New model to drive ATM network growth in India
The ATM network in India is set to expand at a brisk pace over the next few years thanks to the 'brown label' concept, which has captured the imagination of large banks as it enables them install hundreds of machines in weeks. The model is expected to push the number of machines from 75,000 to 1.5 lakh by 2015.
"Brown label" is used to describe an ATM where hardware and the lease is owned by a service provider, but cash management and connectivity to banking networks is provided by a sponsor bank whose brand is used on the ATM. The `brown label' has come up as an alternative between bank-owned ATMs and 'white label' ATMs.
Some years back, bank technology providers had proposed a concept of 'white label' ATMs where service providers set up their own machines from which any bank customer could transact for a fee.
Now, the 'brown label' concept is being adopted by larger banks, like Axis and ICICI Bank, and small lenders like Dhanlaxmi and Ratnakar Bank. Some state-owned banks like Corporation Bank are also using this route to expand their network, while others like Central Bank and Bank of Baroda are also looking at increasing their existing ATMs using the brown label concept.
"While funding is not a problem for bank, installing ATMs was a time-consuming process. This begins from identifying a site, negotiating with the landlord, arranging connectivity and power and finally doing up the interiors," said Sunil R Udupa, president & CEO, Banking Business at AGS Transcat Technologies, which specializes in deploying ATMs. He said as compared to a bank which takes anywhere up to six months to finalize a lease agreement, a vendor manages to do this in a matter of days. "We expect 35-40% of the incremental ATMs to be under the brown label," he added.
Besides speed of deployment, there are two other advantages of the brown label concept. First, the banks need not lock their funds in a fast depreciating asset since the capital investment is undertaken by the vendor. Second, since the vendor gets a fee for every transaction from the bank which has issued the card, there is an incentive to ensure efficiency in terms of usage. Under maintenance contracts, vendors would put stringent conditions requiring the service provider to ensure ATM uptime. "Now ensuring ATM uptime has become finance critical for us because we stand to lose money every minute the ATM is down," says Udupa.
The other driver for increasing ATM deployment is the Reserve Bank of India's decision to allow ATM cardholders free access to any ATM. While the transaction is free for the customer, there is a cost for the bank which owns the ATM. This transaction cost is recovered from the bank that has issued the card.
As a result, banks that are net issuers of cards are finding that they are losing money if too many of their customers go to other machines. But some of the smaller banks who do not have a large customer base across the country are finding it more economical to pay other banks per transaction rather than invest in machines on their own.