Black side of white-label ATMs

The Reserve Bank of India (RBI) has authorized four non-banking entities to set up so-called white-label automated teller machines (ATMs) in the country, a full two years after making public draft guidelines on the matter in a bid to widen access to financial services.

The central bank first issued draft guidelines on

The process of authorizing entities and rolling out white-label ATM networks has moved at a snail’s pace, which may mean that it will remain on paper—at least for some more time to come.

white-label ATMs—cash machines operated by non-bank entities—on 14 February 2012, inviting comments and suggestions. In June 2012, it released the final guidelines allowing non-bank entities to set up white-label ATMs. The aim of these guidelines was to increase the footprint of ATMs in semi-urban and rural areas, where ATM penetration is low. These entities have a mandate to deploy 67% of ATMs in rural locations (tier III-VI) and 33% in urban locations (tier I and II cities).

 

The four non-bank companies are Tata Communications Payment Solutions Ltd, Prizm Payment Services Pvt. Ltd, Muthoot Finance Ltdand Vakrangee Ltd, RBI said on 7 February.

 

In June 2012, when the guidelines were issued, 13 companies were given in-principle approval; they were among 19 that sought it. The latest announcement shows that only four companies have got the licence—of these, three have rolled out services.

Tata CommunicationsPayment Solutions, a wholly owned subsidiary of Tata Communications Ltd, set up the first white-label ATM in India in June 2013 in Chandrapada, a village in Maharashtra. It was followed by Prizm Payment Services, which opened a white-label ATM in Chendre, also in Maharashtra, in January this year. Muthoot Finance launched its first white-label ATM in New Delhi on 4 February. The fourth company, Vakrangee, which got its licence in late January 2014, is yet to roll out its network.

How these ATMs work 

 

 

White-label ATMs are similar to other ATMs in that they can be used by any domestic debit, credit or prepaid cardholder to withdraw cash, make a balance inquiry, change the personal identification number or ask for mini statements. Charges for customers remain the same as those levied by a card-issuing bank. So, the first five transactions in a month are free at these ATMs too. The card issuing bank will pay the interchange fee for the “free” transactions, but will charge you for anything beyond that limit. 

 

White-label ATM operators need a sponsor bank to operate the machines. According to RBI rules, these sponsor banks will be liable to settle transactions and maintain cash at these ATMs. Maintenance and servicing will be the white-label ATM operator’s job. 

 

Cost calculation

 

 

When the draft guidelines were issued in February 2012, the interchange rate that card-issuing banks pay to another bank whose ATM the customer uses was Rs.18 for withdrawal and Rs.8 for balance enquiry and other services. The math worked out fine and the white-label ATMs made business sense. So, as soon as the guidelines were issued on 20 June 2012, 19 companies approached RBI for approval.

But in August 2012, the interchange rates were slashed to Rs.15 and Rs.5, respectively, which meant tossing out the math book. “The WLA (white-label ATM) operators did not come back to get the licence because they could not make a business case,” said an executive with a private bank who did not want to be named.

 

 

 

Other issues

In addition, white-label ATM operators will have to pay a fee for the cash that the sponsor bank deploys in the ATMs—an extra burden for white-label ATM operators as banks do not pay a charge for the cash that they put in their own ATMs. “Banks do factor in the opportunity loss when they deploy cash in ATMs, i.e., had the cash been lent, it would have earned interest. But they definitely do not pay out of pocket unlike WLA operators,” added Dastur of NCR Corp.

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