Despite the stupendous growth of banking sector in India in the last 10 years and the development of a highly competitive marketplace comprised of both domestic and foreign based banking entities in India, access to various banking services in India continues to remain a major problem.
The access to banking is specially troublesome in rural and remote areas around the country. To get a sense of one key branchless penetration of banking- ATMs, sample this piece of information…
China had 21,0000 ATMs by the end of 2009, USA had approximately 42,0000 ATMs by the end of 2009. India on the other hand had 75,000 ATMs by the end of June, 2011
It seems fair to compare the number of ATMs in India with the likes of China and USA despite the fact that these two countries probably had a much better banking system in place. But, if the growth of India is often benchmarked against these very countries it is evident that the state of ATMs in India does not cut a very happy picture.
The answer to fast nationwide expansion of ATMs is ‘White Labeled ATMs’ as demonstrated by other countries like Canada which has seen tremendous boost after allowing for White Labeled ATMs to be opened. In basic terms, a white-labeled ATM is not a property of the bank and rather owned and maintained by a private third-party. This is different than the current model wherein the banks have to bear the cost of buying the ATM machines and also handle the cash management.
It is noteworthy that RBI has been dilly-dallying the decision to allow White Labeled ATMs in India since 2006 but for some reason, it is yet to become a reality. However, things might be looking up in this regard if IDBI Bank is considered.
Apparently, IDBI is planning a joint venture with a third-party company in order to get into the White Labeled ATM space.
Even though technology seems to be a constraint since White Labeled ATMs will require a standardization of banking processes by various banks the potential white labeled ATMs could have is immense. It can create a new financial services segment itself totally controlled and managed by non-banking entities.
With the current model, banks have to bear upfront costs as well as recurring expenses to maintain ATMs and this might restrict them to expand the number of ATMs especially in remote locations where these banks may not even get enough transactions.
However, since a White Labeled ATM is not tied to a single bank, a third party operator might be in a better position to bear a return on the investment since the business model will involve charging a fee on every transaction irrespective of which bank the ATM card belongs to.
The additional charges levied by white labeled ATMs could be detrimental to the fast adoption of these kind of ATMs but I am of the opinion that customers of today might be ready to shell out a small fee for the convenience of finding an ATM close by and withdrawing/depositing cash irrespective of the bank they have an account with.
What are your thoughts on the concept of White Labeled ATMs and their potential to take banking to even the remotest places in India?