Sharing the Joys of ATMs

A walk down any prime city spot reveals the sheer number of ATMs in any of
India’s cities. These have been put up by myriad banks in a bid to compete
with each other in terms of points of presence and visibility. Also, this is
where the success of India’s private banks can be seen–ICICI Bank, HDFC
Bank, UTI Bank, IDBI Bank– all jostling for attention. The moot question is–if
these ATMs were meant to serve the vast Indian populace, the urban ones to start
with, do individual banks need to cooperate to maximize reach? Is clustering of
ATMs at prime spots the best way?

RBI
has questioned bankers about squandering of funds for ATMs at the same
locations. Public sector banks are pinning hopes on shared networks. However,
private banks hold the view that to retain a competitive edge, a bank needs to
have its own network of machines in high-traffic areas.

As a result, ATMs are being clustered in metros. In some locations, there are
over a dozen ATMs within a radius of half-a-kilometer. With over 8,500 ATMs in
the country, there is one ATM for every 1.17 lakh of the population. In cities
like Mumbai, there is more than one ATM for every 10,000 individuals, primarily
driven by the private banks… Clearly, a case of uneven spread and density.

There’s a clear case for sharing of infrastructure with shared ATM
networks. The last year has seen a flurry of activity in this area–but one
that’s far from being a unifying force. Says Neeraj Bhai, president (IT) at
IDBI Bank, "While banking is about trust, banks don’t trust each
other."

‘Swadhan’ to go away

On the one hand, various public sector banks are joining up in a sporadic
fashion to create their own shared ATM networks.

ICICI Bank, with the largest spread of ATMs by far, chooses to go it alone
for competitive reasons. For a different reason, State Bank of India is also
choosing to go it alone. Says KC Shashidhar, GM (IT) at Nabard, "Unless the
banking community has a strong centralized leadership, sharing infrastructure on
an industry-wide scale is going to take a long time." And in the midst of
all this, Swadhan–India’s first shared ATM network with participation from
32 banks–has announced that it is closing down. In a sense, sharing of
respective ATM networks has become more important after the Indian Banks’
Association announced the closure of Swadhan. For the time being, the IBA
managing committee has decided to extend its interim arrangement to run the
network up to December 31, 2003.

Partly, the reaction by various banks is a run-up to provide a viable
alternative to Swadhan. Not that was Swadhan a great success–at least not in
terms of spurring the aggregation of traffic to itself. Swadhan has connected 32
banks– public sector banks, private sector banks, foreign banks and
co-operative banks–with more than 1,000 ATMs (both online and
offline). It was started with the intention of reducing the investment required
to deploy ATMs in different locations, and to provide participating banks the
time to make their own arrangements, an IBA source says.

Says VK Ramani, senior V-P (IT) at UTI Bank, "Once you have set up a
network, it all hinges on the number of transactions, but member banks were not
even prepared to issue 500 cards per branch." The advent of ATMs came only
after private banks stepped into the fray. Adds Ramani, "IDBI Bank and UTI
Bank contribute about 90% of the ATMs in the Swadhan network."

Reportedly, Swadhan has proved operationally uneconomical–showing an
average of just 90 monthly transactions per ATM. In contrast, some of India’s
private sector banks boast average monthly ATM transactions of up
to 6,000. The 32 Swadhan member banks have issued a total of 3 million
ATM/debit cards. In contrast, ICICI Bank, which has its own switch and is on an
aggressive ATM expansion plan, has issued 3.2 million debit cards and 1.9
million ATM cards.

Each going his own way

Five nationalized banks–Bank of India, Punjab National Bank, United Bank
of India, Syndicate Bank and Indian Bank–forming a consortium to share ATMs.
The proposed network is set to be christened "B5" or "Bank
5". The composition of the banks that have come together, thus, is based on
the leadership in the respective regions. Bank of India would represent the
western region, while Punjab National Bank the northern region, United Bank of
India the eastern part of the country, and Syndicate Bank the central zone.
Finally, Indian Bank gets to monitor the southern part.

Interestingly, Chennai-based India Switch Company, which hosted Swadhan, will
be the network service provider, with Bank of India managing the settlement
system of the shared ATM network. A total of 800 ATMs of this consortium of
bankers is expected to be interconnected in the first phase, and in the next
year-and-a-half, these banks are aiming to have a shared network of 2,000 ATMs.
Network sharing would reduce the need for individual banks to make heavy
capital investments in ATMs. More nationalized banks are expected to join the
proposed network.

In the initial stages, customers of these banks are set to get free
access to the shared ATM network. Later on, they might be charged a fee of
not more than Rs 5 per transaction. Customers are currently charged Rs 25 per
transaction for using the ‘Swadhan’ shared ATM network.

In another cooperative agreement, four other nationalized banks–Canara
Bank, Central Bank of India, UCO Bank and Union Bank–were reported to be
negotiating for sharing ATMs. Yet another possibility is said to be the
cooperation between Dena Bank, Punjab National Bank, Union Bank of India,
Oriental Bank and Bank of Maharashtra for sharing ATMs.

The route taken by Mangalore-based Corporation Bank that has won laurels, for
its corporate performance has underlined its efficacy. Corporation Bank, strong
in south India, and Oriental Bank of Commerce, strong in North India, have
tactically decided to share ATM facilities. Corporation Bank has already
installed 252 ATMs in the country and is now in the process of installing an
additional 250 ATMs–taking the total number to over 500. Oriental Bank of
Commerce says it has already installed 40 ATMs, with plans to increase that
number up to 200. Thus, the present tieup will facilitate the usage of around
700 ATMs by customers of these banks.

Similarly, Corporation Bank has teamed up with Karnataka Bank and Bank of
Rajasthan to share their ATM networks to further strengthen their combined
presence in rural and semi-urban markets. The model has a good chance in rural
areas, where the cost of deploying networks is high and account balances low–while
sharing of information is not very valuable.

Given these economics, it makes sense for banks to look at using shared
infrastructure.

Corporation Bank is also said to be in talks with Dena Bank, Allahabad Bank
and some private sector players to mutually share ATMs. The bank currently has
300 ATMs across the country and is planning to increase that number to 500.

UTI Bank signed an agreement with ABN-Amro Bank to allow the latter’s
customers to use its network of 575 ATMs across the country. UTI earlier forged
a similar alliance with BNP Paribas. For private players UTI Bank, HDFC Bank and
ICICI Bank, renting out extensive networks provides additional fee income. Each
time one of their ATMs is used by another bank’s customer, they stand to gain
nearly Rs 50 per transaction. UTI Bank plans to add another 400 ATMs to its
existing network of 500 ATMs in the next fiscal year.

ICICI Bank has a different viewpoint on sharing of ATMs–it feels that a
proprietary approach enables banks to better build brand recognition and retain
control over the distribution strategy. As per reports, ICICI Bank’s total ATM
transaction volume averages 260,000 per day. This works out to an average of 260
transactions per ATM per day, a figure that has kept pace despite the bank
rolling out as many as 50 ATMs a day in certain periods. This is a clear signal
of the demand for ATMs.

Coming to India’s largest banking network, the State Bank of India. SBI and
its affiliate banks are slated to install about 1,500 NCR ATMs over the next 18
months. With this deployment, SBI will have the country’s largest ATM network,
with more than 3,000 machines. The ATMs will feature touch-screen ATM locators,
multilingual ATM screens, voice guidance and several advanced facilities,
including bill payment and phone top-ups. The contract includes hardware, site
installation services and ATM network management services. SBI has decided to
keep its ATM network exclusively for its own customers–it handles 25 million
transactions daily, expected to go up to 40 million in the next five years.

Caveats

Shared ATMs are fast becoming the norm, with most banks having no option but
to outsource or share networks. Sharing ATMs brings down the cost of
establishing points of presence and ensures faster deployment, but the downside
is that every such point has to be economical in terms of scale of transactions.
The costs involved in managing an ATM are very high, albeit lower than
maintaining a branch. An ATM has to be manned 24 hours a day, cash has to be
transported in armored trucks, information and data security levels have to
improved, appropriate disaster recovery methods have to be in place. Without
these, a faulty ATM and its network can quickly bring a bank and other member
banks to disrepute… a mistake that’s quite irreversible.

The lack of a unifying force or even one or two clear consolidated networks
is another big negative. One may say market forces would create these networks–like
ICICI Bank and SBI have–but the ones bereft of resources cannot be ignored.
Euronet Services India, which provides secure electronic financial transaction
solutions, has plans of launching an independent shared ATM network. The company
offers outsourcing and consulting services, integrated EFT software, network
gateways, and electronic top-up services to financial institutions, mobile
operators and retailers. Euronet operates the largest independent pan-European
ATM network and is a leading provider of electronic distribution service, or
top-up services, for prepaid mobile airtime.

The most visible face of Indian customer- centric banking, ATMs have also
showed us how technology can change existing business models by tilting the
balance of power–and it is private sector banks that have made huge success
stories of largescale ATM deployment. Today, some banks find it difficult to
share their ATM network with competitors as ATMs are being projected as the key
differentiator… others are aggregating to achieve scale. That ATMs are the way
forward is visible from the fact that nearly 60% plus of cash transactions are
happening from ATMs.

Easwar Das Satyan