Due diligence for members that privately own ATMs

Privately-owned ATMs are typically found in convenience stores, bars, restaurants, grocery stores, or check cashing establishments. Fees and surcharges for withdrawals, coupled with additional business generated by customer access to an ATM, make the operation of a privately-owned ATM profitable. As a result, more credit unions are being approached to open accounts for the owners of these ATMs.

Operators of these ATMs are often included within the definition of Independent Sales Organization (ISO). An ISO is a third-party company that is contracted by a credit card member financial institution to acquire new merchant relationships. ISO’s also process online credit card processing transactions for small businesses. Also note that ISO affiliates, subsidiaries or partners, often known as “sub-ISOs” are generally sales organizations that resell the services of either larger ISOs or direct processors. Often times, sub-ISOs will not identify themselves as such and will simply call themselves ISOs. While some ISOs are large-scale operations, many privately owned ATMs are owned by the proprietors of the establishments in which they are located.

Privately-owned ATMs are particularly susceptible to money laundering and fraud. Money laundering can occur through privately owned ATMs when an ATM is replenished with illicit currency that is subsequently withdrawn by legitimate customers. This process results in ACH deposits to the ISO’s account that appear as legitimate business transactions. Consequently, privately owned ATMs and their ISOs pose increased risk and require enhanced due diligence.  

in Compliance & Regulatory News