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BW Businessworld

'We're Here For The Long Haul'

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ATMs (Automated Teller Machines) have been around in India since 1987 and today there are more than 1.5 lakh ATMs across the country with a few hundred being added every month. Initially, banks were permitted to put up ATMs on their own premises. Then they were allowed to expand and operate standalone ATMs. When banks realised that managing them was a specialised activity, they outsourced their management and thus brown label ATMs were born. These were still owned by the banks but they would pay a fee to an agency or a company to maintain and run them.

In February 2012, RBI announced guidelines to operate white label ATMs but it took nearly two years for the entire process to become operational on ground. White label ATMs are owned, maintained and operated by approved companies. They in turn get a set fee for each transaction made depending upon its type. While 19 initially applied for licence, only seven of the players got licence and became operational. Among the seven companies operating white label ATMs is one promoted by Banktech which manages ATMs and point of sale (PoS) terminals in Australia. Tata Communications, Muthoot Finance, Prizm Payments (now owned by Hitachi), Vakrangee Ltd,  SREI Infra and Ridhhi Siddhi Bullion are the other players.

Banktech has been operational in Australia since 1991 but entered India only in 2006 through a subsidiary called BTI Payments in which ICICI Venture picked up a minority stake in Novemeber 2013 with an investment of Rs 140 crore. In the last two months, BTI has already rolled out about 100 ATMs. K Srinivas, the CEO and MD of BTI Payments, spoke about the opportunities and challenges in the white label ATM business to Venkatesha Babu of  Businessworld.

Edited Excerpts:

Is running white label ATMs a lucrative opportunity?
India today has 150,000 ATMs across the country. A few years back there was big momentum, when ministry of finance came up with the tender to put up with ATMs for public sector banks.  However a lot of ATM operators went over-board in bidding for these tenders with private operators quoting interchange cost as low as Rs 7-8. No one looked at the long-term viability. Barring the operator who ran ATMs for SBI, all the other players are bleeding having contracted it with stringent guidelines. SBI was manageable because the customer base is higher and consequently number of transactions was also more.

Banktech group having run ATM’s and PoS in Australia for 20 years understands the long term nature of the white label ATM business. While BTI came to India in 2006 and ran some brown label ATM’s, white label ones were not possible as guidelines were still being discussed and formulated. We ran brown label ATMs on select basis. We did 1000 ATM’s for southern Banks like Federal bank, City Union Bank and Catholic Syrian Bank. We did not aggressively roll out brown label ATM’s. Even when the public sector tender came up, consicouly BTI stepped back.

A White Label operator cannot also be a brown label one. There is an inherit conflict of interest.  We chose White label model as we believe it is far more robust. So when RBI awarded licenses we were in the first list of in-principle license.

Tell us about the different types of models to run ATMs?
Initially, RBI first allowed banks to set up ATMs only in the branches. Second was to set-up ATMs off-site. Third model was to get independent operators to run and not own ATMs.  Fourth was to make them put in capital expenditure. So effectively, the ATMs are owned by operators. One could opt to get paid based on the volume of transactions or opt for a fixed fee per transaction. BTI opted for fixed fee.
Over a period of time, banks started paying the operators on per transaction model. Brown Label operators are on per transaction model where the official interchange cost prescribed by RBI is Rs 15. For example, say a brown labeled operator runs ATM for Axis Bank, if a non-Axis customer uses this ATM, Axis bank gets Rs 15 interchanged from the card issuing bank. But they may not necessarily pass on that full amount to brown label operators. In case of white label operators, I don’t have to be dependent on any one bank. As a model, we believe that White label is the way to go. To ensure financial inclusion RBI came up with three different schemes. We opted to put one ATM in Tier I and II cities for every 3 ATM’s we install in rural areas with a committment that we will roll out at least 9,000 of them in the next three years. Some others like Tatas have opted for a different model.

Has there been friction on interchanges costs?
That’s an independent fight. Some states are asking for presence of security guards to be mandatory at each ATM. Security costs Rs 35,000-40,000 for 3 shifts a day and that is additional cost. Security is not RBI guideline but some states like Karnataka have mandated it post the Bangalore incident. Four to five states have this security mandate. RBI has asked us to follow local rules. Karnataka, Orissa, parts of Maharastra, parts of TN demand this while most of northen states are silent on that. If this becomes mandatory, interchange charges of Rs 15 per cash transaction and Rs 5 for non-cash will not make sense. This is true even for banks. Banks are raising some noise. RBI is very clear that directly the operators cannot charge the customer. They are studying recommendations by IBA which carry the major chunk of ATMs today.

What is the capital expenditure (capex) per ATM?
It depends on a number of factors but the average would be about Rs 4-5 lakh per ATM. Since BTI will do a minimum of 9000 ATMs in the next 3 years, our capex would be at least Rs 500 crore. We have spoken to Diebold and we are also talking to NCR (which manufacture ATM’s). Obviously we will work with two three vendors.

How many ATMs has BTI has rolled out?
We have been operational in the field for around 2 months, we have done about 100 ATMs. Tatas with their Indicash have had a headstart and have rolled out about 1,000 already. We are testing out different business models. For example, placing an ATM inside a kirana shop. Small town life revolves round a small little stretch of what constitutes high street. This small stretch may have one telecom shop, a kirana shop and a few others. Lots of consumers come to these areas. It is a win-win for the shop owner too as it drives traffic into the shop.

Running ATM is fairly process intensive operation. Every day we have to check how much cash is there, you have to fill up the cash, make sure machine is up and running.

Are those services are outsourced?
Cash filling is completely outsourced. Monitoring can also be potentially outsourced. Today any service is remotely serviced. Once we aquire some scale we will start doing it. In India context we are a start-up and we want to learn about monitoring.

BTI was earlier called Banktech India. We came in as early as 2006 to setting up White label ATMs. BTI is from Australia and into White label ATM and POS Terminals for 20 years. They saw market for white label ATMs in China and India. 49 per cent of our company is helped by ICICI Venture, which put money in Sep, 2013.

Regulatory requirement does not say white label ATMs cannot be run by a completely foreign entity, but BankTech never wanted to sit here and run this operation.  ICICI ventures being an Indian Private Equity company, has good understanding of the local market. One of the conditions that the two shareholders had was to bring in a professional management to set up and run this entire operation. That’s when I joined BTI having earlier with been with Bharati Airtel consumer division for 11 years and with Hindustan Lever for another 11 years. I have spent a lot of time in running service oriented offerings for consumers. This is more into B to C and not B to B Operation. I set my ATM up, so I need to give good enough reason for my customer to walk in to my shop compared to any other ATM. We have a good team is in place. We have named our ATMs as India 1 (India First) ATMs basically because we want to be identified in the general payments space and not merely ATMs.

Are there any restrcitions on how close multiple ATMs can be installed?
None at all. It’s a consumer service area and any operators can be put up anywhere the ATM. But out of my 9,000 ATMs, BTI has to put up  6,700 in Tier III & IV and even of that, 10 per cent have to be in Tier V and VI cities. Rest can be in Tier I and II cities.

What is the difference in operating between a Tier I city and say a Tier V city?
Biggest difference is rental. Rest like power, cost of filling cash is the same. Cost of filling cash is much cheaper in smaller towns. Rental you might be paying Rs 3,000 in Tier IV towns as compared to Tier I towns which will cost you around Rs 15,000. In terms of overall OPEX, smaller towns are lower therefore the break–even transaction volume also drops. But we are very enthusiastic and optimistic. RBI governor was talking about card-less transaction. If that becomes a reality, market will open up hugely. Today my target group would be anyone with a debit card. If tomorrow a card-less transaction is allowed, then my target will be someone who owns a mobile phone. This industry is to my mind what telecom was five years ago. Look at telecom. Five years ago, the penetration level was too small and it took 8-10 years for the telecom to grow to a level beyond everyone's imagination.

What is the number of transactions and footfall to your ATMs in Tier I& II as compared to Tier III & IV towns?
The number of transactions per ATM is not very different. The density of ATMs in a metro is much higher as compared to the density of smaller towns. In rural Gujarat, MP or Rajasthan, if someone has a debit card, he has to travel 20 kms to withdraw cash. Probably it costs Rs 20-30to go and come back. There is plenty of opportunity. We are not worried till we reach the an ATM population of 3.5 lakh.
USA is as cashless society where they have four times the number of ATMs in terms of density compared to India. We are not worried about opportunity. We are more focussing on getting the right location. So we are investing lot of time, money, effort & resources on the front end. Next is to focus on how to drive traffic into my location and generate visibility for my ATMs  quite like how you do it in FMCGs.

For me, distribution is not a problem, but to generate visibility for traffic is more important. We have the software to monitor whether the ATM is working and for alerting us when it needs troubleshooting. Visibility and getting the backend right are two areas in which we are largely focused on.

ATM is like having a computer, printer with connectivity. The value-add services that you can offer to your customer are several. All the stuff you can do with a mobile phone like booking a railway ticket, recharge your mobile, insurance payments etc can be done.

Right now only depositing cash in the ATMs is not permitted. Because we are non-banking entity, I am not allowed to handle cash. I have to have a sponsor bank. RBI is worried about two things- fake notes and money laundering. So white label operators need to have sponsor banks. The role of sponsor bank is to give cash to the operators whenever they need it. Also for card issuing banks, in case the cash does not get withdrawn but the account gets debited. So the card issuing bank will raise money from my sponsor bank. I pay some fee to sponsor bank per transaction. The issue gets sorted through sponsor bank. We have signed up with Federal Bank and ANZ as our sponsor banks. We are in the process of signing up with two others banks as sponsor banks.

We believe that the white label ATM business potential is immense and we are here for the long haul.

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