SBI inks ATM outsourcing deal with Tata Communications, C-Edge

India’s largest lender State Bank of India (SBI) has entered into an agreement with telecom firm Tata Communications Ltd and C-Edge for the roll-out and management of 500 ATMs.

As part of the outsourcing arrangement, the two firms will install ATMs and operate them for SBI, for which they will be paid on a per-transaction basis.

“The arrangement has significant advantages for us since we will not incur any capital expenditure on the installation of ATMs. We will also be free of the hassle of managing the day-to-day functions of the ATMs,” said RP Sinha, deputy managing director of SBI. He added that the outsourcing arrangement would help the bank achieve its ATM deployment targets. The public sector lender currently has 12,250 ATMs and is aiming to double the number to 25,000 by March 2010.

The bank’s ATM switch network will continue to be managed in-house.

Last year, SBI outsourced the roll-out and maintenance of its ATMs on a pilot basis to C-Edge, a joint venture between SBI and Tata Consultancy Services.

Traditionally, most ATM outsourcing deals were based on a monthly lease rental model, but more banks are now looking to adopt the pay-per-transaction model. Last month, Business Standard reported that India’s third largest private sector lender, Axis Bank, was planning to outsource the roll-out of ATMs and adopt a pay-per-transaction model. Some banks with smaller ATM networks, such as YES BANK, also use a pay-per-transaction model. A senior executive from a private sector bank said the advantage of such a model is that there are no fixed costs and banks only pay depending on the number of transactions that are processed.

Since April 1, customers are free to use ATMs of any bank without incurring a charge, according to Reserve Bank of India (RBI) guidelines. The acquiring bank, whose ATM is used for a transaction, will have to be paid an interchange fee by the customers’ bank.

Banks with larger ATM networks treat inter-change fee as an important stream of revenue and expect to benefit from the April 1 rule, which they say will prompt more customers to use their ATMs. Although figures are not available, banks say they saw a significant rise in the number of interchange ATM transactions in April.