ATM has arguably been one of the most visible faces of modern banking and the revolution has not left India behind. Just to give a picture of things, the ATM base at the end of 2007 in the country stood at 32,342.

Its surely been one banking application which has secured a place in the customers mindscape, which few other innovations can arguably replace. Yet, some of the banks, which pioneered the ATM revolution in India, are rethinking the economics of running ATMs. A number of reasons are responsible for this including a recent RBI guideline making balance enquiry and cash withdrawals free of charge irrespective of the bank; the increasing cost of setting up ATMs, and the operating costs are also contributing to a lesser extent.

Consumer is the King
Many banks as well as ATM vendors feel that the recent RBI mandate on ATMs may have a substantial impact on the growth of the ATM market in the country.

According to the RBI mandate, which came into effect since April 2008, customers could now make the balance enquiries at ATMs for free, irrespective of the bank where they are an account holder. They will be levied a maximum fee of Rs 20 per transaction for withdrawals, that too till March next year, after which such usage would not be charged.

Prior to the directive, the customer was charged anywhere up to Rs 57 for each withdrawal from a third-party ATM, and up to Rs 20 for balance inquiries.

Even though it is too early to evaluate the impact, the mandate certainly gives a reason to take stock of the way things are expected to move in this space. While the RBI has ruled in favor of customers, banks obviously have a reason to crib.

With the cash withdrawal being made free from next year, the following years are likely to be crucial for the entire ATM industry in India. As things stand today, inter-banking equations might undergo a complete volte-face, as banks with more ATMs will look at various cost and technology models to maximize gains in order to recover cost of deploying ATMs. Also, it may just work in favor of banks who feel ramping up their own network is a more reasonable proposition than paying heavy duty to banks with lesser number of ATMs, as they have higher cash transactions to ATM ratio. What this could mean is that many of the PSU banks that run their ATMs as part of a consortium could suffer in the longer run.

However, State Bank of India is one PSU that does not belong to this category. And though SBI has one of the largest ATM networks, it is still not sure how this RBI guideline could impact its ATM strategy. Says a senior SBI official, We are re-examining the new cost structure. It is only the first month of the mandates implementation, so one cant really say how this will impact them. We are still contemplating.

Even from the technology angle, the RBI directive may be restrictive in nature. In such a scenario, banks would hardly be left with any incentive to deploy ATMs by venturing into newer technology areas, feels Srinivas Rao, director, Sales, Euronet Services India.

ATM vendor Diebold, however, counters this argument by bringing in the issue of uniform standards. Right now consumers dont even know how much they will be deducted for a financial and non-financial transaction. It has to be a win-win situation for everybody, a consumer should know how much he is being deducted, so things should be further discussed, feels a Diebold official.

Sustaining Momentum
As of last year (FY 2006-07), the ATM industry had clocked a growth of 19%. According to industry estimates, in the next two years, the industry is expected to see deployment of another 40,000 ATMs. Market estimates already establish that the high growth and competitiveness of the banking industry in the country has led to the ATM installations witnessing a double-digit growth in the past five years.

A report published by Celent predicts that the best is yet to come, and deterrents like this guideline would hardly create any ripple. The next three to five years will see even higher growth of ATMs in India. The combined figure that Celent gives for India and China is a growth from about 125,000 ATMs in 2006 to 350,000 ATMs by 2010.

As things settle and new cost structures are worked out, industry pins hopes on continuing the momentum by bringing in advanced technologies involving multifunctional ATMs, and services.

Says Pradeep Sen, MD, NCR, In todays competitive scenario, banks are very keen on adopting newer technologies than ever before. They are recognizing the changing customer preferences and most of them have shown positive signs to upgrade their current installed base with the latest self-service technologies to reduce queuing and optimiging resources for more customer facing initiatives such as sales.

Technology Proof
NCR is right now in the process of piloting and deploying biometric ATMs for some public and private sector banks in India. Another Chennai-based vendor, Financial Software and Systems, had last year announced the launch of their Biometric ATM Interface Solution (BAIS).

Diebold, too, is looking at brining in the deposit automation very soon. The company spokesperson said the technology will enable cheques being deposited directly into the machine. We already are looking into it, and technology will be offered very soon. We believe its going to be the next big thing. Axis Bank, Syndicate Bank, and PNB are few of Diebolds largest clients.

While vendors are already gearing up with advanced technologies, banks, too, seem to be looking ahead in upgrading network. HDFC Bank, has plans to set up 300 offsite ATMs in the current year, says Rajeeeb Chatterjee, vice president, ATM, Net & Mobile Banking, HDFC.

On the other hand, smaller banks like Bank of Rajasthan prefer taking the partnership route and not going for upgrading technology. SP Mohanty, assistant vice president and head, IT, Bank of Rajasthan, says that at present the bank has deployed close to 120 ATMs in total.

It is, however, smaller banks like Bank of Rajasthan who could soon feel the pinch of the RBI guideline. Nonetheless, Mohanty informs that the bank would go for setting up about 100 offsite ATMs only for current and saving account holders.

A Viable Strategy
Customers across the globe have identified self-service solutions to be more convenient than the teller assisted service. Vendors explain more and more financial institutions are looking at migrating routine transactions such as cash deposits, bill payments, money transfer, balance enquiry, etc, to the self-service channel, as it will save time and allow tellers to focus on better customer service. The ever-growing requirement of convenience and speed, and a corresponding culture of customer focus is also expected to force banks to identify and deploy innovative channel avenues to ensure customer retention and growth.

Industry estimates place India as a high potential growth country in this sector. Currently, the ATM penetration level in India is pretty low, as compared to the other Asian giant, China. While India has about 23 ATMs per million people, China has 55 and South Korea leads with a density as high as 1,600 ATMs per million.

The estimated total market size of the ATM products in India is close to Rs 350 crore, while the services revenue (AMC) is about Rs 500 crore. What gives some assurance is the fact that most of the banks today are proactively looking at focusing on their core business, by outsourcing the management of the ATM to service providers. Outsourcing is becoming a preferred norm, with banks not wanting to spend in-house resources on day-to-day operational management of its ATM network. Primarily, limited outsourcing and end-to-end are popular in India, informs Srinivas Rao from Euronet. The latter includes everything right from managed services to transaction, switching, reconciliation, assets and card management services.

Say a Diebold official, Currently, banks are outsourcing a lot of services for their ATM operations and focusing their resources on core banking operations. Banks like Bank of India and Bank of Maharashtra have gone ahead with complete outsourcing. We see more and more banks going in this direction in times to come.

S Nair, managing director, Intellvisions Software, adds The changing dynamics do call for complete outsourcing, especially in todays scenario when banks are vary of carrying depreciating assets in their books. Complete outsourcing saves the banks in other ways too, viz, no technology trap, strict adherence to service quality, pay as you consume (opex only), etc.

In pursuit of encouraging technology, recently, NCR got into a strategic alliance with Symstream Technology Group, a worldwide leader in wireless-technology, to introduce wireless connectivity solutions for ATMs. This new technology will enable banks to reduce overhead costs and administer faster ATM rollouts.

Furthermore, password-based transactions may just come into circulation soon. The technology is expected to help the cause of penetration of ATMs in the rural countryside. Some of the other technologies the vendors are working on include passbook printing, which would enable customers to update passbook anytime without interfacing with bank executive. The Cheque Truncation Solution (CTS), enabling customer to deposit a cheque and get credit within 24 hours at the ATM, and the Bunch Note Acceptance (BNA), are some other innovations round the corner.

Urvashi Kaul
urvashik@cybermedia.co.in

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