A walk down any prime city spot reveals the sheer number of ATMs in any of India’s cities. These have been put up by myriad banks in a bid to compete with each other in terms of points of presence and visibility. Also, this is where the success of India’s private banks can be seen—ICICI Bank, HDFC Bank, UTI Bank, IDBI Bank— all jostling for attention. The moot question is—if these ATMs were meant to serve the vast Indian populace, the urban ones to start with, do individual banks need to cooperate to maximize reach? Is clustering of ATMs at prime spots the best way?

RBI has questioned bankers about squandering of funds for ATMs at the same locations. Public sector banks are pinning hopes on shared networks. However, private banks hold the view that to retain a competitive edge, a bank needs to have its own network of machines in high-traffic areas.

As a result, ATMs are being clustered in metros. In some locations, there are over a dozen ATMs within a radius of half-a-kilometer. With over 8,500 ATMs in the country, there is one ATM for every 1.17 lakh of the population. In cities like Mumbai, there is more than one ATM for every 10,000 individuals, primarily driven by the private banks… Clearly, a case of uneven spread and density.

There’s a clear case for sharing of infrastructure with shared ATM networks. The last year has seen a flurry of activity in this area—but one that’s far from being a unifying force. Says Neeraj Bhai, president (IT) at IDBI Bank, "While banking is about trust, banks don’t trust each other."

‘Swadhan’ to go away
On the one hand, various public sector banks are joining up in a sporadic fashion to create their own shared ATM networks.

ICICI Bank, with the largest spread of ATMs by far, chooses to go it alone for competitive reasons. For a different reason, State Bank of India is also choosing to go it alone. Says KC Shashidhar, GM (IT) at Nabard, "Unless the banking community has a strong centralized leadership, sharing infrastructure on an industry-wide scale is going to take a long time." And in the midst of all this, Swadhan—India’s first shared ATM network with participation from 32 banks—has announced that it is closing down. In a sense, sharing of respective ATM networks has become more important after the Indian Banks’ Association announced the closure of Swadhan. For the time being, the IBA managing committee has decided to extend its interim arrangement to run the network up to December 31, 2003.

Partly, the reaction by various banks is a run-up to provide a viable alternative to Swadhan. Not that was Swadhan a great success—at least not in terms of spurring the aggregation of traffic to itself. Swadhan has connected 32 banks— public sector banks, private sector banks, foreign banks and co-operative banks—with more than 1,000 ATMs (both online and offline). It was started with the intention of reducing the investment required to deploy ATMs in different locations, and to provide participating banks the time to make their own arrangements, an IBA source says.

Says VK Ramani, senior V-P (IT) at UTI Bank, "Once you have set up a network, it all hinges on the number of transactions, but member banks were not even prepared to issue 500 cards per branch." The advent of ATMs came only after private banks stepped into the fray. Adds Ramani, "IDBI Bank and UTI Bank contribute about 90% of the ATMs in the Swadhan network."

Reportedly, Swadhan has proved operationally uneconomical—showing an average of just 90 monthly transactions per ATM. In contrast, some of India’s private sector banks boast average monthly ATM transactions of up to 6,000. The 32 Swadhan member banks have issued a total of 3 million ATM/debit cards. In contrast, ICICI Bank, which has its own switch and is on an aggressive ATM expansion plan, has issued 3.2 million debit cards and 1.9 million ATM cards.

Each going his own way
Five nationalized banks—Bank of India, Punjab National Bank, United Bank of India, Syndicate Bank and Indian Bank—forming a consortium to share ATMs. The proposed network is set to be christened "B5" or "Bank 5". The composition of the banks that have come together, thus, is based on the leadership in the respective regions. Bank of India would represent the western region, while Punjab National Bank the northern region, United Bank of India the eastern part of the country, and Syndicate Bank the central zone. Finally, Indian Bank gets to monitor the southern part.

Interestingly, Chennai-based India Switch Company, which hosted Swadhan, will be the network service provider, with Bank of India managing the settlement system of the shared ATM network. A total of 800 ATMs of this consortium of bankers is expected to be interconnected in the first phase, and in the next year-and-a-half, these banks are aiming to have a shared network of 2,000 ATMs. Network sharing would reduce the need for individual banks to make heavy capital investments in ATMs. More nationalized banks are expected to join the proposed network.

In the initial stages, customers of these banks are set to get free access to the shared ATM network. Later on, they might be charged a fee of not more than Rs 5 per transaction. Customers are currently charged Rs 25 per transaction for using the ‘Swadhan’ shared ATM network.

In another cooperative agreement, four other nationalized banks—Canara Bank, Central Bank of India, UCO Bank and Union Bank—were reported to be negotiating for sharing ATMs. Yet another possibility is said to be the cooperation between Dena Bank, Punjab National Bank, Union Bank of India, Oriental Bank and Bank of Maharashtra for sharing ATMs.

The route taken by Mangalore-based Corporation Bank that has won laurels, for its corporate performance has underlined its efficacy. Corporation Bank, strong in south India, and Oriental Bank of Commerce, strong in North India, have tactically decided to share ATM facilities. Corporation Bank has already installed 252 ATMs in the country and is now in the process of installing an additional 250 ATMs—taking the total number to over 500. Oriental Bank of Commerce says it has already installed 40 ATMs, with plans to increase that number up to 200. Thus, the present tieup will facilitate the usage of around 700 ATMs by customers of these banks.

Similarly, Corporation Bank has teamed up with Karnataka Bank and Bank of Rajasthan to share their ATM networks to further strengthen their combined presence in rural and semi-urban markets. The model has a good chance in rural areas, where the cost of deploying networks is high and account balances low—while sharing of information is not very valuable.

Given these economics, it makes sense for banks to look at using shared infrastructure.

Corporation Bank is also said to be in talks with Dena Bank, Allahabad Bank and some private sector players to mutually share ATMs. The bank currently has 300 ATMs across the country and is planning to increase that number to 500.

UTI Bank signed an agreement with ABN-Amro Bank to allow the latter’s customers to use its network of 575 ATMs across the country. UTI earlier forged a similar alliance with BNP Paribas. For private players UTI Bank, HDFC Bank and ICICI Bank, renting out extensive networks provides additional fee income. Each time one of their ATMs is used by another bank’s customer, they stand to gain nearly Rs 50 per transaction. UTI Bank plans to add another 400 ATMs to its existing network of 500 ATMs in the next fiscal year.

ICICI Bank has a different viewpoint on sharing of ATMs—it feels that a proprietary approach enables banks to better build brand recognition and retain control over the distribution strategy. As per reports, ICICI Bank’s total ATM transaction volume averages 260,000 per day. This works out to an average of 260 transactions per ATM per day, a figure that has kept pace despite the bank rolling out as many as 50 ATMs a day in certain periods. This is a clear signal of the demand for ATMs.

Coming to India’s largest banking network, the State Bank of India. SBI and its affiliate banks are slated to install about 1,500 NCR ATMs over the next 18 months. With this deployment, SBI will have the country’s largest ATM network, with more than 3,000 machines. The ATMs will feature touch-screen ATM locators, multilingual ATM screens, voice guidance and several advanced facilities, including bill payment and phone top-ups. The contract includes hardware, site installation services and ATM network management services. SBI has decided to keep its ATM network exclusively for its own customers—it handles 25 million transactions daily, expected to go up to 40 million in the next five years.

Caveats
Shared ATMs are fast becoming the norm, with most banks having no option but to outsource or share networks. Sharing ATMs brings down the cost of establishing points of presence and ensures faster deployment, but the downside is that every such point has to be economical in terms of scale of transactions. The costs involved in managing an ATM are very high, albeit lower than maintaining a branch. An ATM has to be manned 24 hours a day, cash has to be transported in armored trucks, information and data security levels have to improved, appropriate disaster recovery methods have to be in place. Without these, a faulty ATM and its network can quickly bring a bank and other member banks to disrepute… a mistake that’s quite irreversible.

The lack of a unifying force or even one or two clear consolidated networks is another big negative. One may say market forces would create these networks—like ICICI Bank and SBI have—but the ones bereft of resources cannot be ignored. Euronet Services India, which provides secure electronic financial transaction solutions, has plans of launching an independent shared ATM network. The company offers outsourcing and consulting services, integrated EFT software, network gateways, and electronic top-up services to financial institutions, mobile operators and retailers. Euronet operates the largest independent pan-European ATM network and is a leading provider of electronic distribution service, or top-up services, for prepaid mobile airtime.

The most visible face of Indian customer- centric banking, ATMs have also showed us how technology can change existing business models by tilting the balance of power—and it is private sector banks that have made huge success stories of largescale ATM deployment. Today, some banks find it difficult to share their ATM network with competitors as ATMs are being projected as the key differentiator… others are aggregating to achieve scale. That ATMs are the way forward is visible from the fact that nearly 60% plus of cash transactions are happening from ATMs.

Easwar Das Satyan

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