Return of the white label ATM buzz

White label automated teller machines (ATMs) are back in banking industry debates. Big banks, still smarting from the central bank’s rejection of their proposal for white label ATMs in 2006, are believed to be making a fresh effort to build opinion in favour of them.

What’s more, a key advisory committee of India’s finance ministry, chaired by DK Mittal, has recently proposed that the white label ATM model be approved. The committee has also proposed that charges be levied on all ATM transactions, irrespective of the type of ATM.

Typically, a white label ATM is owned, run and maintained by a third-party service provider. In a sense, banks outsource the ATM part of their operations to third parties. Customers from any bank can withdraw money from a white label ATM, but will need to pay a fee for the service.

What determines the fee is the ATM’s location, but not in the geographical sense. Rather, if there are more customers from a particular bank near an ATM, fee for them will be lower, compared to other customers.

Banks love white label ATMs for a reason: the machines are said to reduce per-transaction cost and even help in reducing overall costs.

“Managing a payment channel like ATMs is a big problem for banks. If a third party is ready to manage the operations entirely, then it reduces the capital expenditure for banks considerably,” says B A Prabhakar, chairman and managing director, Andhra Bank.

The Reserve Bank of India, he says, needs to come out with clear norms for cash deposits and customer grievances in relation to ATMs.

Some bankers, however, believe that ATMs boost a bank’s brand-equity and visibility. “It is very easy for larger banks to feel that these ATMs will help in reducing costs. But we need to realise that an ATM is an intangible asset which not only brings in transactions but helps in branding. It is important for the customer to be able to recognise the brand, and that will not be possible in the white label system,” says a senior official from a new-generation private sector bank.

There are other concerns as well. For instance, the RBI is not very happy with the lack of clarity on who will address the customer’s grievances in the proposed new system. The central bank believes that the Indian market is not yet ready to adopt a white label model.

Some bankers, too, are wary about the instances of counterfeit currency entering the system.  For, internationally, retailers that own white label ATMs, and not banks, load cash into the machines.

Such risks are minimised in the existing brown system, according to Stanley Johnson, executive vice-president, AGS Transact Technologies (a “third party” in the ATM context). In the brown system, most of the ATM-related operations are still outsourced. But banks are responsible for three important features: cash in the machine, customer grievances and branding at the ATM site. (AGS Transact is an automated dispensing services provider for the banking industry dealing with ATMs and banking transaction terminals.)

Such responsibilities placed on banks seem to be helping the brown system to grow. As at March 2011, the total number of ATMs in India stood at 74,743, up 24% year-on-year. The number is projected to grow to over 92,000, according to a report on the bank cards industry by Atos Worldline. (The study is limited to the ATMs of commercial banks and excludes ATMS of co-operative banks.)
Data charts alongside capture the essence of the story. It is important to note that the State Bank of India continues to top the list of banks with ATM networks. SBI boasts the highest number (21,625) of ATMs in India. Its associate banks have 5,066 ATMs. Together, the SBI Group is way ahead of other banks.

Lately, there has been a buzz that public sector banks will announce a common tender for close to 40,000 ATMs across India. Talk is these banks will likely request the RBI to turn them into white-label ATMs. Public sector banks, however, deny any such plan and state that all these proposed ATMs will be owned by them.

But such denials are not strong enough to scotch talk the white label ATMs will dot the Indian landscape sooner than later.