Out of cash: How the ATM ecosystem continues to be mired in a quicksand

The demand for a hike in the interchange hides a bigger mess, reports Raghu Mohan

Your (automated teller machine) ATM withdrawal charges may have been waived for the next three months due to the COVID-19 crisis, but things could change significantly once things return to normalcy. And you may have to shell out Rs 18 every time you pull out cash from the ATM. A year, and more after the outcry over the low interchange at Rs 15, a confidential Mint Road review is said to have plumped for a hike of Rs 3 per swipe. It will not go far.

“Even if it (interchange) were to move up to Rs 18, it will only be a restoration to the level we were at a decade ago. Much has changed since,” says Ravi B Goyal, founder-chairman and managing director of AGS Transact Technologies.

ATM numbers at 240,000 units are way off the mark to the London-based Retail Banking Review’s forecast — the gold standard for the trade — of 400,000 ATMs by 2020. China has over a million ATMs. “I have stopped looking at RBR numbers,” quips Loney Antony, vice-chairman and non-executive director on the board of Hitachi Payments.
 

And you now have whispers that managed service providers (MSPs), and cash-in-transit (CIT) firms have quoted Rs 9,000 per ATM to a tender floated by State Bank of India (SBI) for the upkeep of 26,000 ATMs. This is Rs 4,000 lower than what was being sought by the trade all along; all eyes are now on the bidding pattern that’s set to unfold when HDFC Bank issues its tender down the line.

Just about every actor on the stage has muffed up the lines and the roles they were supposed to play. “It’s a divided house. Everybody has their own agenda,” concedes Antony.

 

 

Please try again!

Wrong codes were punched in by MSPs, CITs, ATM vendors as also the private equity (PE) firms backing this crowd. Mint Road’s exacting circulars of April 12 and June 21 of 2018, and June 12, 2019, plus another by the Ministry of Home Affairs (MHA) on 8 August 2018 came at the wrong time: soon after demonetisation when the industry had yet to fully digest the additional costs due to the recalibration of ATMs and the extra load of feeding cash.
 

“I was the one who evangelised the need for global standards,” says Suneel Aiyer, CEO of Writers Safeguard. His peers are most likely to remind him of the bill to comply with it: estimated to be anywhere between Rs 1,500 crore and Rs 3,000 crore per annum!

These new norms raised logistics costs: banks had to uninstall the Microsoft XP operating system in ATMs and upgrade them by June 2019; CIT firms were to go in for state-of-the art security systems when they carted cash and maintain a net-worth threshold of Rs 1 billion.

The industry, as on date, is in violation of all these prescriptions, and has still not attracted the banking regulator’s or the MHA’s ire. This is being read as a clear indicator that the authorities know it’s a huge mess.

“The bulk of the new ATM purchases were towards replacements during FY18 and FY19. We expect this trend to continue for some time alongside the new deployment of ATMs (at new locations). This is because hardware and software upgrades (which are a pre-requisite to compliance and security) outweigh the cost of the new machine itself,” says Mahesh Ramamoorthy, Managing Director (Banking Solutions) at FIS.

The Confederation of ATM Industry, and the Currency Cycler’s Association bat to protect their turfs; and the Payments Council of India is many things rolled into one. You also have the tussle between non-banks and banks on who picks the tab for the sundries: banks have cited the pressure on their bottom-lines, the bad-loan pile-up, et al. Query anyone on the crucial role that ATMs were to play in financial inclusion (they were to be a key cash-out point in direct-benefits-transfer scheme), and you will hear: “What’s that?”.

 

 

Only hard choices

“Every ATM has to be seen with its own P&L (profit and loss). If you have 150 transactions, then the current level of interchange is fine. If you need to accommodate the new security and MHA guidelines for CIT companies, then the current interchange is not enough to cover the cost. It must go up by at least a minimum of 25-30 per cent,” explains Navroze Dastur, managing director of NCR Corp (India). He adds: “It is like a shop. If the footfalls are below a certain level, then you close the shop.”

A way out of the logjam, according to Thyagarajan Seshadri, president (banking) at Electronic Payment and Services, is to deploy more cash recyclers. “Only about 30,000 units of the installed ATM base of 240,000 are recyclers. These can double up both as cash dispensers and acceptors (of deposits)”, he says. Recyclers are costlier at Rs 6 lakh a unit compared to the ubiquitous cash-dispensers priced closer to Rs 3.5 lakh. There is also a case for Mint Road to revisit its white-label ATM (WLATM) policy. “Operators are the worst hit. Banks tend to give WLATMs low priority over bank-owned ATMs. They are also challenged with low brand equity, hence receive lower footfalls, which further hurt their operations,” says Ramamoorthy.

The WLTAM policy was envisaged to let them do the heavy lifting work, and let banks focus on what’s core to them. “Frankly speaking, the WLATM model is better than the brown-label one. You are not dictated by any bank and get your settlement the next day. The only challenge being the cost of cash and the availability of cash to load the ATMs.”

For now, we are staring at a white elephant.