If 'bijli', 'paani' can be subsidised, why not cost of rolling out ATMs?

A whole raft of inter-connected contracts and deals in the industry will now have to be reworked

It’s happening too fast, too soon in the automated teller machine (ATM) industry – network operators who hitched their fortunes to the inter-change fee now face its unravelling; it threatens to take the entire ecosystem down with it. If bijli, sadak and paani can be subsidised, why not the cost of rolling out ATMs? You read it here first — a demand that the industry be given “infrastructure” status is doing the rounds; and yes, with a subsidy thrown in. It tells you we are in a right royal mess.

And it’s not network operators alone who are in the quicksand. 

For company, they have managed service providers (MSPs), cash-in-transit (CIT) firms, ATM vendors, and the private equity (PE) firms that backed them. 

What’s worse, in these rainy days (for the business), there is no umbrella to huddle beneath. The Confederation of ATM Industry (CATMi) is for ATM players; the Currency Cycle Association (CCA) does its own act for CITs; and the Payments Council of India is many things rolled into one.

Fingers are now being pointed at Mint Road for the hygiene measures it has come up with. 

In June this year, it asked banks to uninstall the Microsoft XP operating system from ATMs and upgrade them by June 2019. It wants CIT firms to organise themselves with state-of-the art security systems when they cart cash and has imposed a net-worth threshold of Rs 1 billion. The bill to comply with these are estimated at anywhere between Rs 15 billion and Rs 30 billion. 

The past catches up, finally

The source of the troubles is the brown-label ATM firms’ bid for the rate-per-transaction, when North Block floated a tender for 63,000 ATMs in 2012. AGS Transact, Prizm (now Hitachi), FIS, Mphasis, Electronic Payment Systems, and Tata Communications Payment Solutions’ bids ranged from Rs 7.00-12.10 per transaction. These were out of whack with the costs involved, but nobody wants to talk on record on this aspect.

“D K Mittal as secretary (financial services) was driving it, and then he moved on. 

And we had certain understandings. That ATMs (new ones under the brown-label tender) of state-run banks would be deployed through us, as well as their existing ATMs. That additional piece was never contracted, but people looked at the overall market and bid aggressively,” pointed out the CEO of an ATM company. 

The mess become bigger when the Reserve Bank of India (RBI) came up with its white-label policy given that a lot of banks were not willing to go deep into rural areas. The interchange was then Rs 18, but it went down to Rs 15 and impacted the whole business model, he adds.  

The cry to hike the inter-change fee to Rs 18 is also symptomatic of banks inability to view the ATMs as nothing more than a cash-vending machine. 

“Let me say the industry for ATMs and banks is cash and dash. Basically, banks want you to go to the ATM, withdraw cash and go away. They don’t want customers to engage highly with the ATM and offer more services. Today, there are about 20 types of transactions on offer at ATMs, but how many use them? So, the bulk of the money, the revenue model for the ATM deployed is the inter-change fee,” said an industry source. 

A new radical demand is also doing the rounds – can cash-in-transit be treated as part of the cash reserve ratio (CRR) balances held by banks? It’s gained currency with the cassette-swap mode of cash loading in ATMs – you will know exactly how much is being moved around on an almost real-time basis in a very secure manner. 

Said Ravi B Goyal, chairman and managing director, AGS Transact Technologies: “Treating cash in ATM vaults as a part of CRR will have a direct impact on the day-to-day life of end consumers. Banks may become more forthcoming in issuing cash to ATMs; thereby increasing cash supply to MSPs.” He feels the cash being issued by banks for ATMs can go up by 20-25 per cent. Mint Road is unlikely to budge on this request.

As for the clamour for a subsidy, it’s almost forgotten that earlier in February, Mint Road had scrapped the subsidies given to banks to install ATMs and cash-recyclers as part of its efforts to push digital transactions. The subsidy was 50 per cent of the actual cost of the machine or Rs 200,000 (whichever is lower) for urban centres; for rural India, it was 60 per cent or Rs 250,000.

What’s clear is, the pins are down are down at ATMs.

Whose cash is it anyway?
 

• The entire ecosystem — managed service providers (MSPs), cash-in-transit (CIT) firms, ATM vendors and private equity firms – is caught in a bind
• Clamour for “infrastructure” status for the industry grows, with subsidies being brought back
• Too many bodies —Confederation of ATM Industry, Currency Cycle Association, Payments Council of India – are in the fray
• Treating cash-in-transit with the coming of cassette-swap as part of CRR being seen as a way out