The banking system in India has witnessed a perennial shift in the last decade. The revolution in information technology has automated the banking transactions and brought a sea change in the way banking business is conducted.
Today banks are offering 24 hours access from several channels such as automated teller machine (ATMs), Internet, mobile phones and even a normal telephone. Until a decade back ATM was a novelty for the Indian banks. But with the aggressive entry of private sector banks, ATMs have mushroomed in the urban regions. As per the international report on banking brick and mortar banking transactions, cost around US$ 1.1. While through ATMs it costs around US$ 0.3 and just 1% of over the counter banking cost in case of Internet banking. Statistics such as these have attracted the Indian banking industry.
Citibank was among the first to install ATMs in the country in the late 1980s. Though foreign banks initiated ATM installation, it’s the new generation private sector banks, which are opening ATMs with vengeance. Public sector banks (PSBs) are also not far behind. With voluntary retirement schemes the order of the day at most PSBs, ATMs are being seen as a solution to the consequent staff shortage. The number of ATMs in the country has soared by almost 100% in the last two years, from 1,521 in March 1999 to 3,000 towards the end of March 2001.
Banks across the board have been on an ATM installation spree as part of their retail strategy. They have started investing heavily since the end of 2001, as the average number of transactions on ATMs went up substantially. From transactions of around 20 per day in early 1999 to 200 a day at present. Infact, ATMs in busiest centers conduct over 600 transactions a day. If the current pace of automation in banks continues, the number of ATMs is expected to spiral to 7,500 by the end of 2004.
ATMs: All set to grow
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Currently ATMs are used for conducting normal banking transactions like withdrawing cash, checking account balance and transferring money from one account to another. However, its potential is immense. In the coming years, the ATM would become a medium for non-cash transactions such as payment of bills, insurance payments, printing of statements and even accessing the Internet.
But if banks do not charge their customers for ATM usage, both for deposits and withdrawals, how do they recover their investment? The installation cost of ATMs has reduced significantly from Rs 3 m earlier to Rs 1.5 m now. (The cost includes installation, premises and maintenance charges.) Per customer servicing cost through traditional network varies from bank to bank and branch to branch and is estimated to be between Rs 60 – Rs 120. However, the ATM pares this cost down to Rs 15-30. This is due to relatively low spending on infrastructure and savings on employee cost. ICICI Bank, which has the largest ATM network of 650 in the country, conducts 45% of its transactions through ATMs to leverage optimally on its investments.
Consider this. The total cash movement through ATMs in India is between Rs 350 bn to Rs 400 bn every year. Indians withdraw on an average Rs 1,300 to Rs 1,400 per ATM transaction. If the bank is able to generate about 200 transactions per ATM per day, it is handling volumes of Rs 260,000. To handle the same kind of volumes, through branch, the bank would require at least two employees and other infrastructure, which would increase the cost of transaction for the bank. Although it is difficult to measure break-even per ATM, the international standard for ATMs is an average of 300 transactions per ATM per day.
The benefits of ATMs are not only for banks but also for its consumers. While it is helping banks serve their customers better and at a faster clip by avoiding human intervention totally, for customers its hassle-free and convenient banking channel. ATM helps consumers to get mint fresh currency, which is a rarity if banking is done through normal banking route. Besides, it enables customer to bank from a large number of points all over the country. This has made the service popular, with the number of ATM cardholders growing to over 6 million.
The advantage of ATMs does not end here. Apart from being used by the respective bank as its transaction channel, ATM is also a revenue source for banks. Cash withdrawals through credit and debit card are gradually going up. Banks get an interchange fees when credit card customers of other banks use their ATM network. For every transaction the installing bank charges Rs 35 to Rs 50 from the card-issuing bank. Banks also get revenues for use of its machine by ATM cardholders of another bank. UTI Bank has recently entered into an agreement with BNP Paribas for sharing ATMs. Customers of each bank will however, have the facility of using the combined network of ATMs of both the banks without paying any extra charges. BNP Paribas will be paying UTI Bank and vice-versa for the network used by the customers. The ATM sharing would help both the banks in increasing their fee-based income.
Other sources of revenues through ATMs could be advertisement and utility bill payments. Advertisers could either use the ATM machine screens for their products or put the brand message on the scrollers strategically placed in the outlets. It is estimated that an 8-9 second slot for a screen saver advertisement on the ATM machines would approximately cost around Rs 1,800 per month per machine for a brand. For instance, ICICI Bank is already advertising brands of companies including IBM, Cadbury and Hyundai Motors. The bank is also utilizing the machine advertising for its in house retail products like housing loans, car loans, mutual funds and bonds.
Utility bill payment through Internet was started by ICICI, a year back and now it can be paid through ATMs. UTI Bank is expected to start this concept allowing its customers to pay their electricity bills through ATMs. The bank has entered into an agreement with the Central Power Distribution Corporation for the purpose. The multipurpose usefulness of ATMs does not end here. Banks across the country will soon sell railway tickets through their ATM network. This project will make reservation hassle-free for ATM cardholders.
The potential for ATMs is infinite considering their lower penetration and multiple uses. Even though number of ATMs in India is increasing by leaps and bounds, they are much below compared to its global peers. South Korea has 6.3 ATMs per branch, Malaysia 2.3, South Africa 1.9, and the US 2.3. India currently has only 3,000 ATMs for its 65,000 branches. However, the growth of ATMs depends a lot on back end infrastructure and networking that is required to be in place before ATM is installed. Also, ability of banks to make the optimum utilization of this delivery channel would determine their future revenue growth.
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