Managed Services Program
Smith Hamilton has successfully deployed an all inclusive service program for some of our ATM customers. A one-stop shop.
In the past, we would approach our customers multiple times with the intent to sell an ATM, then multiple types of service contracts for that same ATM: First Line, Second Line, Software, Labor Only, etc.
With the Managed Service Program, the sale of the ATM only, and all encompassing contract services, are combined into one (1) five (5) year contract agreement. A monthly Managed Services Fee is implemented to each individual ATM site, and varies based on the overall project request.
Financial Benefits for Customers
Every company maintains a set of financial books, in order to track the progression of its business. Not only revenues, but expenses as well. For in the end: Revenues - Expenses = Profits. A financial institution is run just like any other company, and the goal is to maintain and increase profits.
In planning on its business needs, a company will decide if the allocation of funds is something that is for the future of the company on a multiyear basis (Capital Expense), or an ongoing expense during day to day operations (Operating Expense). Both of these expenditures are treated differently when it comes to accounting and income tax purposes.
A Capital Expense, such as a purchase of an ATM, or any equipment that is perceived to be utilized long term, is categorized as a fixed asset for the company. This money is usually spent upfront in a lump sum, or acquired by a loan. The equipment is then set up on a depreciation or amortization schedule and the company sets to expense this out over the lifetime of the equipment. Usually at least five years, at varying amounts.
An Operating Expense, such as a Managed Service ATM or Equipment, is categorized as a monthly lease payment for the client, and is a flat fee.
In the capital expense scenario, the customer is out a large sum of money up front, and can only realize a set percentage annually against their operating expenses and income tax. As an operating expense, the customer may pay a small expense to get the program going, and then a monthly fee after that. Realizing the entire expense for Managed Services for income tax purposes immediately.
Example: On a Capital Expense of $35,000, the company will only be able to expense $7,000 per year over the next five years, as an operating expense. On our Managed Services Program, the same type of expense, would be recognized as an operating expense at 100%. When income taxes can be a maximum of 35% of your profits, the moment of when it is recognized, is important.
Income Tax @ Max 35%
One Year Tax Savings
Additional Company Overhead Expenses
Contract services, such as First Line, Second Line, and Software Maintenance, are included in the monthly program. Common maintenance issues on ATMs such as:
Card reader and PIN pad issues
Dispensers out of service
Software Updates and Compliance
Additionally, consumable items, such as ATM paper, are also included. Overall there is complete service throughout the term of the agreement. No service contracts, no service invoices, just one simple monthly report.
Easy Upgrades As Technology Advances
There appears to be no end to the advancement of technology in all areas. Why own equipment when obsolescence occurs before amortization? Customers want the latest and greatest equipment. Close to the end of the contract term, the option for an easy trade out to new technology is available.
Not Just ATMs
As our program expands, and for the same reasons, we will be able to include alarm, video, access control, and drive-in equipment can be presented as a Managed Services Solution.
Customer Revenue Opportunities of Managed Services
Surcharge and Interchange Benefits (ATM Only)
Smith Hamilton is categorized as an Independent Sales Organization, or ISO. Working with our network processor Columbus Data, allows us to participate in the transactional pass thru of surcharge and interchange revenues.
Bank surcharges are imposed on customers who are utilizing an ATM that does not belong to the financial institution that issued the credit or debit card. These transactions are labeled as foreign. The owner of the ATM or financial institution will impose a surcharge anywhere from $1.00 to $8.00 per transaction, or greater.
Participating in the Managed Services Program, allows our ATM customer to maintain 100% of their “Foreign” surcharge revenues.
In the payment card industry, an interchange fee is a fee that is paid between the acquiring bank (merchant) and the issuing bank (customer) for credit and debit card transactions. An interchange fee is set by the credit card networks, and is their source of revenue for processing those transactions.
For our ATM customers, who participate in the Managed Services Program, we offer them a piece of that interchange revenue for their issued card holders. These transactions are labeled as “on-us” transactions, and therefore become “On-Us” Interchange. There is no set amount of interchange percentage, since it varies by transaction volume. Currently, Smith Hamilton’s average interchange amongst its customers is $0.20 per “on-us” transaction.
Bringing It All Together
On a monthly basis, our customer receives a report via email that brings the above calculation to conclusion. The current month Managed Services Fee is invoiced, and the customer’s transaction revenues (foreign and on-us) for the previous month are then deducted as a credit towards that Managed Services Fee. This ending balance is then automatically deducted via ACH.
The final formula:
Managed Services Fee - “Foreign Surcharge Revenue” + “On-Us” Interchange = ACH Withdrawal
You’ve likely heard of both outsourcing and managed services and perhaps lumped them together. They are similar in concept. Both service varieties involve lending important service needs to companies outside of your own business. However, there are some clear differences between both that are worth noting if you’re considering whether to use either option. Interested in learning more? Read on to learn just where the line is drawn and what they can offer your business.
So What is the Difference Between These Services?
Outsourcing involves similar functions as an MSP but transfers every possible IT-related need to that specific company. Outsourcing companies then will provide your business with one of their staff members who will then be a messenger for both ends of the relationship, relaying communications between the outsourcing company and your business.
A managed service provider is a little more specialized. Companies hire a managed service provider to take care of certain IT operations the business cannot handle independently. They then work hand-in-hand with the business’s existing IT expert to keep the company’s tech system running smoothly. This service can be carried out either through telecommunication between the provider and client, by sending out workers on request or by keeping a staff member from the managed service provider at the business to lend assistance as needed.
What Can Either of These Services Offer My Businesses?
It truly depends on what you’re looking for and what your company’s needs are with respect to your daily technological usage. To help you come to the best decision, we will outline some of the key benefits of hiring managed network services, whether through a managed service provider or an outsourced company.
You have more options. When you sign up for an MSP or outsourcing service, you can ultimately pick and choose what you want them to do for you.
MSPs and outsourcing services are cost-efficient. Both of these services usually involve a subscription-style payment plan, where you pay a specific, set price every month. This means you can adjust your budget accordingly and expect few surprises from month to month.
You’ll be able to work with experienced technicians. These technicians have worked with a wide variety of clients with an equally large number of needs. This means they have seen almost every possible problem you may encounter and will know how to solve it. They will also keep track of industry news and apply it to your system to keep things up to speed.
Outsourced businesses and MSPs will protect you. Both types of companies come with monitoring services and will solve any problems they find at the first sign of trouble. This means your daily operations won’t suffer.
You’ll be constantly prepared and in the loop. Out-of-date equipment risks productivity. However, a managed IT solution will keep track of the software and equipment you use as it develops and inform you of when you should consider switching to newer versions.
As you can see, both of these managed IT services are equally beneficial. It is the extent of their services that matter. To find out more about what these services can do for you, contact us!