That processor then sends it to an ATM network that is associated with your bank. When your bank receives the request, it debits your account and sends the transaction data back across the network. The ATM operator’s account gets credited, and the machine spits out your money. After more than 20 years in the ATM business, Jon Weilbaker still marvels at the process.

JON WEILBAKER: All that back end takes place now in about 30 seconds. And it’s just amazing that it can do that, you know, millions of transactions every day — and you can’t make any mistakes.

But this transaction — it doesn’t come for free. Independent ATMs charge you a fee for the privilege of using the machine — usually around $2 to $3 dollars. Many banks also charge you a $2 to $3 fee on their end for using an ATM outside of their network. So, getting that $20 bill out of the ATM might cost you five or six dollars. Most of Weilbaker’s ATMs charge around $2.50. He finds that anything higher than that tends to piss people off.

JON WEILBAKER: It’s whatever the market will bear basically. People just are not tolerant. You know, they get crazy and start screaming,. “I don’t want to pay to take out my own money! Why am I paying to take out my own money?’ I’m sorry, but I’m not doing this for free, you know?

In some venues, operators can get away with charging much higher fees.

JON WEILBAKER: The highest fee that I personally know about is a legal brothel in Nevada, which is $100. A lot of the strip clubs now are 10%. So, you take out $800, you’re going to pay $80 for your fee. 

Depending on how you look at it, ATM fees are either exploitative, or part of a necessary lifeline. Independent ATMs tend to be located in underbanked neighborhoods — and the people who use them are disproportionately lower-income and unemployed. But Weilbaker says he’s not the one collecting the lion’s share of the money. Many ATM operators have to pay commission to the bar or convenience store. That can be anywhere from 20% to 50% of the surcharge. Weilbaker also gives a cut to a third-party service that provides the cash and reloads the machines each week.

JON WEILBAKER: So, the customer comes in and he puts his card in the machine, he pays $2.50 to the ATM operator, which is me. And then I divide that $2.50 up: $1.25 to the store, $0.75 to my cash loader, and I keep $0.50.

That 50 cents comes from the customer; Weilbaker also gets around 20 cents from the bank that the money gets withdrawn from. That’s called an interchange fee. As you can imagine from those numbers, earning any real money in the ATM business is a game of volume. 70 cents or so on a single transaction isn’t too exciting. But across 1,500 machines, with hundreds of thousands of transactions a month, it adds up.

JON WEILBAKER: We’re looking to make between $100 and $200 per month per machine. That’s our goal. Less than $100, you want to kind of move it, if you can. Over $200 — you know it’s a keeper. Our single busiest location is in City Island, the Bronx. It’s a cash-only restaurant. It’s a large restaurant. But there’s no bank. There’s no other ATM within a quarter mile probably of that location. So we have four machines at that one restaurant.

CROCKETT: How many transactions happen at that restaurant every month?

JON WEILBAKER: It’s about 6,000-7,000 a month.

Give or take, that’s around $4,500 dollars a month for one restaurant. Of course, ATM operators have other costs they have to cover. For starters, the machines themselves. Most standalone ATMs are made by two Korean companies: Hyosung and Genmega. And the cheapest models go for around $2,300 new. You can also go on Craigslist, eBay, or an ATM Facebook group and find a used machine for sale for a fraction of the price.

JON WEILBAKER: They’re fairly inexpensive. It’s basically just a couple computer boards, and a modem and a cash dispenser. 

You also have to have access to a lot of cash. Bricks and bricks of the stuff.

JON WEILBAKER: You could put a lot of money in a small machine. There’s different size cassettes that you can buy depending on how much capacity you want. The smallest one holds $16,000 in 20s. There’s a two cassette machine that holds $80,000. At Saratoga Racetrack we have 20 of those machines and the cassettes are set for 100s and 20s. So each machine has about a quarter million dollars in it.

Some smaller operators choose to use their own cash and load their own machines. New York ATM now outsources this job to a third party for 75 cents per transaction. For some machines, they use cash from a bank sponsor, which means paying for an armored car and armed guard to transport it across the city. That service runs Weilbaker around $1.35 per transaction. And it comes with an additional cost.

JON WEILBAKER: I’m required to have insurance on those locations. And in the last three years, we’ve filed three claims — and all three of those were from fires, where the store burned down and the ATM burned down with the store.

Theft is another big risk. Sometimes, robbers will roll up to a store, throw the entire machine into a truck, and drive away. Other times, they use explosives or hand tools to crack it open on site. Many of these attempts are ill-fated — but when they work out, the haul can be sizable.

JON WEILBAKER: The gangs that are stealing them, they know what they’re doing. It’s very easy to crack open. There’s amazing tools out there now you could buy at Home Depot that you can open anything. They’re stealing 50, 60, 70 machines. You know, over the course of a couple months.

Robbing an ATM at a bank is a felony. You could face up to a $250,000 fine and a 20-year federal prison sentence. But robbing a privately-owned ATM with non-bank money isn’t treated nearly as seriously. In some municipalities, it’s just a property crime.

JON WEILBAKER: If somebody stole one of my ATMs and I call up the cops and they don’t really even care anymore.

And unfortunately, robbers aren’t the only creatures breaking into ATMs.

PAT TUZ: Well, the mice.

JON WEILBAKER: Yeah, the rodent issue is not much fun. What happens is insects and mice and rats are attracted to the inside of ATMs because they’re dark and warm. And then somebody comes up and wants to use the ATM, and the belts trap the rat and the thing dies in there. So, yeah, it’s not a pretty picture.

PAT TUZ: I don’t — I don’t do that.

JON WEILBAKER: She sends me on those cases.

In recent years, ATMs have become a popular side hustle for younger folks. On YouTube and TikTok, there are countless ATM evangelists, who promise to make you rich. In these videos, you rarely hear about the thieves and the dead rats. It’s just a lot of people holding up fat stacks of cash and trying to get you to buy their courses. Weilbaker enjoys the enthusiasm for a business that hasn’t always felt particularly sexy. But he also says it’s hard to break into today.

JON WEILBAKER: It was a lot easier when we started. You know, when that first ATM at Ivan Pharmacy, when that bank closed next door — that went to a thousand transactions in one month. You know, today these kids are finding locations that do 100, 150, maybe 50? You know, it’s terrible. You don’t just find a 1,000 transaction spot anymore.

Most of the good locations are already taken — either by a regional operator like New York ATM, or a national giant like Cardtronics. And there’s a bigger threat that looms over the business — the shift to a cashless economy. According to a recent Pew survey, 41% of Americans now say they don’t use cash in a typical week. That’s up from 24% less than a decade ago. Many banks are closing physical branches and reducing their fleets of on-site ATMs. Independent ATM operators have even experimented with “reverse” ATMs — you put cash into the machine, and it gives you a pre-loaded card. These haven’t quite caught on yet.

But Weilbaker thinks the threats that ATMs face are a little overblown. Some states still have laws preventing businesses from going cashless. He says the nature of the trade has just shifted.

JON WEILBAKER: In the 20 something years that we’ve been in the business, all the people say, “Oh, we’re going cashless, you know, we’re going to a cashless economy. You know, ATMs are dead, this and that”. Our transaction volume is exactly the same today across all our fleet than it was ten years ago. It’s just the type of stores that are busy today are different or it’s a different mix of stores than it was 10 or 15 years ago. A nice hotel does 100 transactions a month now, that used to do a thousand. But the corner bodega in Brooklyn did 1,000 10 years ago and it does a thousand today.

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For The Economics of Everyday Things, I’m Zachary Crockett. This episode was produced by Sarah Lilley and mixed by Jeremy Johnston. We had help from Daniel Moritz-Rabson.

JON WEILBAKER: Sasha will tell you, you know, when she was growing up she was so confused because I would come home and there’d be $200,000 on cash on the dining room table, and I’d be yelling that, you know we were broke.

SASHA WEILBAKER: Yeah. I grew up with major class confusion.