Raising white elephants

The business dynamics are stacked against white label ATMS, which could impact the government’s goal of financial inclusion

Almost a decade after Mint Road announced its white label automated teller machine (WLATM) policy, just about everyone is unanimous it has been a resounding flop. Had it fired the way imagined, there would have been at least double the current number of ATMS at 234,357.

At the heart of the mess is interchange — the pay-out by a card-issuing bank when you swipe at other banks’ ATMS, including on WLATMS. “It has not been revised since 2012, despite requests from the industry. It has to move up to ~18 from ~15 for cash transactions and to ~8 from ~5 for non-cash transactions,” wails Ravi B Goyal, chairman and managing director, AGS Transact Technologies. It’s his way of pointing out that if all other service charges have been raised, it is hard to argue that the inter-change stays the same.

So, why has the interchange not been increased? Because banks are against it. As card issuers, it’s an expense they have to bear on behalf of customers. It’s another matter that after three free transactions in a metro (five in the non-metros), they can charge you anything between ~20 and ~30, which, to that extent, covers up for the inter-change pay out. But it does not hold for WLATMS that don’t issue plastic.

The inter-change is not the only issue. You have other moving pieces on the chessboard like poor footfalls at WLATMS, the emergence of digital payments, cash-loading and operating charges that impact the business.

If 100 folks queue up at a bank’s proprietary ATM, only 40 go to WLATMS because the signage is not that of a bank. And you have empirical evidence to prove this lack of traffic at WLATMS from the way brown-label ATM deployers (those who deploy on behalf of banks with their signage) bid for the rate per transaction (RPT) — the fee they get for every swipe — for the tender of 63,000 ATMS floated by North Block in 2012. AGS Transact Technologies’ RPT bid was ~12.10. We don’t know how Prizm, FIS, Mphasis, Electronic Payment Systems and TCPSL bid, but it’s been gathered that one brownlabel contender’s bid was as low as ~7 and that the bidrange was between ~7 and ~12.10. Now if the interchange fee at ~15 is a sore point for WLATMS, how come some of them in their brown-label avatars bid lower on the RPT? Technically, it’s not inter-change, but that’s what you earn at the end of the day. Did WLATM players misread the plot?

The industry’s reasoning for this is typically, 60 per cent of all swipes are at banks’ own ATMS; the rest is at ATMS of other deployers. Again, you get to earn an RPT on 100 per cent of the transactions as a brown-label operator. And, so the argument goes, you can’t extrapolate RPT bids into WLATMS to say the clamour for a higher interchange is unfair. There’s another matter of detail: the interchange for WLATMS is not ~15 — it’s ~13 as ~2 goes to the sponsor bank. That’s because only banks can be part of the Mint Road settlement system.

The cap on the number of free transactions means customers pull out bigger amounts. This means that ATMS have to be “fed” cash at shorter intervals, which pushes up the operating costs. “We have the cost of cash, which is working capital for us,” says Balasubramanian V, President, Merchant and Terminal Business at FSS. And adds: “You need at least 125 transactions on every ATM to make it viable. The footfalls in urban areas is lower due to digital payments. In the case of rural areas, operating costs are such that it is tough to make it viable”.

Should the Reserve Bank of India (RBI) bring back the subsidy it was offering to players who set up recyclers? These are ATMS that need not be loaded with cash as it accepts deposits, like a branch. Whatever cash is put in gets credited to customers’ account and moves into the cassettes (which hold cash) automatically.

“Subsidies have a temporary effect and makes the system and players complacent. Subsidies for making power more reliable would work better. Things like heavily subsidised solar panels or lithium-ion battery solution would be of help in the growth and continuity of transactions which are key for business sustainability,” notes Anurag Nigam, Head of ATM Managed Services (India and Philippines) at FIS. He is of the view that RBI needs to look at measures for the long-term sustainability of the business. Nigam makes a case for working capital availability at the repo rate for the industry as this can also fuel economic activity as the focus will be on better performance and availability of the WLATM network.

What is at stake is the direct benefits transfer scheme under the Jan Dhan Yojna — WLATMS is a cash-out point for the beneficiaries. “ATMS are the first step towards financial inclusion in rural and tier-3 and 4 towns. Given the need and market opportunity for WLATMS in these areas, operators should be given equal preference to access cash so as to replenish their ATMS,” Goyal says.

Simply put, you have cash in WLATMS, but the business is running out of it.