Partners Sober Up, Make Money by Dispensing Money

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Jake Yu and David Choi describe themselves as former hard drinkers who have become devout Christians. They also see their growing business as an extension of their beliefs and are committed to running an ethical company.


The thing is, they own and service non-bank automated teller machines, where the service charges are typically $2 per transaction and the customer base is often in low-income areas chronically underserved by banks, restaurants and grocery stores.


“It’s not economically possible to charge 50 cents,” Choi said. “We’d lose money, and we wouldn’t be responsible to our employees and our company. Then we wouldn’t be able to offer the service anymore and there would be even less available in poor communities.”


As it turns out, ATMs are a very good business. The partners grabbed Diamond Bar-based Global Pronex Inc., which has seen revenues jump to $700,000 in 2004 from $22,000 the year before. The revenue increase was driven by expanding their service contracts to 385 machines, a number they hope to more than double this year.


The pair bought into a business that has seen consistent growth in its high transaction volume. From 2000 to 2003, the most recent period for which information is available, ATM transactions grew by 15 percent, to 13.1 billion annually, according to Bank Network News. More than half of the ATMs are in place at non-bank locations.


In addition to the 385 machines they service, Yu and Choi own 40 ATMs themselves. Revenues are generated through transaction fees. If it’s their own machines, that amounts to 80 percent; if it’s someone else’s machines, it’s between 10 percent and 20 percent. (For its cut, Global Pronex installs and services the machines and then contracts with a security company to restock the cash.)


“We didn’t think we would get into the ATM business at all,” Choi said. “But it turned out to have a very high turnaround. We figure an ATM we purchase pays for itself in about a year.”


For retailers like Susan Lee, who manages her family’s Kearn’s Market in Los Angeles, the ATMs provide a low-cost way to generate extra income.


“We have lots of profits because of the ATM,” she said. “It’s expanded our business with money we wouldn’t have had. And the nearest bank is about four blocks away. About 50 percent of the ATM customers will leave without buying anything, but the others will still buy something in the store.”


Choi and Yu met while undergraduates at Berkeley in the 1980s. Choi eventually earned a Ph.D. at UCLA’s Anderson School and moved on to teach management at Loyola Marymount University’s College of Business Administration. After a three-year stint in the military, Yu went into business, eventually becoming chief operating officer of the online entertainment division of a Korean TV network. That business went public, allowing Yu the ability to bankroll the $400,000 purchase of Global Pronex.


Becoming business partners gave Yu and Choi a chance not only to apply their respective insights on business, but also their personal beliefs (both gave up drinking years ago).


Choi said a particular sermon at his church solidified his decision to start a business. “My minister was talking about how God gave every one of us some talent, and if you weren’t doing something with it you were wasting it,” said Choi, who at the time was unhappy as a management consultant. “I debated whether I should teach or run a company. I thought maybe running a company, I could impact people’s lives more directly. But I ended up doing both.”


Their faith, they said, is applied foremost in running a highly ethical company, something they said is found in the way they handle employees and in their community involvement. That includes having their staff engage in some sort of charitable activity several days a year, at company expense. With revenues on the rise, Yu and Choi also plan to increase employee health benefits and start a profit-sharing plan.


The delicate part comes in the charges levied on users often residents of low-income neighborhoods.


Madeleine Stoner, chair of USC’s Urban Initiative, said that the surcharge is disproportionately high for poor people who typically withdraw small amounts of money. But she added that the broader issue was a shortage of financial institutions.


“The lack of banks exacerbates people’s need to use ATM machines that charge,” she said. “It’s like a regressive tax, but at least it’s lower than what the check-cashing business charges. So it is still an added value to poor communities, it’s better than if there were none.”


For their part, Yu and Choi said they have to cover their costs, which can include $500 for an ATM part. “It takes a lot of transactions to pay for that,” said Choi.


While most of Global Pronex’s business involves single-store retailers, the pair wants to place more ATMs with clients that control multiple businesses. They are negotiating one contract with a retailer they declined to name that has 400 stores, and another contract to set up ATMs at high schools.


The company is also negotiating to put more ATMs into sites owned by Jamison Properties Inc., the Koreatown-based company that’s one of the largest landlords in the region. Jamison is controlled by David Lee, who like the bulk of Global Pronex’s clients is Korean-American.


It’s a circumstance Choi said is beneficial but mostly coincidental.


“You could say it’s cultural capital, but really, most our friends and business contacts are Korean, so it grew that way,” he said.

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