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ATMs: Changing the concept of banking - Views on News from Equitymaster
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  • Aug 22, 2000

    ATMs: Changing the concept of banking

    Automated Teller Machines (ATMs) are now emerging as the most visible and effective marketing tool for the privates sector banks. Earlier they served only as a cash dispenser. ATM kiosks are slowly becoming a virtual branch where the customers can conduct a variety of transactions.

    Most of the banks in India are branch-centric, rather than bank-centric. A customer finds himself effectively a customer of a branch, rather than of the bank as a whole. A customerís account is maintained in a specific branch of the bank. In other words, a typical bank maintains a more or less highly distributed database of accounts.

    ATMs has changed the concept of over the counter banking. ATMs are for any branch, anywhere and anytime banking. Although ATM is only one of many channels (the other options being phone banking and Internet), in India where credit card culture is yet to pick up no other channel can substitute the ATMsí ability to provide liquid cash round the clock. The private sector banks in India have taken a lead in opening up number of ATMs across the country. The increasing number of ATMs will help the banks in cost reduction, as the cost of servicing accounts through ATMs is around 40% of that on the counter. It also means a considerable reduction in burden on the branch.

    When it comes to setting up an ATM network, nobody can beat ICICI Bank. The bank currently has 182 ATMs and is targeting to set up 1,000 more during the current year. On the other hand its nearest competitor HDFC Bank has around 125 ATMs and plans to add 125 more during the year. However the total number of ATMs in India is currently only 1,200. This works out to 1.2 ATMs per million people compared to 800 in Japan and 300 in Canada.

    Among the others UTI Bank has added 29 ATMs during the first quarter of the current year and plans to install 70-100 in the second quarter. And the State Bank of India (SBI), the countryís largest commercial bank plans to have 1,000 ATMs over the next two years.

    Compared to private sector banks, public sector banks (PSBs) are moving slowly and their ATMs are mostly offline. The constraint lies in their trade union opposition to labour saving devices. This has delayed computerisation and networking of branches. Further many PSBs insist on a term deposit account before customers can avail of an ATM card. Here the private sector banks have succeeded as they offer an ATM facility to the salaried customers without asking them to maintain a minimum balance. This means that PSBs need to have their own online network of ATMs if they wish to retain their middle class customer base.

    The increasing number of ATMs across the country provides a twin advantage to the banks. It not only reduces the overhead costs but also provides round the clock banking services to customers. Although the concept is new in India, it will catch up with increasing banking habits of the people.



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