'FDI welcome, but challenges remain for white-label ATMs'

The government's decision to allow 100 percent foreign direct investment (FDI) under the automatic route for white-label ATM companies is a welcome move but the business is a challenging one and needs cheap funds, said a top official of Financial Software and Systems Pvt. Ltd. (FSS).

City-based payment technology leader FSS is also a brown-label automatic teller machine (ATM) player that owns and runs ATMs on behalf of a bank.

White-label ATM operators are non-bank companies who own and run ATMs as a business. Their revenue is mainly from inter-change fee and advertisements.

"The government's move has made me think differently now. I can now look at tying up with private equity funds and foreign white-label ATM operator," Nagaraj V. Mylandla, managing director, FSS, told IANS in an interview late Wednesday.

He said the approach could be sharing the ATMs with multiple banks.

FSS has been mulling to get into the white-label ATM business for sometime but the ground level business dynamics has been preventing the company from venturing into it.

The company manages over 25,000 ATMs for over 22 leading public and private banks across India. FSS also owns over 10,000 ATMs that are deployed for various banks.

On Wednesday, in order to increase the penetration of ATMs across the country and enable financial inclusion, the cabinet, at a meeting chaired by Prime Minister Narendra Modi, approved 100 percent FDI under automatic route for white-label ATM companies.

The 100 percent FDI under the automatic route is subject to the condition that any non-bank entity planning to set up white-label ATM should have a minimum net worth of Rs.100 crore, maintainable at all times.

In the case of entities operating in any other 18 non-banking finance companies (NBFC) activities, foreign investment in white-label ATMs should comply with the sectoral minimum capitalisation norms.

Currently, foreign investment in white-label ATM companies is allowed under the approval route which took time for necessary approvals.

According to the government, the decision to ease the FDI norms is mainly to increase the financial inclusion in the country with the expansion of ATM networks across the country.

The government is leveraging the ATM network to deliver various banking services.

While there has been a growth of ATM networks owned by banks, they are set up in tier I and II cities.

According to Mylandla, white-label ATM is a long-term business and the current players are not making money.

"Bank account holders are reluctant to transact in white-label ATMs as they do not sport any bank name that gives a comfort factor," he said.

Mylandla said each ATM machine should have anything between 70-100 transactions per day to be viable, but that is not happening at many places, even in cities.

He said it would cost around Rs.400,000 to Rs.700,000 to set up an ATM centre, including rental, security, machine cost and others.

"In many places ATMs are stolen and white-label ATM players have to contend with the problem. Nationalised banks with huge ATM networks are not impacted with the theft of one ATM, but for non-bank players, loss of even one machine will have major impact," he added.

He said only Reserve Bank of India and the government are pushing for white-label ATMs whereas banks are not talking about it.

For banks with ATM network of around 7,000 machines, outsourcing the activity makes sense. But when the number goes beyond that, banks tend to manage the network on their own.

As per the National Payments Corporation of India Ltd's website, there are seven white-label ATM players in the country that are operating 10,133 ATMs as of August 2015.

The total number of ATMs in National Financial Switch (NFS) are 2,07,919, says the NPCI.

(Venkatachari Jagannathan can be contacted at v.jagannathan@ians.in)