Sorry, network out of order! How the ATM ecosystem landed in quicksand

A sliver of hope is if the RBI were to buy the plea that the inter-charge should not be looked at as a floor for customer-facing pricing even when hiked

Mull on these numbers: On November 8, 2016, there were 240,000 ATMs in the country. At the end of September 2018, the figure is much the same at 239,321.

You need to be brave to be in the till-box business: whether you are banks, brown- and white-label deployers, ATM vendors, or cash logistics companies (CLC) —all are in disarray. Every actor in this cast has muffed up the lines and the roles they were to play. “I concede it’s a divided house. Everybody has their own agenda”, said Loney Antony, managing director of Hitachi Payment Services and co-chairman of the Payments Council of India.

The flat run-rate in the ATM base is due to the poor financial viability of running the channel. Bigger deployers such as HDFC Bank, Axis Bank, and ICICI Bank find the inter-change fee of Rs 15 per transaction (when customers of other banks swipe their cards) low. Brown- and white-label players got their business models wrong and bid out-of-whack for both the rate-per-transaction (RPT) and at Mint Road’s white-label ATM roll-out scheme in 2014.  

The latest hurdle is the norm for CLCs which stipulate a net-worth of Rs 1 billion to bring them on a par with payment banks which they can’t comply with soon enough. Somewhere in between all of this, demonetisation erupted, further upsetting everybody’s books. 

The source of the industry mess can be traced to brown label firms’ bid for the RPT to be charged to banks. This happened when a tender for 63,000 ATMs was floated by North Block in 2012; ATMs were a key “cash-out” point in the direct-benefits-transfer part of the government’s wider financial inclusion plans. 

The RPT bids of AGS Transact, Prizm (now Hitachi), FIS, Mphasis, Electronic Payment Systems, and Tata Communications Payment Solutions’ ranged between Rs 7 and Rs 12.10. Now technically, the RPT is not the same as inter-change but that’s what you get to pocket for every swipe of the plastic.

“If inter-change at Rs  15 is seen as a sore point now (for white label firms and banks), how come some, in their brown label avatars, bid low on the RPT? It was suicidal,” points out Navroze Dastur, managing director of NCR (India) which has over a 50 per cent market share of the ATM market (for vendors). 

It’s unlikely he would have said so back then as the prospect of high ATM sales made everyone’s eyes pop out. The comeuppance is that it’s come back to bite vendors too.

NCR, Diebold-Nixdorf, Nautilus Hyosung, Lipi Data Systems,Vortex and GRG have to grin and bear poor sales in what was, until five years ago, touted as one of their biggest global markets. The forecasts provided by London-based Retail Banking Review, a strategic research and consulting firm, are out of line. The installed ATM base for 2018 was predicted to be 373,000; 339,000 in 2019; 373,000 in 2020; and 407,000 in 2021. Given that the September figure of just 239,321 ATMs in India, the predictions were off by a good 133,670 units. In fact, even the earlier estimate for 2017 (280,000 units) was also wrong by 40,000. 

  “I have stopped looking at the Retail Banking Review data,” said Anthony. Dastur concurs: “The red lights were flashing even then, but there was all round exuberance.” 

The exuberance has been replaced by red faces. If all this was not bad enough, the year after demonetisation saw banks focus on rewiring their ATMs and speeding up the usage of digital banking with the trade-offs involved with the branches as a channel.   

“Viability issues and new investments that banks and deployers need to make in order to comply with the new standards for new cash management and ATM security means more costs to an industry that was already under pressure,” notes Himanshu Pujara, managing director of Euronet Services. 

The Indian Banks’ Association has sent a letter to Mint Road that among CLCs only CMS, AGS, and Checkmate—currently have a net worth of Rs 1 billion and made the persuasive argument that the new requirement “can create a monopoly… if the timelines are not extended, it may affect ATM operations”.

The only sliver of hope is if the Reserve Bank were to buy the plea that the inter-charge should not be looked at as a “floor for customer-facing pricing” even when hiked. The plea seeks to make a distinction between wholesale pricing (among institutions) and what you and I are to cough up. It is unlikely to get a sympathetic ear given the anger towards what’s generally perceived to be high bank charges. 

For now, the ATM industry is out of cash.