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The RBI, which issued guidelines for this business in June 2012, has authorized eight companies to set up White Label ATMs. Photo: Indranil Bhoumik/Mint
The RBI, which issued guidelines for this business in June 2012, has authorized eight companies to set up White Label ATMs. Photo: Indranil Bhoumik/Mint

White Label ATMs struggle to stay afloat

Low fees and limits on free cash withdrawals render the non-bank ATMs business model unviable

Mumbai: More than a year after the Reserve Bank of India (RBI) issued the first permit for White Label ATMs (WLAs), the business is struggling to stay afloat as low fees and limits on free cash withdrawals render the business model unviable.

WLAs are non-bank ATMs operated by private companies.

Customers of any bank can use these machines to access their accounts for a fee.

The central bank which issued guidelines for this business in June 2012, has authorized eight companies to set up WLAs.

According to data available on the National Payments Corp. of India (NCPI) website, these companies have collectively opened 7,100 ATMs until February 2015.

Loney Antony, managing director, Prizm Payment Services Pvt. Ltd which was among the first four companies cleared by the RBI in February 2014, said his firm shut around 300 ATMs in the last few months as footfalls were not enough to make these sites viable. Prizm is an arm of Japan’s Hitachi Ltd.

“The transactions at WLAs are not great and this business is not as viable as we initially thought. Interchange fees are lower but more importantly, new restrictions by banks on ATM usage have made some of the sites unviable," Antony said.

Interchange fees are charges that a card issuing bank pays to another bank whose ATM its customer uses. These charges were cut to 15 for a cash withdrawal from 18 previously and 5 for balance inquiry from 8 earlier. To be sure, interchange fees were cut in 2012, before WLAs came up.

Additionally, effective November 2014, RBI allowed banks to reduce the number of free transactions they offer on ATMs other than their own from five to three in metro cities. It also said that banks can charge their own customers beyond five free ATM transactions a month.

Prizm had 1,017 active ATMs as of February 2015, down from around 1,300 in November 2014.

Srei Infrastructure Finance Ltd, which received RBI authorization in May 2014, has not opened any ATMs yet.

“We had expected that it will take 90-100 transactions per day to break even, but the increase in expenses like putting a guard at ATMs has doubled the costs for us. We are working on a low-cost model of ATMs and hope the advent of new payment banks will give this business a push," said Nitin Chittal, senior vice-president (SVP) and head of ATMs and Payments at Srei.

The RBI had given companies three options: In the first option, which most companies chose, 9,000 WLAs had to be opened within 3 years with 1,000 WLAs to be opened in the first year.

Raha Payment Solutions Pvt. Ltd, (RPSL) an arm of RiddhiSiddhi Bullions Ltd, which received authorization in May 2014 chose the second option that required a minimum of 25,000 WLAs in the first year and at least another 25,000 in the next two years equally spread between rural and urban areas.

Abhishek Bafna, director at RPSL, admitted that his firm will not achieve its first year target. RPSL had 54 ATMs as of February and will increase it to 100 by the end of March.

Bafna said the central bank may have to step in to ensure the viability of WLAs. “Banks are now allowed to charge customers 20 for using another bank’s ATMs but for WLAs, the interchange fees is only 15. This has to change. I don’t think RBI will penalize companies for not achieving their targets. They have to support us if the WLA model has to become successful," he said.

Shinjini Kumar, executive director and leader (banking and capital markets) at audit and consultancy firm PwC said WLA companies are totally dependent on footfalls. “These companies had bid aggressively for the licence in the hope that the ecosystem would consolidate, transaction volumes would increase and the policy environment would support their proliferation. They could also earn revenue through third party advertising, but even that is linked to footfalls," Kumar said. But Kumar said things can change for these firms if payments banks and small banks decide to follow collaborative strategies.

Tata Communications Payment Solutions Ltd (TCPSL) an arm of Tata group, has the largest number of WLAs in operation with 4,634 machines, followed by Bengaluru-based BTI Payments India Pvt. Ltd which had 1,172 active machines as of February 2015, according to the NPCI website.

Sanjeev Patel, chief executive at TCPSL declined to answer questions on the company’s progress and future plans.

BTI, which operates ATMs under the India1 brand name, said it plans to open a total of 1,300 ATMs by the end of March, higher than RBI’s first year target of 1,000 ATMs and plans to further increase to 4,000 machines by March 2016.

In an email response, K. Srinivas, MD and CEO, BTI Payments said new schemes introduced by the government like the Pradhan Mantri Jan Dhan Yojana will help increase the debit card base in rural areas and ensure increased usage of the company’s ATMs. He added the company’s growth was constrained more by logistical issues.

“We are constrained by the availability of cash as banks have been cautious in their willingness to be sponsor bank and provide cash in the district head quarter and the semi-urban branches. Apart from this, availability of power in rural markets increases the energy cost," Srinivas said.

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