ATM Interchange Comments December Cardtronics, Inc. All rights reserved worldwide.

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1 ATM Interchange Comments December 2012

2 History of ATM Interchange Interchange and network fees arose as the parties handling the ATM transaction needed to be paid for their effort and investment Interchange is an access fee paid by the card-issuing bank so their customers can have access to other owner s ATMs Customer s Bank Access Fee Paid by Customer s Bank X - Network Pipe Fee Network Net Access Fee to ATM Owner Y = Z ATM Owner 2

3 History of ATM Interchange : Typical ATM access fee on cash withdrawal Networks act as intermediaries, post an interchange rate Typical card-issuing bank paid $ $0.52 per withdrawal transaction to the networks Networks charged $ $0.07 network fees for acting as a pipe ATM owner received approximately $0.45 net Access Fee Paid by Customer s Bank Network Pipe Fee Net Access Fee to ATM Owner Customer s Bank $ ($0.05) = $0.45 Network ATM Owner 3

4 ATM vs. Point-of-Sale (POS) Interchange POS Interchange Network FI POS Interchange Paid by Merchant to Card Issuer Flows from retailer via network to card-issuing bank Price-regulated under Dodd-Frank (Durbin Amendment) Merchant ATM Interchange ATM Interchange Paid by Card Issuer to ATM Owner/Acquirer FI Network ATM Owner Flows from card-issuing bank via network to ATM owner Not regulated 4

5 Interchange/Access Fees Paid to Cardtronics by Card-Issuing Banks Canada Approximately 32% of Cardtronics total worldwide revenues are ATM access fees paid by banks $ ($0.008) = $0.742 Single Network ATM Owner Month of October, 2012 % of Total Revenue 0.7% U.K. $ ($0.006) = $0.414 Single Network ATM Owner 12.1% U.S. Multiple networks and direct connection pathways 1) No interchange on balance inquiries ATM Owner 19.6% 32.4% 5

6 U.S. Transaction Flows and Interchange/Access Fees Month of October, 2012 Visa/ MasterCard $0.35 to ($0.15 to 0.18) = $0.17 to 0.32 Cardtronics ATM % of Total Revenue 4.5% Other U.S. Networks $0.45 to ($0.05 to 0.10) = $0.35 to 0.60 Pulse, NYCE, Star, AFFN, etc. Cardtronics ATM 5.6% CATM Direct $0.50 to ($0.00) = $0.50 to 0.80 Allpoint, Direct Connect, etc. Cardtronics ATM 9.5% 19.6% 6

7 What Happens Now? Let s Review Recent History 2010 MasterCard s ATM debit network market share is substantially below Visa s Dodd-Frank Act passed; limiting of POS interchange rates has major negative impact on banks MasterCard announces interchange and fee changes: 2011 From $0.50 interchange rate for all and $0.05 network fee To 3-tier rate structure, with very large issuing banks paying the lowest rate, and a $0.17 network fee MasterCard s debit card network volume increases substantially as large bank volume shifts to their network to benefit from lower interchange fees Not all volume moves immediately existing contracts between banks and networks commit volumes for stated time frames Visa announces interchange rate and network fee changes that roughly match MasterCard s, to be effective April Shifting of large bank volumes to Visa and MasterCard lower interchange tiers continues MasterCard s volumes approach parity with Visa Visa s pricing changes go into effect April 1 October 2012 significant additional move of volumes to Visa and MasterCard Did old contracts come to term on September 30? 7

8 Interchange Trends & Analysis: Visa/MasterCard Month of October, 2012 Visa/ MasterCard $0.35 to ($0.15 to 0.18) = $0.17 to 0.32 Cardtronics ATM % of Total Revenue 4.5% Visa and MasterCard pricing is quite similar Visa and MasterCard debit volumes are fairly similar Typically six months notice given on price changes; have seen nothing further We believe that pricing is more likely to be stable over next three years than during last two Durbin was destabilizing to the entire U.S. payments infrastructure Banks probably have volume commitments to networks under multi-year contracts, undercutting the value of further price cuts Network fees of $ $0.18 versus cost of less than $0.01 could drive disintermediation, energize CATM direct connects 8

9 Interchange Trends & Analysis: Other U.S. Networks Month of October, 2012 Other U.S. Networks $0.45 to ($0.05 to 0.10) = $0.35 to 0.60 Pulse, NYCE, Star, AFFN, etc. Cardtronics ATM % of Total Revenue 5.6% Have lost most large-bank volume Not much scope for additional volume shift to Visa/MasterCard in search of lower rate Could put in competitive $0.35 rate for large banks, but would have little impact as that volume has already moved away from them to get that rate from Visa or MasterCard Cardtronics can exercise choice in network participation Management Estimates 9

10 Interchange Trends & Analysis: Cardtronics Direct Month of October, 2012 CATM Direct $0.50 to ($0.00) = $0.50 to 0.80 Allpoint, Direct Connect, etc. Cardtronics ATM % of Total Revenue 9.5% Allpoint transactions growing organically at 32% Other direct transactions growing organically at 10% CATM management highly focused on developing more direct relationships with card issuers Increase in Visa/MasterCard pipe fees incents banks and ATM owners to disintermediate them Expect this segment to become larger proportion of total revenues 10

11 Interchange Observations * Visa/MasterCard pricing is equivalent, perhaps stable Little effect if smaller networks institute lower rate for big banks - they have little remaining big-bank volume We see 0.9% of our total revenue arising from interchange on Top 15 bank transactions occurring on higher-priced networks that may move to lower-priced networks If 100% shifted, our revenue could be reduced by ~$3.5 million annually CATM management is working hard to continue development of direct relationships with card issuers that properly value access to our 53,600 U.S. ATMs * Management estimates 11

12 Thank you! Questions?