Pradeep Gaur/Mint
Pradeep Gaur/Mint

Alternative revenues may make white-label ATMs viable

Sanjeev Patel of Tata Communications Payment Solutions white-label ATMs and its journey so far

The story of white-label automated teller machines (ATMs) in India started in February 2012, when the Reserve Bank of India (RBI) issued draft guidelines inviting comments. The final guidelines came out in June the same year. But it was only a year later, in June 2013, that Tata Communications Payment Solutions Ltd (TCPSL) launched the first white-label ATM in India. The roll-out till now has arguably been slow for various reasons. Sanjeev Patel, chief executive officer, TCPSL—which rolled out its 1,000th white-label ATM on 24 March in Bhondsi, Haryana—talks about the journey so far, hurdles faced, future possibilities and the business case required.

How has the journey been since the first white-label ATM was rolled out in June 2013?

We are one of the bigger names when it comes to managed ATM services as we manage ATM networks for a lot of banks already. Along with many other companies, we had applied for white-label ATM licence when RBI allowed private-label operators to put up ATMs without any linkages to banks. We were the first to get a full-fledged licence. We launched our first white-label ATM in Chandrapada, a small town in Maharashtra, in June 2013. In the nine months since then, we have put up 1,000 ATMs in around 650 towns and villages. The difference between this and normal deployment from banks would be the number of ATMs that need to be put in rural locations—the 1:2 licence means that for every two ATMs put in tier III-VI locations, one ATM is allowed in an urban location. So, it is tilted towards locations that ordinarily did not have ATMs before.

In smaller locations, getting sites is a problem. In urban locations it is easier to find shops to put an ATM in and run them as well. In tiny locations we had to experiment with different formats, mostly for the first time.

Even a lot of sourcing in the smaller locations had to be done by our staff as there were no brokers available. The installation process, again, is more difficult because everything—refilling cash, managing connectivity, etc.—has to be managed by us. We have learnt a lot through the process.

Many companies had applied for the licences, and many got them as well. But only three have rolled out services till now. Why is that?

It depends on the company’s long-term perspective. This is not a short-term business, especially since it has to do with financial inclusion. One needs to have the willingness and the foundation to help in the process of development. There is a certain lead to profitability required for such a business. It’s not for someone who is looking at quick returns and not willing to go through the whole process. We look at it from a very long-term perspective and we are willing to learn along the way.

Has the the business been profitable for you yet?

The overall business is approaching profitability. We operate with different models and the white-label ATMs is a relatively low-cost model because of the locations we operate in and the formats we use. The only problem is that there aren’t enough ATM cardholders in these areas. But what we have found that if the locations are good (where there are transactions)—which requires a lot of thinking as against just carpet-bombing areas—it works well because the whole revenue model is linked to transactions. Over and above that, RBI allows opportunities such as advertisement or other value-added services at these ATMs. So, we have already started working on those, and these will form alternative revenue streams. One has to be willing to put in the investment and let it grow.

Were there any regulatory hurdles on the way?

RBI is quite positive about ensuring that people find it easy. What happens is that the conditions that exist require one to be technically very sound as you are audited by an external party, and you need to have the confidence of a sponsor bank who is going to supply cash. So, one needs credibility and sound technical knowledge to run this business.

Do you think cost of operation and realization is a problem?

There are discussions again to bring that back to 18 per transaction from 15 (what the ATM operator will charge the bank whose card is used for withdrawals). The industry needs to be viable for people to be willing to put up ATMs. There is no doubt that there is a need to look at interchange to ensure that it is worthwhile to invest in such locations. But again, people need to look at it as a longer-term business. It is not going to take off suddenly.

Is branding an issue because white-label ATM operators are not known as banks?

The word ATM is largely known nowadays and what we also do is put up information such as “all bank cards are accepted here", the free transactions, and so on. We make it very clear what a user can do out there. Usually, word of mouth in these places is really strong. For us what has also worked is that the strong “Tata" brand. We do not find problems in transactions if we have selected the right location.

The concept of white-label ATMs is quite prevalent in advanced countries but not here. Is this likely to change?

As long as everything else works well, when it comes to transactions and revenue viability, it is bound to happen in India too. It is a logistics and operations business and not a banking business. Other than banks providing cash, it is purely the management of remote locations. So, what are the kind of companies that will be able to do this? Answer is: companies that do this for a living. Even today, it is not the banks who manage ATMs; it is outsourced to other companies. So, organically, it will move towards white-label ATMs as the economics becomes more viable for everybody.

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