ATM networks will have to be reinvented to face the onslaught of technology

Step back and look at how the interchange — the pay-out by a card-issuing bank when a card is swiped at other banks’ ATMs — has played out
There are fresh stirrings in automated teller machine (ATM) networks. Though deployments have crossed 250,000 units, after stagnating at 225,000-235,500 for almost five years, the bulk of the orders are for replacing aging machines. And it will take at least a couple of years more before ATMs are installed at fresh sites.

Why so? It’s a legacy business model, and the march of technology is forcing a rethink on the ATM channel.

Demonetisation provided the first serious wake-up call that cash will not be king for long, and the business of vending it will have to be reworked. But the better part of the last five years has been spent on recalibrating ATMs and reworking vendor agreements with managed service providers and cash logistics firms. This, even as the trade-offs involved in running ATM networks vis-à-vis new digital options were being pencilled in. The biggest drawback: ATMs continue to be seen as dispensers of cash. Clearly, this can’t continue.

“There are many types of transactions you can do on ATMs. It’s not just for pulling out cash,” says Navroze Dastur, India managing director of NCR Corporation, the US-based world leader in ATMs. That’s why most major ATM players — NCR, Diebold Nixdorf, Nautilus Hyosung, and so on — are now turning out machines capable of offering almost everything that can be done at a bank branch.

This includes depositing cash and cheques, paying bills, conducting e-know-your-customer, and enabling the cross-selling of mutual funds, or insurance. For instance, NCR’s new generation of interactive ATMs is positioned as a “bank in a box”. But, there’s a catch. “Banks have to ensure customers use more of the facilities on offer at ATMs, and think of ways to charge them,” says Dastur. And that’s where you hit a roadblock.

Step back and look at how the interchange — the pay-out by a card-issuing bank when a card is swiped at other banks’ ATMs — has played out.

It was hiked last month, from Rs 15 to Rs 17 for financial transactions; and from Rs 5 to Rs 6 for non-financial transactions. The reset came after a decade. And, the interchange on cash-pullouts, at Rs 17, is actually lower than it was in 2012, when it was Rs 18. The increase to Rs 17 simply does not cover costs.

An internal study by the Reserve Bank of India pegged the average cost of transactions at between Rs 15.60 and Rs 16.70 (assuming 120 swipes in a day at ATMs) and at between Rs 14.50 and Rs 15.40 (assuming 130 swipes a day). “Even if it (interchange) had been upped to Rs 18, it will only be a restoration to the earlier level. To be meaningful, it has to cover operating costs,” says a leading industry voice.

This is a key reason why ATM deployments are nowhere near the London-based Retail Banking Review’s forecast — the gold standard for the trade — of 400,000 ATMs by 2020.

A bigger worry is the march of technology.

The switch-hitters

“The number of UPI transactions is 3 billion a month. And this is despite nearly 25 per cent of small establishments shuttering,” notes Raman Khanduja, co-founder and chief executive officer of MintOak Innovations, a merchant payment solutions start-up.

He adds: “That said, you also have to factor in the 1.3 billion in peer-to-merchant transactions.” It’s another way of making a distinction between wholesale and retail via UPI. Now, MintOak is in the point-of-sale (PoS) deployment business, and shares space with the big boys — Pine Labs, MSwipe, AGS Transact and Atos Worldline.

Is it possible for PoS players to eat into the ATM business? For, in theory, all transactions on ATMs can be executed on new-generation PoS terminals. Let’s take cash-out — you get a merchant to hand cash over to you by debiting your account.

“Cash-at-PoS (on purchase) has not picked up. Globally, this is common. There’s little awareness of it out here. And it’s not mandatory either, from a regulatory standpoint. But if some larger acquirers decide to play this game, it can affect ATM cash withdrawals. I am not saying this model will make ATMs redundant, but it will affect the business,” says Khanduja.

Khanduja’s view is seconded by Stanley Johnson, executive director of AGS Transact — which is in the ATM business as well. “The ATM channel will continue to be relevant even as the PoS network evolves. It will essentially lead to a scenario where ATMs will have to offer more value to the end-customer,” notes Stanley. “Cash-at-PoS may not have picked up as expected. But here too, it is evolving from being a mere swipe facility.” The AGS group has an ATM manufacturing tie-up with Diebold Nixdorf in India.

So, what’s the shape of things to come? There is nothing to stop Paytm, PhonePe or BharatPe — which have on-boarded millions of merchant outlets — from entering the PoS cash-out game; or tying up with PoS platforms to offer a host of services that includes their own offerings. These startups do harbour banking ambitions. 

BharatPe (valued at $1 billion) is partnering the Jaspal Bindra-led Centrum Financial Services for a small finance bank licence. Mswipe has similar dreams. And, Paytm founder Vijay Shekhar Sharma will soon have the cash to bankroll all his dreams! These entities have the potential to creatively disrupt the ATM business, the way it has been imagined so far — unless it is reimagined on the double.


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