DQ Top 20: ATMs - Manufacturing Money

Growth, in double digits, visited the ATM screens for the second consecutive
year in FY10. Though the number of machines grew at a slower pace than the
general expectation, the outsourced services around ATMs and managed services
(mainly maintenance) witnessed 21% and 25% growth, respectively. Overall, the
ATM market grew by 19% this year, definitely slower than what it had been
recording the years before. The definitive impact of RBIs liberalization of the
ATM environment, coupled with the ripples of recession that most of our
multinational banks are still experiencing, seem to have acted as dampeners.

The Indian market currently stands at close to 55,000 units of ATMs, at over
40,000 locations in the country. More than 13,000 new units were added during
the last year. Impressive as it may sound, when we pitch ourselves against the
Chinese dragon, the numbers seem dismal. China boasts of more than 2 lakh ATM
installations. That puts the density at slightly over 100 ATMs per mn people.
The corresponding figure for India is 40 ATMs.

Nevertheless, the ATM market seems to be buzzing with activity on all fronts.
Be it value added services or ATM software or outsourced management contracts,
theres a lot of moolah to be made. And the players in the segment are busy
equipping themselves for the increasing opportunity in this segment.

Unlike last year, this year Dataquest decided to take into account not only
the hardware and AMC bit, but also the outsourced services part that basically
includes the service maintenance of the existing ATMs as well as a host of other
ATM related services like cash dispensing, switching services, security and call
centers among others.

Under the Lens

The UPA governments strong emphasis on micro-finance and banking the
unbanked people in the country, is (and will continue to be) the biggest driver
for the growth of ATMs in India. While the nature of cash dispensing machines is
changing rapidly from the sophisticated air-conditioned boxes that we are
accustomed to, no player is disputing the fact that this is where the growth is
going to come from.

As of now, more than 75% of all ATMs are in tier-1 and tier-2 cities.
However, close to 30% of all new ATMs are coming up in tier-2 down cities, and a
lot of these indeed mean the rural areas. SBI remains the force behind this
rural push, to which it added, by ordering 545 ATMs for semi-urban and rural
areas last year. The contract went to Vortex, a company that is developing
Gramateller Duo ATMs in collaboration with IIT Madras.

This banking the unbanked drive is giving a new face to the ATM industry that
is now beginning to experiment with concepts like solar-powered ATMs, biometric
ATMs for authentication and ATMs for the visually challenged. With ATMs seeping
into the hinterland areas, a concept that became extremely popular last year and
saw all the major players jumping into was low power consumption ATMs.

The other big impetuous for growth is coming from the VAS domain. Although
most commonly availed value added service from ATM counters is still the bill
payments, mobile top-ups and internet browsing gained popularity in the last
year.

The Game Winners

When it comes to the ATM machines, that is, the hardware part of ATMs, the
market dynamics havent undergone any huge shift from the previous year. NCR and
Diebold India continue to rule the roost with almost equal market share, while
Wincor Nixdorf emerges as a distant third. A couple of Korean and Chinese
players like Hyosung that entered the Indian market around last year have so far
failed to make a dent in the share of the existing biggies.

NCR and Diebold India, the main players in the segment, both managed to clock
a double digit growth in FY10. Although some part of it can be attributed to the
enhanced services portfolio of the companies, the hardware part itself did quite
well for them.

NCR managed to secure a meaty order for 3,800 ATM machines from SBI in a deal
that included a seven year ATM services contract as well and is being touted as
the biggest deal of the industry. HDFC bank further renewed its contract with
NCR and the company became the first ATM manufacturer to get endorsed with a PA-DSS
certification. Considering the ATM thefts in the country, NCR actively marketed
its Digital Video Surveillance Systems (DVSS) too.

Diebold too managed to capitalize on the action in the domestic market,
something that made up for the relative inaction on the part of foreign banks.

It got an additional order for 1,750. ATMs from SBI after it deployed 2,740
for the bank in FY09. It also expanded its product portfolio by adding Cash
Recycling ATMs. A major move on the part of the company was the installation of
its solar powered ATMs and ATMs for visually challenged people. Diebold also
became aggressive for its security business and moved beyond banks to target
enterprise users.

Wincor Nixdorf, the 2.25 bn German player, managed to expand its market
share, albeit marginally. It aggressively pushed its managed services business
and set up a 3,325 sq ft control tower facility in Mumbai. Through the
centralized facility, the company will offer managed services by remotely
supporting the services infrastructure of banks.

As has been the case for several years now, this year too, it was SBI that
proved to be the knight-in-shining-armor for the ATM vendors. It is no
coincidence that it happens to be the top client for both NCR and Diebold and is
certainly amongst the top three clients for Wincor Nixdorf as well. Apart from
SBI, the other banks that went in for ATM expansion were Punjab National Bank
that has begun installation of biometric ATMs, Corporation Bank that expanded
its footprint and Axis bank that is aggressively pushing its way down the tier-2
cities.

As far as the private banks go, it was mostly HDFC and ICICI that showed some
activity in awarding/renewing their ATM contracts.

The Services Domain

Even though the RBI regulation put some new installations on hold and
cancelled a few, the services part of the ATMs was one area that managed to
clock an impressive growth. In this part, Dataquest is including exisiting ATMs
management/outsourced services, as well as managed services. Given the
increasing number of ATMs, this component is only set to go up, as more and more
ATMs require servicing and managing.

An ATM machine on an average costs Rs 4 Lakh for installation (one time) and
approximately the same amount for maintenance (on an annual basis). Over and
above these components are the costs of VAS, new technologies and consultancy
services. So, there are clear economies of scale here. The more the number of
ATMs, the higher the services component and the opportunity.

Thus, in FY10 one of the most apparent trends was the strong statement that
almost all players made in the managed services domain. NCR and Diebold ramped
up their offerings and Wincor Nixdorf set up an exclusive center for the
purpose.

A lot of noise was also because most of the banks now are going for a total
outsourced model as far as management of ATMs go. And this includes the PSU
banks as well. Since any single bank can go in for multiple vendors for
different set of services, there is always a bite of the pie available for every
player in the domain. So, although on a smaller base, the outsourced services
segment managed to grow by a healthy 25%.

However, when it comes to vendors on the services side (apart from managed
services), Euronet remains the largest player with very miniscule competition
coming in from smaller players like AGS and Prism. And though there is certainly
some overlap with the managed services that the OEMs offer, Euronet often ends
up working in close coordination with them, as in their case, services mostly
revolve around hardware sales.

In FY10, Euronets business came mostly from the existing customers wanting
to beef up their retail channel offerings. VAS offerings involving new
technologies like favorite transaction amount (by HDFC) ramped up the demand
from MNC and foreign banks. Following NCR and Diebold, Euronet aggressively
pushed the revenue sharing model in the last year, a strategic move post the
RBIs liberalization of ATM transactions.

VAS remained an interesting domain for the company, growing by 70%, as mobile
top-ups registered a big spurt and thin client segment contributed 20% to the
companys revenue. Being a dominant player, Euronet sought to deepen its
footprint by adding energy saver offerings to its portfolio. As of now, Euronet
services eleven banks in India and does complete outsourcing for nine of these
banks.

The most dominant banks on the services front in the previous year were IDBI
and Corporation bank, with most of the MNC banks showing some activity only
towards the fag end of the year.

Trend Gazing

If we are to look at the calendar of FY11 and envision the ATM landscape for
next years Top 20, some signs are loud and clear.

With immense focus on the UID project and other projects like MNREGA, ATM
segment will certainly go rural. Low cost concept ATMs are on their way as are
newer technologies of cash dispensing and electronic journal upload. Another
trend that seems to be cropping up is green ATMs that consume minimal power and
are thus ideal for hinterland areas.

VAS component in ATMs is set to go higher with ATMs doubling up as internet
kiosks and authentication devices. Biometric ATMs are going to see some huge
traction in the coming year.

Indian Railways is well on its way to provide ticketing services through
ATMswho knows, even the aviation industry might follow suit.

To top it all, the concept of white label ATMs (where the ownership of the
ATM will not be with the bank but with a third party who would deploy them and
make money on the fees charged on every transaction) is also catching pace in
India with the first deals already signed. That throws up opportunities for a
completely new set of players to enter the market.

If it so happens, that day might not be far off when India might catch up
with China on the ATM front.

Mehak Chawla

mehakc@cybermedia.co.in