Chennai: In January, when the State Bank of India (SBI) brought its 100,000th village under its gargantuan banking umbrella, it chose Sannyasidanga, a village that lies, not without coincidence, near Jangipur, finance minister Pranab Mukherjee’s parliamentary seat. Mukherjee agreed to inaugurate not only SBI’s customer service point in Sannyasidanga, but also a new ATM in a village named Barala nearby.
A week before the big day, however, parts of the plan started to fray. “They discovered that the lanes in the village were too small for conventional ATMs, and there was no three-phrase power anywhere in the vicinity,” says L. Kannan, founder and chief technology officer (CTO) of Vortex Engineering Pvt. Ltd. “So an emergency call was placed to my CEO (chief executive officer) to ship one of our rural ATMs there double quick.”
An hour before Mukherjee arrived, Kannan goes on, “there was a complete power cut. Fortunately we had a four-hour power backup, so the inauguration could go ahead as planned”.
This chain of events appears almost to have been scripted to illustrate the reason for Vortex’s existence, and that doesn’t escape Kannan. He doesn’t spell it out explicitly, but he pauses to let the significance of the incident sink in. The pitfalls surrounding this particular ATM are really the pitfalls surrounding all ATMs in rural India, and also surrounding the mission of rural banking—of bringing more of India’s vast, scattered populace under the umbrella of organized financial services.
Vortex CEO Vijay Babu (left) and L. Kannan, founder and CTO. Hemant Mishra/Mint
Vortex’s ATM, engineered to be a low-cost, low-maintenance device, has not been in the market long, but it has already accumulated a stack of plaudits. Earlier this year, Vortex was one of the 12 finalists for the Wall Street Journal’s Asian Innovation Awards. (Mint has an exclusive content partnership with the Wall Street Journal.) In September, Time magazine named Vortex one of the “10 Start-Ups That Will Change Your Life”.
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Kannan studied mechanical engineering at the Indian Institute of Technology, Madras (IIT-M), but his career began in a decidedly un-IITian way. Following his interest in textiles and artisanal weaving, Kannan started to design, in 1998, technology to help artisans convert their cotton into yarn. “It wasn’t a terribly original thought. After all, Gandhi thought of the same thing,” he says. “But somehow the charkha stuck only as a symbol and it wasn’t really followed up.”
To further develop this technology, Kannan founded Vortex in 2001. Three years later, however, Vortex found itself starting down a different part, when Kannan participated in an IIT project that was exploring how communication devices could deliver financial services. In 2004, 80% of rural India remained outside the coverage of traditional banks, and the Reserve Bank of India (RBI) estimates that “informal” rural borrowing forms an $80 billion (Rs3.63 trillion today) market.
“Initially, IIT tried using Internet kiosks as points of sale for insurance or loans, but it wasn’t very scalable,” Kannan says. As a corollary experiment, however, the team had installed a couple of ATMs in villages near Madurai, only to find that they were heavily and easily used; the supposed technology gap was either non-existent or easily vaulted. The sole problem, in fact, was the cost, and realizing that, the head of the IIT project, a professor named Ashok Jhunjhunwala, sought Kannan out.
“Can you build me a cheap ATM?” Kannan recalls Jhunjhunwala asking him. “For around Rs1 lakh?”
Kannan thought Rs1 lakh was plenty for a machine that just counted notes and dispensed them. “Why?” he asked Jhunjhunwala. “How much does it cost in the market now?”
“At least Rs8 lakh,” Jhunjhunwala replied.
For the next three months, Kannan and his colleagues cut paper into currency-sized slips and counted them endlessly, “to understand how to pick notes one by one”. A first, hand-cranked model sprayed notes at uneven angles. A currency dispenser hooked up to a personal computer (PC) worked better, but the PC had to be secure— not always a given in rural Internet booths. The ATM also had to plug into a larger network, which the PC dispenser couldn’t do. “We couldn’t exactly rework the entire ecosystem,” Kannan says.
In 2007, Kannan started from scratch, and his engineers came up with the prototype of the rural ATM that Vortex sells today. Its most basic model costs—as Jhunjhunwala had desired—less than Rs1 lakh, and none of the models consumes more than 20% of the power that conventional ATMs require. They don’t need to sit in air-conditioned cabins, and they don’t need three-phase power. Even their appearance, with their rugged shells and their workman-like biometric keypads, suggests the hardiness of village life.
The Gramateller, as Vortex’s ATM is known, inverts many long-established — and blindly accepted, Kannan argues— principles of ATM design. In older ATMs, cash often has to be transported upwards, from the level of the floor to the dispensing slot; Vortex patented a gravity-assisted friction pick that allows money to fall towards the slot instead. Kannan’s team also eliminated the two full-fledged PCs that run perennially within every ATM—one as an interface for the customer and one for the bank employee who loads the ATM with cash.
“Then, unbelievably, every ATM has an A4 printer in there, doing a sort of ball-by-ball commentary of every single transaction. Even if you just put your card in, decide you don’t want to do anything, and cancel the transaction, that is recorded on paper,” Kannan says. “We got rid of that. We record the data electronically, so that it can just be pulled by the bank remotely.”
The ATM’s rural environment posed other challenges. The Gramateller has capacious reserves of power backups, and one model is solar-powered. It uses Wireless in Local Loop for connectivity, instead of relying on physical communication cables that are expensive to lay and to repair. Oddly, the ATMs also had to be adept at dealing with soiled notes. “We found, in villages, that people trust used notes much more than they trust crisp new ones,” Kannan says.
Thus far, Vortex has subsisted largely on funding—a total of roughly $6 million till date— from venture capitalists and investors such as Venture East, Aavishkar and Bamboo Finance. Its first, and so far only, commercial order—for 600 ATMs—came from SBI last year.
“So far only a small number…of these ATMs have been operationalized,” said R.K. Saraf, chief general manager of information technology at SBI, in an email. He went on to write, however, that “at this stage, it would be rather premature to comment on the benefits or contribution of these ATMs in our financial inclusion agenda“.
“People think that cutting the cost of a product means taking what’s already there, snipping here, snipping there—and maybe that works sometimes,” Kannan says. “But if you want a drastically different price point, you need to do it differently. Our lack of ATM experience kept me away from established wisdom. For a long time, in fact, I even stayed away from seeing how an ATM functions. We tried to do it as if we were the first people to build an ATM. That was why it worked.”