100,000 ATMs need to be revamped in India
Indian digital payments industry is growing at a higher growth from 2016. The government of India and the Reserve bank of India have taken up a couple of initiatives to push the demand for digital payments, including Demonetization, reducing cash withdrawal limit at ATMs, permitting payment bank operations, and launching government-backed digital payment mobile apps, among others. These two-year-old initiatives have brought millions on Indian consumers and retailers on digital cash settlement platforms and digital wallet providers have witnessed millions of active customer accounts every day. However, these initiatives are not enough to push a significant percentage of the population on to digital platforms. Recently, the government has launched UPI 2.0 and announced key information on cash withdrawal limit at ATMs, these initiatives are more likely to drive the growth for digital cash transactions in the country. Also, the period has witnessed Banks and cross-border financial services companies entering Indian payments and settlements, payment gateways and mobile wallet services among others. Also, the technologies including Artificial Intelligence, predictive risk mitigation and Blockchain are expected to push the digital journey of Indian payment systems.
Business opportunity in Indian ATM operations
ATM: There are over 2.2 lakh ATMs in India and above one lakh ATMs are located at on-site, which means they are deployed where the banks are located; and over 95,000 ATMs are off-side and close to 15,000 ATMs are white labelled. ATMs play a significant role when it comes to cash management and settlement. The leading 5 banks in India have about xxx ATMs, which is also represented as xx% in total number of ATMs. According to Confederation of ATM Industry (CATMi), over half of ATMs in India are expected to shut by 2019, in the new compliance guidelines that focus on cash operations. What has changed in ATM operations? ATM service providers are required to upgrade their ATM hardware and software:
minimum net worth of $14 million for ATM operators and cash-in-transit companies
A requirement for increasing the fleet of cash vans by up to 300% and establishing connectivity
introducing lockable cassette swap in ATMs
Since 2012, the revenue generated by ATMs has not increased and the post de-monetization period, at the same time the operational expenditure to run an ATM has increased, which has resulted in shut down of over 2,000 ATMs in the country.
Also, the ATM interchange is at INR15 for cash transactions and INR5 for non-cash transactions since 2012.
It costs over INR 5 lakh to INR 7 lakh to set up an ATM, excluding monthly renal charges for a place, electricity, security, and maintenance charges among others.
And the ATMs revenue is paid on per-transaction basis and each ATM need a minimum of 100 to150 transactions a day to run profitably. However, since November 2014, the RBI has allowed banks to charge their customers for making more than five transactions at ATMs.
Due to this, ATM operators will have to spend an additional amount of up to $489 million, to meet the compliance requirements, which results in investing $2000 – $2500 per ATM in the initial year. However, most ATMs in the on-urban locations are expected to close or relocate as the cash operation cycles are long in these locations. Also, ATM Managed service providers are required to invest an amount of up to $1,200 towards deploying lockable cassettes in ATMs. Which will be adopted by a minimum of 30% ATMs every year to achieve 100% deployment of lockable cassettes by March 2021.
In spite of the regulatory challenges and requirement for investments, ATMs are more likely to relocate their ATMs, or shut down for a defined period of time. Also, the same period is expected to see the emergence of payment banks as full-fledged digitalized banks.
AGS Transact Technologies, developing UPI technology for cash withdrawals at ATMs as both UPI 2.0 and the ATM networks run on the same financial switch. UPI 2.0 is expected to classify recipients against merchant codes, which will also enable ATM-deploying banks to recover the interchange fee.