Sorry for the inconvenience!

The ATM industry is in a bind, and its business model is out of whack. Can it continue in its present avatar? Raghu Mohan reports

The ATM industry is in a bind, and its business model is out of whack. Can it continue in its present avatar?

RAGHU MOHAN writes

It may soon take a bit longer to find an automated teller machine (ATM) near you. The reason: From October 1, banks will be slapped with a fine of ~10,000 every time a till-box goes dry for over ten hours. And the business model is such that this could lead to a shuttering of scores of ATMS.

Says Navroze Dastur, managing director of NCR Corporation (India): “The business is already bleeding due to the higher cost on account of meeting regulatory guidelines on security. The penalty of ~10,000 per day amounts to nearly 30 per cent of monthly revenues.” If deployers were to shutter ATMS, “it will affect Jan Dhan Yojana account holders who depend on ATMS for withdrawing their direct benefit transfers,” he adds.

That there is a need for such transfers is borne out by the exponential growth in micro-atms. Over the last two years, Spice Money has put up 100,000 micro-atms which dispense cash through point-of-sale units. These devices can technically do much of what a standard ATM does.

There is another matter of detail. The volume and value of ATM transactions in March 2021 were 6,040 lakh and ~285,268 crore, respectively — not too different from the numbers for February 2020, of 6,189 lakh and ~283,280 crore (the figures for March 2020, which marked the start of the lockdowns, are an aberration). Clearly, cash is still king.

Behind the logjam

ATM deployment has crossed 250,000 units, after hovering between 225,000 and 235,500 for almost five years. The move, this June, to hike the inter-change from ~15 to ~17 for financial transactions (and from ~5 to ~6 for non-financial transactions) was seen as a breather. Significantly, this hike in interchange on cash-pullouts is lower than the ~18 back in 2012.

All this, even as the better part of the post-demonetisation years was taken up in recalibrating ATMS, and reworking vendor agreements with managed service providers (MSPS) and cash-in-transit (CITS). Yet, these issues may not be at the heart of the problem.

“The intent of the RBI circular is noble and in the public interest, but this penalty is unlikely to resolve the issue of cash availability,” says Rituraj Sinha, group managing director of SIS Group Enterprises. “The root cause of the problem is sub-optimal cash forecasting and non-implementation of the April 2018 RBI circular which covers aspects like the cassette swapsystem, timely release of intent and Atm-fit currency.” (This is a reference to the required-denomination currency by banks and its replenishment by CIT firms within the stipulated timeframe.)

Take banks with currency chests (CCS). They tend to privilege their ATMS over those of white-label operators when it comes to making cash available. (White label ATMS are owned and operated by non-bank entities.) This fault line will deepen further, because the August 10, 2021 RBI circular is categorical that in the case of white-label ATMS, the penalty would be imposed on the bank which is meeting the cash requirement. “And the bank may, at its discretion, recover the penalty from the WLA operator.”

This has the potential to trigger another demand. As of now, the RBI authorises select banks to set up CCS — storehouses for banknotes and coins for distribution to bank branches. And state-run banks have the lion’s share of the 3,367 CCS in the country. Some believe that it makes more sense to have these outsourced to CITS.

United, we failed

“All stakeholders need to work cohesively. From MSPS which need to invest in tools that help them in better planning and forecasting to the bank’s CCS which should always issue indented, sorted and clean bank notes on time and at a single nodal point,” says U S Paliwal, secretarygeneral of the Currency Cycle Association. “As far as cassette swaps go, certain investments are absolutely important to ensure global standards. It need not be done on the capex model. You can always lease it or use the open model.”

Finger-pointing has already started. “Our major concern is that the penalty could become a pass-through — from banks to MSPS and from

MSPS to CITS. The CITS are already burdened by heavy reconciliation disputes, penalties and one-sided commercial terms. And the impact of this penalty could be back-breaking for the CIT business,” adds Sinha.

The SIS Group has a joint venture — SIS Prosegur — for integrated cash management with the Spanish giant, Prosegur. It will be interesting to watch how the big four CITS — CMS Systems, SIS Prosegur, Secure Value (a group firm of AGS) and Brinks Arya — which cart almost 70 per cent of the daily average ~15,000 crore in cash, react to the new plot set by RBI. A round of litigation cannot be ruled out before matters cool down. This brings us back to the issue of currency forecasting.

According to Rustom Irani, managing director of Hitachi Payment Services, “forecasting is not an issue despite frequent fluctuations, say during festivals.” The main issues are the logistics of picking up cash from CCS, delays in loading cash in ATMS given the poor infrastructure/power cuts, restrictions on cash load timings after dark, costs of high amounts of idle cash and insurance, higher cash losses due to robbery, and stress on an already creaky stressed infrastructure from cassette swaps.

Rural ATMS face even greater difficulties. “Developed countries have cash-outs of 11 hours in metros and urban areas and 36-44 hours in rural,” Irani adds.

The industry also miscalculated badly. Take brown-label deployers which operate and manage ATMS for banks whose signage appears on kiosks and terminals. Their bids for the rate-per-transaction (RPT) for a tender floated for 63,000 ATMS by North Block in 2012 was extremely bullish. AGS Transact Technologies’ RPT bid was ~12.10.

How Prizm, FIS, Mphasis, Electronic Payment Systems and Tata Communications Payment Solutions

“The ~10,000 penalty per day amounts to nearly 30 per cent of monthly revenues. It will affect those who depend on ATMS for their direct benefit transfers” NAVROZE DASTUR Managing Director, NCR Corporation (India)

“The penalty could become a pass-through — from banks to MSPS, and MSPS to CITS. The impact of penalties could be back-breaking for CIT firms” RITURAJ SINHA Group Managing Director SIS Group Enterprises

“As far as cassette-swaps go, investments are extremely important to ensure global standards. But it need not be done on the capex model” U S PALIWAL Secretary-general Currency Cycle Association

“We are identifying more locations to bring them under the micro-atm network. We cover 95 per cent of India’s rural pin codes and plan to make it 100 per cent” DILIP MODI Founder, Spice Money

Ltd (a wholly-owned subsidiary of Tata Communications) bid is unclear, but reports say that one brown-label contender’s bid was as low as ~7 and that the bid range was between ~7 and ~12.10. Now, if the interchange fee of ~18 back then was a sore point for white-label operators, how have some of them bid low on the RPT in their brown-label avatars? Technically, it’s not inter-change, but that’s what you earn at the end of the day.

Counters the chief executive officer of an MSP: “You get to earn an RPT on 100 per cent of the transactions. Also, given the fact that volumes tend to be higher under the brown-label model, RPT bids were lower than the inter-change which prevailed at that time. You can’t extrapolate RPT bids into white-label ATMS and say we are being unfair to seek for a higher inter-change.”

Whichever way you look at it, there are far too many moving pieces. The inconvenience will continue.