‘Cash supply stress, cost pressures hurting growth of white label ATMs’

Indian regulators need to take cognisance of cash supply challenges and cost pressures being faced by white label ATM (WLA) to make their operations more viable, said Sanjeev Patel, CEO of Tata Communication Payment Solutions, the country’s largest WLA operator by market share.

“Though there is a huge demand for cash and the need for rapid ATM deployment, all players i.e. banks/WLAOs [operators] have so far adopted a cautious approach to ATM roll-out owing to these challenges,” Mr. Patel said in an e-mail interview.

Fee raise demand

The industry has been demanding an increase in the static interchange fee from the existing Rs. 15 (since 2012) to Rs. 18 to incentivise serious players to speed up their ATM roll-out in hinterlands, he said. Static interchange fee is the amount paid by one bank to the other when its customer uses the other bank’s ATM network.

“There is a need for sustainable solutions to address cash crunch challenges, given that it has a huge impact on the economies, especially in semi-urban and rural areas, that are largely cash led. Urgent steps that are required are: 1. First proportionately allocate cash to bank branches and ATMs. The current ratio is 80:20, which can be changed to 50:50 as ATMs have a large network to meet the demand for cash. 2. Seasonality of demand has to be factored for cash supply too.”

White label ATMs are not owned by any bank and are the property of a non-banking entity. In 20111, the Reserve Bank of India, to promote financial inclusivity, permitted white label ATMs to sign a service-level agreement with a sponsor bank and a network provider to ensure cash flows.

The white label operators have the autonomy to decide on the locations and create their own brand with fixed annual targets mandated by the central bank. Customers from any bank can use these ATMs, provided they pay a fee for using the service. The white label ATMs do not accept cash deposits.

Tata Communication Payment Solutions, a wholly owned subsidiary of Tata Communications, operates its services under the Indicash brand. It has a network of more than 8,000 ATMs and this financial year it plans to deploy an average of 125-plus ATMs per month. There were 2.39 lakh white label ATMs deployed in the country during the last financial year.

“We have witnessed more than 35% growth in transactions vis-a-vis pre-demonetisation, reinforcing that there is a tremendous confidence in cash,” Mr. Patel said. “We are seeing a huge demand for cash in rural geographies with ATMs being the preferred touch point for people to access their own accounts.

“Though the Indian government is striving hard to push Indian digital economy to $1 trillion in the next 5-7 years, which is a commendable target, the fact remains that a large number of people depend on rural and even urban economies for cash, be it daily wage earners, traders, farmers, businessmen, given the ease of usage and lack of any technological dependency except for the basic requirement of ‘availability of the cash’.”

Digital transactions, including POS and m-wallets, had increased exponentially immediately after demonetisation primarily triggered by less availability of cash, he said.

“However, their growth rates have reduced now and data show that they have not eaten into ATM transactions. Like in other economies namely the U.S. and China, instead of pegging cash vs digital, we should allow each payment platform to co-exist for the end consumer to decide which is the most convenient way for him to access his own money.”

India, with 17 ATMs per lakh, ranks among the lowest in terms of ATM penetration when compared with other economies such as China (63), Japan (107), Australia (132) and USA (173).

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