How ATMs are amping up tech power, innovation to serve as mini banks

Picture this. In a remote Tamil Nadu village, a man walks briskly, stopping occasionally to ask a passing local something. One person points him to a fuel station. With an expression of disbelief, he approaches it and tells an attendant what he needs. He is pleasantly surprised when she takes his debit card, processes it in a hand-held swipe machine, and gives him the cash he had asked for.
 
A silent revolution is playing out in the field of banking transactions in India. In the last 12 months, the Reserve Bank of India (RBI) has brought in nearly 10 new regulations to make ATM transactions easier and safer — and that includes widening the access to micro ATMs such as the one mentioned above.

 
This is also in keeping with the recommendations of an RBI committee on digital payments headed by Nandan Nilekani. The committee suggested that the functions performed by ATMs, which depend on some of the most complex technologies, should be enhanced. From being mere cash dispensing machines, ATMs should support a host of banking facilities such as cash deposit, bills payment and funds transfer, customer support and grievance reporting, among others, so they can serve as complete ‘digital facilitation points’.
 

To address this goal, solution providers have been developing a number of new technologies, which are based on chip, data analytics, remote teller and so on. As a result, ATMs can now perform around 95 per cent of the activities which were traditionally done by bank branches, and that, too, 24X7. This not only enhances customer experience, but also makes transactions more secure.

 
For example, Chennai-based Financial Software and Systems (FSS), which provides solutions in ATM services, mobile payments and merchant payments, has developed a debit card reconciliation system. This is now being used by many major banks. Recently, the RBI has issued several guidelines on the settlement of customer disputes. While this has to be done within three days, excluding the date of the transaction, efforts are on to ensure real-time settlement.
 
FSS has also come up with micro ATMs to widen the access to ATMs, of vital importance in a country like India, which continues to be mostly cash-driven.

 
“Earlier, cash withdrawal through micro ATM deployment was not adapted since reconciliation and settlement process to the business correspondent (BC) took more than five days,” says V Balasubramanian, president-merchant and terminal business at FSS. Thus, BCs were running out of cash to disburse to customers. The new reconciliation process facilitates real-time settlements to BC accounts, he adds.
 
From 16 million transactions valued at around ~1,923 crore in FY 2017, transactions through micro ATMs in FY19 touched 254 million, valued at about ~6,780 crore. Currently, there are nearly 300,000 micro ATM across the country.
 
Cash Recycling Machines (CRM) are another recent innovation in the ATM industry.  Since they  perform the dual function of dispensing cash as well as accepting it (with instant credit for deposits), CRMs are a big boost in customer convenience. It also enables the reliable counting of cash and detection of counterfeit notes.

 
According to Rustom Irani, managing director at Hitachi Payment Services, given the customer demand for the DIY (do-it-yourself) model when it comes to banking, CRMs may soon become an essential constituent of the self-service channel of banks and financial institutions. In fact, more and more banks are now opting for CRMs when replacing their old ATMs for their convenience, cost advantage and operational efficiency.
 
White Label ATM (WLA) is another solution which serves as a banking touch-point in remote areas, thus contributing to greater financial inclusion. These are ATMs set up, owned and operated by non-banks (authorised by RBI under the Payment & Settlement Systems Act, 2007).

 
At just 18 ATMs per lakh of population, ATM penetration in India is very low. With the government’s financial inclusion programmes such as Jhan Dhan Yojana and other Direct Benefit Transfer (DBT) schemes, more ATMs are required in rural locations and WLAs serve that goal.
 
The RBI has recently allowed the deployment of CRMs at WLA sites. A few banks are already live on the inter-operable cash deposit network, which allows cardholders of participating banks to not only withdraw cash from an ATM belonging to a bank other than their own, but also to deposit cash in their  own account or a third party account.

 
To address the issues of safety and prevention of fraud, the RBI has mandated that ATMs  need to be EMV compliant. EMV is a technical standard for smart payment cards, which originally stood for “Europay, Mastercard, and Visa” — the three companies which created the standard. Cards with EMV chips are more secure than magnetic strip cards as it is difficult to clone/extract data from the chip.
 
What’s more, ATMs and CRMs are now adopting biometric identifiers like fingerprint readers, enabling card-less usage. They are also introducing OTP-based ATM withdrawals (above a certain limit) to further ensure the safety of transactions.

 
According to a white paper by Infosys, the other technologies being used to make  ATMs smarter include ATM-mobile integration, Near Field Communication (NFC) or QR codes. These technologies not only provide a better banking experience for smartphone users at ATMs, but are also mitigate fraud techniques such as card skimming and card trapping.
 
ATM-mobile integration allows facilities such as card-less ATM access, faster completion of transactions and many more. Again, by leveraging big data and analytics, banks are able to forecast customers’ preferences and behaviour, which translates to demand forecasting and better cash management.
 
“ATM technology is constantly evolving, providing safer and personalised offerings. The challenge lies in upgrading the technology in existing machines, considering the country’s wide geography,” adds Irani of Hitachi Payment Services.

 
Interactive teller machines
 
As personalisation becomes the buzzword in customer-oriented sectors, banks and financial institutions are looking at Interactive Teller Machines (ITMs), which perform functions that range from the simplest — dispensing cash — to the more complex ones such as offering personalised banking through remote tellers.
 
IITMs allow customers to have a real-time communication with a remote teller, generally located in a call centre, and perform some of the transactions that are usually carried out at branches. This solution is ideal for financial institutions looking to expand their footprint in areas where branch presence is minimal.

 
“Banks should not look at these (solutions) as a cost increase,” says Balasubramanian of FSS. “They should view these as something which are vital for instilling confidence among customers, retaining them, and attracting more customers to the banking system.”
 
Experts stress that the need to innovate cannot be over-emphasised. As Vittal Raj, founder and senior partner at Kumar & Raj, and an expert on cybersecurity and business technology, points out, “There is a need to innovate while taking cues from the global ATM industry. Custom operating systems, cash recyclers, interactive, voice driven ATMs powered by NLP,  a closely knit, stakeholder interest focused supply chain, AI-driven predictive fraud prevention, proactive security response flows based on real-time analytics are just some measures that stand out as building blocks in taking this new direction.”