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Raja Simhan T.E.

Indian banks are racing to get automated. What's the larger picture that's evolving?

IN the last couple of years there has been a great rush among banks — nationalised, private and cooperative — to set up automated teller machines (ATMs) across the country.

After a relatively slow start in the late 1980s, when Indian Bank and CitiBank installed the first ATMs in the country, there has been a spurt in ATMs across the country — increasing by almost 100 per cent in two years from 1,521 in end 1999 to around 3,000 at the end of March 2001. And, if the current pace of automation in banks continues, the number of ATMs in the country could be over 35,000 by the end of 2005, say industry sources.

As it stands today, the total installed ATM base in the country is about 4,500. The total cash movement through ATMs in India is between Rs 35,000 crore and Rs 40,000 crore every year. Indians withdraw on average Rs 1,300 to Rs 1,400 per ATM transaction, say the sources.

Is this ATM urgency on the part of Indian banks, including leaders such as ICICI, HDFC, UTI, State Bank of India and Global Trust, a tool to score over competitors, an aggressive marketing strategy to attract and retain customers, or a sincere effort to automate the banking system?

Maybe, but maybe not too. But, the whole exercise is helping banks to serve their customers fast and avoid human intervention totally. And for the customers, ATMs offer hassle-free cash withdrawal. No more fighting with the bank's teller for change and fresh notes.

Above all, the spurt in ATM installation means flourishing business and new opportunities for IT vendors offering banking solutions.

Says Nagaraja Mylandla, Chairman, Financial Software & Systems (P) Ltd (FSS), gone are the days when offsite ATMs were just an extension of the bank's teller counter. Even today, some of the ATMs only provide facilities such as withdrawing cash, checking one's account, balance inquiries and transferring money from one account to another — using a plastic, magnetic-strip card and personal identification number issued by the financial institution.

But, in future, things are going to be even more different and challenging for IT vendors. Reason? The ATM would become a medium for non-cash transactions such as payment of bills, insurance payments, printing of statements or even accessing the Internet, he says.

"It is going to be a tough challenge for IT vendors, even as the banks' requirement keeps changing fast. IT vendors need to be a lot more innovative, and keep introducing additional features into the ATMs. The vendors need to have a solid infrastructure in place to support the back-end processing,'' he says.

With its expertise in transaction processing and switching, the company's aim is to provide delivery channel integration (an ATM is a delivery channel) and transaction processing and switching services (like from an ATM to a bank) to banks and financial institutions that would like to outsource from the company, he says.

Says Harish K Murthi, Chairman, HMA Group, "the banks are competing with each other for more customers, and ATM was one of the measures. As an IT vendor, we need to be more innovative and become a technology partner for the banks. Our biggest role is to minimise the cost of running the ATMs for banks. Our biggest challenge is to minimise costs for the banks in running ATMs".

Let's look at how the two Chennai-based IT vendors, the HMA Group and FSS, have introduced cost-saving solutions for banks to have ATMs.

FSS has launched "a total packaged solution" for Indian banks on an ASP. The offering includes completely managing the ATMs, card (credit card, debit card and smart card) management and online switching (router) infrastructure. The Central Bank of India had chosen FSS' ASP to drive its ATM network, with a pilot project connecting the bank's branch systems at 10 locations in the country. The number of locations would increase to over 100 in a few months, says Mylandla.

Claims Mylandla, the company's ASP offering would save the banks' investment in building and technological infrastructure. For instance, he adds, if a bank needs to have a transaction switch (say Compaq's BASE24), the investment would start with over Rs 2.5 crore. However, by availing the company's ASP, the bank needed to pay an annual fee of just around Rs 1 lakh per annum per ATM or branch. Typically, for owning a switch (which routes all the transactions), the minimum number of ATMs or point of sales (POS) terminal a bank should have would be around 150. As an ASP, the company offers the transaction switch on an "online real-time basis'' from its Tidel Park centre in the city. It has invested around Rs 10 crore in the centre, mainly to offer the ASP service, he says. As per ASP service, for a bank having ATMs, the FSS switch connects a terminal to a centralised/decentralised branch system for online authorisation. Further, depending upon a bank's requirement, the switch could connect to interchanges such as MasterCard and Visa, and also other remote banking interfaces on an ASP.

Karur Vysya Bank chose the company's ASP solution for 50 ATMs and 50 branches with a centralised solution.

The company is also discussing a similar venture with three other nationalised banks, he says. FSS aims to report a turnover of Rs 30 crore for the fiscal year ending March 31, 2002, compared to Rs 20 crore the previous year. The company specialises in providing payment solutions for banks, stock exchanges, insurance and other financial institutions.

TRIMS the word

FSS' competitor, the HMA Group, offers a total retail infrastructure management service (TRIMS) for the retail-banking sector. Launched by the group's India Switch Company (ISC), TRIMS allows banks to outsource their entire gamut of retail delivery, says Murthy.

Using TRIMS, banks can outsource delivery channels such as ATMs, any branch banking, POS (point of sales) terminals, kiosks, bill presenting and payment, Net banking and mobile banking. Further, value-added services such as call centre management, product promotion and positioning, branding of the services can be provided through TRIMS.

TRIMS helps banks to concentrate on their core competence, and also derive maximum returns on a low capital investment in a short time, he says.

For a bank to have its own ATM it would initially cost around Rs 15 lakh. Further, the daily expenditure on an ATM, including maintenance, cash management (considered to be the most challenging in running the ATM) and cash transaction could range between Rs 7,000 and Rs 12,000.

However, using TRIMS, the banks would spend between Rs 4,000 and Rs 7,000 a day as service charges depending on their requirement, while ISC would build and manage the total infrastructure solutions.

"The banks just need to tell us the location for setting up the ATM, we will install the machine in 60 days, including the task of getting the land," he says.

Edge in installation

The US will lead the ranking in 2004 for the number of ATMs.

China, ranked 11th at the end of 1998, will to rise into fourth position by 2004.

But, in terms of growth in installations, the picture is very different — India, leading the chart followed by Bulgaria, Egypt and Bolivia showing dramatic increase in their installed base, says a report by the UK-based Retail Banking Research Ltd. The report is titled, `The Global ATM Market to 2004'.

raja@thehindu.co.in

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