White-label ATMs are those operated by non-bank companies that can be used by any domestic debit, credit or prepaid cardholder to withdraw cash, make a balance inquiry, change the personal identification number or ask for mini statements. Photo: Pradeep Gaur/Mint
White-label ATMs are those operated by non-bank companies that can be used by any domestic debit, credit or prepaid cardholder to withdraw cash, make a balance inquiry, change the personal identification number or ask for mini statements. Photo: Pradeep Gaur/Mint

FDI for white-label ATMs may aid Jan Dhan Yojana, but hurdles remain

Experts say that given the hurdles that have plagued the growth of the WLA segment, it remains to be seen if there will be any significant traction

New Delhi: In order to boost a space that has grown at a snail’s pace, the government on Wednesday approved 100% foreign direct investment (FDI) under the automatic route for non-bank entities that operate cash machines, subject to certain conditions. Wednesday’s move, the government said, will help improve financial inclusion in the country.

“FDI will definitely help to improve the funding of the capital-intensive WLA (white-label automatic teller machine) infrastructure business. We are seeing this as a boost to the WLA business due to more long-term funds flowing to this business," said George Alexander Muthoot, managing director, Muthoot Group, which operates such teller machines.

Industry experts, however, believe that given the hurdles that have plagued the growth of the WLA segment, it remains to be seen if there will be any significant traction. “The underlying business model does not change fundamentally. Will they find cash management facilities and support is a question," said Vijay Mani, senior director, Deloitte in India.

White-label ATM operators need a sponsor bank to operate the machines. According to Reserve Bank of India (RBI) rules, these sponsor banks will be liable to settle transactions and maintain cash at these ATMs. Maintenance and servicing will be the white-label ATM operator’s job.

White-label ATMs are those operated by non-bank companies that can be used by any domestic debit, credit or prepaid cardholder to withdraw cash, make a balance inquiry, change the personal identification number or ask for mini statements. Charges for customers remain the same as those levied by a card-issuing bank.

Among the licence holders are Tata Communications Payment Solutions, Prizm Payment Services Pvt. Ltd, Muthoot Finance Ltd, Vakrangee Ltd, BTI Payments Pvt. Ltd, Srei Infrastructure Finance Ltd, and RiddiSiddhi Bullions Ltd.

Not everyone has been able to make meaningful rollout because the business model remains a challenge and making a profit is tough. Interchange fees are too low to compensate for costs, WLA operators say.

“Apart from Tata with around 5,000 ATMs, BTI with 2,000 and Prizm with 1,000, rest have all failed to show results," said Navroze Dastur, managing director (financial services), NCR Corp. India Pvt. Ltd, which manufactures and manages ATMs in India.

The central bank first issued draft guidelines on WLAs on 14 February 2012, inviting comments and suggestions. In June 2012, it released the final guidelines allowing non-banking entities to set up WLAs. These guidelines aimed to increase the footprint of ATMs in semi-urban and rural areas, where ATM penetration is low. These entities have a mandate to deploy 67% of ATMs in rural locations (tier III-VI) and 33% in urban locations (tier I and II cities).

Dastur believes that if more white-lable ATM operators come in, it will bring synergy for bank accounts opened under the Pradhan Mantri Jan Dhan Yojana (PMJDY).

“We are highly under-penetrated market with just 150 ATMs per million of population compared with China’s 350. There is enough room for growth in tier III, IV and V areas which are underserved," added Dastur.

The government in a 4 September statement said, “Now the focus of PMJDY has moved from account opening to the provision of cash-out facilities at an approachable distance to reap the real benefits of PMJDY. There has been mobilization of more than 22,000 crore in these bank accounts."

The move to allow FDI in WLA companies complements this stand of the government.

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