The A to Z of White Label ATMs

We are much more efficient in running ATMs than banks. If banks run their own ATMs, it will cost them more than the Rs 15 per transaction we get paid.

White Label ATM (WLA) players see the Reserve Bank of India’s (RBI) recent move kicking off the application process for small finance banks and payment banks as a big opportunity. A WLA is not owned by a bank but by a private service provider.

WLAs were introduced to increase the network of these machines in semi-urban and rural areas. In an interaction with Deccan Herald’s Umesh M Avvannavar, BTI Payments MD and CEO K Srinivas shares the future of WLA in India.

Please give a brief on BTI Payments.

BTI Payments was earlier known as Banktech India. Banktech is an Australia-based private company which is into setting up White Label ATMs for the last 12 to 15 years under the Cashnet brand. After some 2,500 installations, they came to India when they started looking out of Australia for better opportunities. At that time, RBI was formulating the guidelines for WLAs. RBI finally announced the guidelines in early 2013.

One of the conditions that RBI raised was that operators had to have a net worth of 100 crore. That’s when Banktech also felt they should get an Indian partner. So they roped in ICICI Ventures as a minority partner. We had to rename ourselves as BTI Payments as Banktech was a bank and RBI did not want bank ownership of WLAs.

What options did RBI offer to set up WLAs?

RBI has given about three options for setting up WLAs. Option I: Minimum commitment of 50,000 ATMs in three years. Under this scheme, RBI said that for every ATM which WLAs put up in tier-III, IV, V, and VI towns, they are allowed to put up one ATM in tier-I and tier-II towns.

Option II: To roll out 15,000 ATMs in three years. For every two ATMs which WLAs put up in smaller towns, they are allowed to put up one ATM in large towns.

Option III: For every three ATMs which WLAs put up in smaller towns (tier-III, IV, V, and VI), they are allowed to put up one ATM in a larger town. But minimum commitment is 9,000 ATMs in three years. BTI Payments has opted for the scheme of 9,000 ATMs. Most WLA operators, save for one, have opted for the same scheme.

When did your approval come through?

BTI Payments got the go-ahead from RBI around February 2014. We have grown very fast from then onwards. We used the first 100 days to understand what would work by setting up 100 ATMs under different models. After setting up ATMs in big towns like Bengaluru and Chennai, we opened in district headquarter towns like Tumkuru, Salem, etc. and then drilled down into blocks, tehsils, and villages. We installed 10 ATMs in each category. Also, we wanted to understand the performance of ATMs put up on streets versus those installed inside shops.

Once we found we had learned from our mistakes, we started ramping up. We roll out almost 200 ATMs every month. We are now about 1,100 ATM-strong. We started with Karnataka, then headed to Tamil Nadu, Kerala, Andhra Pradesh, Uttar Pradesh, Maharashtra, Bihar, and Gujarat.

Out of the 1,100 ATMs that we currently have, almost 85 per cent of them are in tier-III, IV, V, and VI towns. As per the licence conditions, BTI can install close to 30 per cent ATMs in bigger towns. But we quickly learnt that the game plan for us is to put up ATMs in the towns where there are no ATMs at all, or where ATMs are mismanaged. For us the real game is to  cater to those opening new accounts under the Prime Minister’s Jan Dhan Yojna.

Even though technically we could have put up more ATMs in cities and larger towns, we decided not to do that. Tier-VI can be a village with 5,000 people. By and large there is familiarity, awareness, and the need for ATMs, just as in large towns. Today BTI Payments employs around 100 people.

How many BTI ATMs are there in Karnataka?

Karnataka should have approximately 200-plus of our WLAs, with 10 of them in Bengaluru. Tamil Nadu has around 500 and Andhra Pradesh should have around 200-plus. Kerala would have around 100-plus. Uttar Pradesh would have around 100 since we started installing there from last month. In Maharashtra, we just started and have around 25-30.

In Gujarat, BTI is operating under a different model with milk societies. The farmers sell their milk to the society and receive cash every 10 days. BTI Payments is working with the banks to open bank accounts for farmers. The farmers then start getting money credited into their accounts. When they need cash, they can go to one of our ATMs located in the society or village premises and withdraw cash. Holders of any bank accounts can withdraw money from our India1 ATMs.

How many months does it take for an ATM to achieve breakeven?

Installing an ATM comes with a cost and the company needs to break even as revenues come in from the volume of transactions. It costs around Rs 5 lakh to install an ATM. That includes the cost of the machine, civil works, establishing connectivity through  V-Sat terminal, installation of surveillance cameras, lighting, etc.

It also costs around Rs 25,000 – Rs 30,000 monthly to run an ATM after making allowances for rent, power, cash transportation costs, monitoring costs, surveillance costs, etc. We need 90 transactions every day per ATM for a breakeven. BTI Payments expects to break even at a margin level anywhere within 8-10 months.
 
How does one identify a White Label ATM?

WLAs are not bank branded. Besides BTI, players include Prizm, and Tata. Prizm’s WLA is known as Moneyspot, ours is known as India1 ATM, and the Tata’s is known as Indicash.

What are your plans?

Our mandate is to roll out 9,000 ATMs. First year target was 1,000 ATMs before March 2015. We completed the target two months in advance by January 2015. We will end this financial year with 1,400 ATM installations by March. By March 2016, we would take that number to 4,000, and by 2017, we would have done 9,000.

How do you set up a WLA?

Take a small village with a population of 10,000. We do research on the number of people who hold bank accounts, and the number with debit cards. Based on that estimate we go and set up an ATM in that town. There can be customers for any bank. So we necessarily do not target Bank A or Bank B.

One more example: under Jan Dhan Yojna, over 100 million bank accounts are supposed to open, most of them with debit cards. Once the bank accounts are open and cash deposits start, people would need ATMs to withdraw money. If they need to go to the nearest branch, that can be 10 km away.

Travelling and withdrawing money would be inconvenient and a waste of time. Once the village is decided for the month, the team goes and researches the place and accordingly leases the place where the ATM is to be installed. Most village congregations happen around the market, wholesale shop, telephone shop, bus stand, etc.


How does the payment process work?

Since we have an RBI licence, we have a switch. The way it works is, ATMs are connected through the VSat network, which  is connected to the BTI Payments’ switch. If anyone goes and inserts a card in an India1 ATM to withdraw money, the machine reads that and sends that information to our switch, which is in Mumbai. From there, we log the transaction to NPCI (National Payment Corporation of India). NPCI is the gateway which is connected to 200-220 banks. Effectively the customers of these 220 banks can use the India1 ATM.

The message goes from BTI Payments’ switch to NPCI to the respective bank’s switch. The bank then validates your details, checks your account balance, confirms if it’s a genuine card. The bank then sends a message in the same format to the ATM to dispense the cash. The next day, the banks settles the payment to the WLA operator with NPCI. Along with the amount of cash withdrawn, it pays Rs 15 extra which is the cash transaction charge. The bank makes the payment through NPCI.

So is the transaction a loss for the bank then?

If banks run their own ATMs, it will cost them more. The cost per transaction will then be in excess of Rs 25 for banks.

What are the safety measures in place?

Wherever security guards are mandated, like in Karnataka, BTI will arrange for them. But in all other places, we are electronically secured. Video cameras are installed that takes images of every single person who walks in and out of the ATM. We have live feeds coming in.

So in places where it is mandatory to have security guards, we comply. In Karnataka, we have installed ATMs in kirana stores and mobile shops. So the ATMs are open until the shops close.

This was an innovative solution we chose to avoid the heavy costs of a security guard which could run up to Rs 30,000 per month, equal to all other costs put together. At the same time, we wanted to comply with the directions of the state. So we located some ATMs inside the shops so that the shopkeeper himself could double up as the security guard by default.

How has the public responded so far?

We are pretty happy with what we have done so far. At ATMs which are 7-8 months old, almost 70 to 80 people come in every day. With Jan Dhan Yojna, opening of new accounts, direct benefit transfer, and the start of payments banks, we hope to acquire lots of customers in villages.

The entire payment system is going to evolve in the coming months in a massive way. Today the system which is available to people in larger cities is not available to people in smaller towns. So insurance payments, mobile recharges, etc. can happen in the future, maybe in six months. Moreover, we see small banks and payment banks as a big opportunity to augment our business.


What are the technical issues that you are facing and what are the customer complaints you receive on a daily basis?

For us it’s biggest area of focus. Of the 100 people we employ, a majority work in the backend on a continuous basis to monitor the ATMs.  The ATM is in continuous communication with the switch on a real-time basis. 

If there is a power breakdown or cash shortage, then the ATM immediately messages our switch that cash or power is not there. Once we get the message we have a monitoring system that converts it into a trouble ticket, which ensures that instantly a message is sent out to our cash management agency, which in turn sends out someone to resolve the matter. We aim at 95 per cent  availability, which means 95% of the time when a customer walks into the ATM it should be running with sufficient cash.

We forecast on a daily basis the amount of withdrawal from an ATM. Let’s say, an average withdrawal from an ATM is around Rs 2 lakh. But if I don’t want to be out of cash and load it up with Rs. 10 lakh, I end up paying a higher rate of tax, besides blocking my capital. Therefore, we need to optimise the amount we put in every day. My COO’s job is precisely to keep the ATMs up, and he and his team are constantly working towards keeping the ATMs up and running 24x7. We are much more efficient in running ATMs than banks.

What are your revenues?

On an average 100 ATM transactions per day, there are cash and non-cash transactions. For the first, I get Rs 15 per transaction, and for the second, I get Rs 5. Hence the weighted amount can be Rs 12 to Rs 13 per transaction or Rs 1,200 per day and you then multiply that by 30 days.

We calculate revenues based on ATMs. It would increase as we roll out more ATMs. But now we are growing at ridiculous a percentage of 20 per cent to 30 per cent per month. It is because our base is very small. When I roll out 200 ATMs every month, the first month I get an average of 30 to 40 transactions per day on every ATM, which eventually increases.