Are White Label ATM’s driving ATM penetration in India?

By Aarchie Chaturvedi and Pritesh Raj

Introduction

Over the years we have seen metropolitan cities in India having an inundate of migrants, which is momentous for the ingress of the growing inadequacy of civic facilities. With tier one & tier two cities impuissant to take actions, the nearby cities and villages have started gaining attraction. Affordability, better rail and road connectivity, and proper banking facilities like White Label ATMs[1] have all helped in furnishing these small cities and towns.

The rural population, comprising more than 65% of the total strength of the country[2], and a developing economy with its masses depend excessively upon cash, makes it essential for the government, to ensure that there remains a proper supply of cash nationwide for day to day transactions. But doing so through the medium of state-owned and private banks is a herculean task, considering the masses who need to be approached are large, with the demographic map also being so colossal and exceptionally uneven. 

To curb this problem, the service of ATMs which used to be under the exclusive purview of the banking entities only was unfurled to the other companies inclusive of non-NBFCs.[3] This change in policy can be termed as a masterstroke which encompasses benefits not only to bank account holders but also to the ones who operate these ATMs.

What Are White Label ATMs?

Once popular in Canada, the White Label ATMs have become a common usage platform in India for quite a few years. They don’t display the logo of any particular bank. One major factor that needs to be taken into account is that ATMs in our country are not just used to dispense cash but also for other utilities which include checking bank balance and changing the pin. If every individual goes to their respective bank to do the same, an extra bulk of work adds to the pile of already existing work. Therefore, to solve such issues, White Label ATMs were established. They are usually found in tier three, tier four or tier five cities to ease the work of the population there.

Current Legislations Governing The White Label ATMs

The Central Bank has authorized 100% FDI on White Label ATMs which means that any foreign company can sign a pact with a service provider or a commercial bank and can open an ATM in India[4].

For any non-banking entity who wishes to establish White Label ATMs in India will have to fill a form[5] available at the website of RBI and request for authorization from RBI under The Payment and Settlement Systems Act, 2007 [6] within four months. After the lapse of four months from the date on which form was filled, the authorization seeking window will be sealed. A net worth of 100 crore rupees is the statutory necessity for any company that wishes to open WLA’s in India. This condition has to be sustained at all times. The authorized operator will henceforth be called the White Label ATM Operator (WLAO). The liberty to decide the location of WLA rests with the WLA operators. The authority mentioned in these guidelines will be valid for one year initially.

The RBI in its notification on June 20, 2012[7], has three schemes for the number of ATMs that need to be installed by the operator. It mandates that one of them must be adhered to at the time of the filing of the application.

Scheme 1:
Year 1: Minimum 1000 ATMs.
Year 2: Minimum twice the ATMs established in year 1.
Year 3: Minimum thrice the number established in year 2.
Under this scheme for every ATM established in tier one or tier two city, three ATMs have to be established in tier three to tier six-city, with 10% of all ATMs in tier five or tier six cities.

Scheme 2: The operator has to establish a minimum of 5000 ATMs every year.
Under this scheme for every ATM established in tier one or tier two city, two ATMs have to be established in tier three to tier six cities, with 10% of all ATMs in tier five or tier six cities.

Scheme 3: The operator has to establish a minimum of 25000 ATMs in the first year and another 25000 ATMs over the next 2 years.

Obstacles In the Functioning Of White Label ATMs

Nevertheless, White Label ATMs are set up by private entities to attain their commercial motives and to increase their net profit. No business enterprise would like to trade in an area where it cannot perceive any lucrative chance for it to grow and expand. In today’s time and date, the entities running White Label ATMs can unquestionably be marked as those which are facing extreme losses as a consequence of the current government regulations.

To run an ATM depot, the operator needs to secure several things, in sequence for making an ATM serviceable. Foremost among them is identifying a place where they can set up an ATM, and then buying an ATM. When this is done the operator needs to ensure the safety of such belongings. Arrangement of proper CCTV surveillance in addition to the facility of a security guard is required, depending upon the location[8]. All these necessities constitute a considerable amount of expenditure. And this price is not inclusive of the amount that will be spent on maintenance of the ATM.

For an ATM having close to 150 hits per day, it needs to charge an interchange fee of Rs 23 which the government is not allowing at the moment. However, this is not attainable in tier three to tier six cities, where the number of transactions through an ATM does not even cross the mark of 100 per week[9]. In such a scenario a provision by the government, making it necessary for commercial corporations to make same or double the number of ATMs for every ATM they established in tier one or tier two city is a troublesome task. Even if an operator might be earning a considerable profit by setting up a white label ATM in a tier one city, it is not a staunch fact that if it is required to install the same number of ATMs in tier three or tier four cities, then it might remain profitable. It may have to incur losses as well.

It’s high time we realize that the duty of the government is not just towards the consumers but towards the service providers also. Considering how the rules are framed and how they affect the White Label ATM operators, it is nothing less than injustice that is meted out to them. They are obligated to continue their business which instead of providing them a profit is running them into considerable losses.

This has also led several White Label ATM operators to stop their operations resulting in a lower number of ATMs in few places or no ATM at times if the location of the ATM is a secluded one.

The current amount that the bank has to pay as an interchange fee to the WLA for each transaction is Rs 15 for financial transaction, Rs 5 for the non-financial transaction, while for an operator just to run an ATM network, the cost is Rs 20 per transaction apart from the fact the operator won’t be able to raise any profit from running such a system[10].

Advertising was also allowed, henceforth, in White Label ATMs under the guidelines issued by RBI on 7th March 2019[11] with the only condition, that advertisement on the screen of the ATM should disappear as soon as the customer initiates the transaction. This attitude of the RBI towards the White label ATMs operators, allowed the operators to raise profits through advertisements.

Even so, despite the best intentions of RBI, WLA operators still face losses. The permission to allow advertisements to be displayed in the ATM premises, and the ATM screen, won’t be of much aid as most of the income from advertisements is from those ATMs situated in tier one and tier two cities, as they get most of the customers/viewers instead of those which exist in tier three to tier six cities.

The amount that a particular entity or individual will be willing to pay for putting up an advertisement in a WLA will, therefore, differ considerably from city to city depending upon the hits the ATM gets. Though advertising in a tier one city will be considerably expensive due to its location. But the ATMs in tier three to tier six cities don’t have a significant number of customers visiting the ATMs in a day, making it less attractive for the advertisers to advertise their product or services there. This, in turn, will decrease the fees that advertisers might be willing to pay to advertise in those ATMs and will affect the profit-making capability of operators.

Suggestions

The problem present before the government regarding the White Label ATM operation is a mammoth one. MNC’s like TATA communication who opted for Scheme 2[12], are barely able to reach the threshold limit they had opted for. They even had to decrease the number of ATMs they operated. Thus, this problem needs immediate attention otherwise the target of the government for deep penetration of ATM services among the Indian citizens may become a farfetched goal.

One solution to this problem could be to reduce the threshold limit in these schemes. Change in the ratio of ATMs operated by banks in urban and rural areas from 1:2 to 1:1 will also prove to be an incentive for the operators. This will give the operators a better chance to earn profit and run their ATMs in a cost-efficient manner. Another alternative that can be taken up by the concerned authority is to bring Corporate Social Responsibility into the equation. The Indian government through its different initiatives like Pradhan Mantri Jan Dhan Yojna has ensured that a considerable number of people living in rural regions now have bank accounts[13]. However, despite having those bank accounts there is no facility in their locality to withdraw money and which forces them to travel to distant places or to wait in the bank in long queues to withdraw a meagre sum for meet their day to day expenses. In such a situation CSR can step in and make the MNC’s responsible for maintenance or even establishment of ATMs in rural regions for the convenience of those who reside there.

Opinion expressed by the authors are personal.


[1]Henceforth also referred to as WLA’s

[2]India – Rural Population, Trading Economics https://tradingeconomics.com/india/rural-population-percent-of-total-population-wb-data.html

[3]Vijay Chugh, White label ATMs in India – Guidelines, Notification RBI (June 20, 2012), https://www.rbi.org.in/scripts/NotificationUser.aspx?Id=7286

[4]In case of any Foreign Direct Investment (FDI) in the applicant entity, necessary approval from the competent authority as required under the policy notified by Department of Industrial Policy and Promotion (DIPP) under the consolidated policy on FDI and regulations framed under the Foreign Exchange Management Act (FEMA) must be submitted while seeking authorization.

[5]Payment and Settlement Systems Regulations, 2008, Reserve Bank of India Notification (August 12 2008), https://rbidocs.rbi.org.in/rdocs/Publications/PDFs/86707.pdf

[6]Ibid at 5

[7]Vijay Chugh, White label  ATMs in India – Guidelines, Notification RBI (June 20, 2020), https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=7286&Mode=0

[8]Guard at every ATM is Unviable: Banks, Times of India (August 8, 2018) https://timesofindia.indiatimes.com/city/kolkata/guard-at-every-atm-is-unviable-banks/articleshow/65319210.cms

[9] ATM Bodies urges RBI to correct fee structure to curb losses, The Economic Times (July 1, 2018),  https://economictimes.indiatimes.com/industry/banking/finance/banking/atm-body-urges-rbi-to-correct-fee-structure-to-curb-losses/articleshow/64815098.cms?from=mdr

[10] Advait Rao, Easier Access to Cash Won’t solve WLA Operators Biggest problem, Bloomberg Quint, (March 12, 2019, 8:01 A.M.) https://www.bloombergquint.com/business/easier-access-to-cash-wont-solve-white-label-atm-operators-biggest-problem

[11] P. Vasudevan, WLA in India – Review of Guidelines, Notifications (March 7, 2019), https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11495&Mode=0

[12] TCPSL Launches Indicash: India’s first White label ATM, TATA Communications (June 27, 2013),  https://www.tatacommunications.com/press-release/tata-communications-payment-solutions-limited-tcpsl-launches-indicash-indias-first-ever-white-label-atm-network/

[13]Progress report, PraddhanMantri-Jan Dhan Yojna (April 29, 2020), https://pmjdy.gov.in/account

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