White-label ATMs face viability hurdle

A desktop ATM— the size of a coffee vending machine—ATMs inside kirana stores and battery-powered ATMs with wireless dongles are some of the innovations that operators of white-label ATMs (WLAs) are looking at to ensure viability of rural machines. However, despite the ‘no frills’ approach, sparse transactions in villages is threatening viability and WLA operators seeking an increase in the interchange fee from Rs 15 to Rs 18 per transaction. WLAs are machines deployed by non-banking entities which charge banks a fee whenever account holders transact. Since 2013, the Reserve Bank of India (RBI) has licensed seven players — BTI Payments, Tata Communications Payment Solutions (TCPS), Prizm Payment, Muthoot Finance, Srei Infrastructure, RiddiSiddhi Bullions and Vakrangee Limited. Three more companies are expected to join the fray.

RBI’s norms require these companies to set up machines mostly in small towns and villages which banks have failed to cover. WLA operators get an interchange fee of Rs 15 from the bank whose customer uses the ATM. “The government move to open bank accounts under the Prime Minister’s Jan Dhan Yojana (PMJDY) will provide a boost to usage in the medium term,” said K Srinivas, MD & CEO, BTI Payments — a white-label ATM company promoted by Australia’s Bank Tech and ICICI Ventures. The company, which received the RBI clearance in April, is set to have a network of 450 ATMs by this month-end. According to Srinivas, the first year target of 1,000 is set to be exceeded.

He adds that while the PMJDY holds promise for the future the challenge is to make their networks viable in low-volumes considering that some of the centres have population only in thousands. Their agreements with the RBI require that each company installs over 9,000 ATMs each in three years. The expansion has to take place despite mainstream banks seeing a drop in the number of transactions as their machine numbers grow.

“WLA operators were given licences because banks were not willing to go to rural areas. Where we got lost along the way was in ensuring viability of these ATMs,” said Sanjeev Patel, CEO, TCPS. The company has already deployed 2,400 machines but feels that an increase in the interchange would be necessary for the company to reach its three year target of 15,000 ATMs. TCPS is cutting costs by installing ATMs in kirana stores, bus-stops, Tata outlets and is using portacabins instead of shops.

According to K R Bijimon, chief general manager, Muthoot Finance, the company is bringing down costs by looking at a rent-free model where it sets up machines largely in its own branches, a large number of which are in unbanked areas. “There are two suggestions to increase the efficiency – one is to remove restrictions that only sponsor bank can load the cash. Second, they should allow WLAs to recycle cash received for deposit,” he said. Muthoot has installed 140 machines and is not yet breaking even.

BTI Payments is reducing costs by deploying ATMs in kirana stores and is toying with the idea of mini ATMs— the size of coffee machines. “At present, the running cost of a fully-loaded ATM is around Rs 30,000 per month, perhaps there are ways we can bring it down to Rs 20,000,” said Srinivas.

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