White-label ATMs struggle for survival as transactions plunge 50% amid lockdown

The lockdown has accentuated the pain for white-labels ATMs (WLAs) that are already facing viability issues. Over the past two or three weeks, transactions at these ATMs have fallen a sharp 50 per cent, according to data provided by the Confederation of ATM Industry (CATMi), owing to the lockdown.

Given that in the past, transactions at WLAs — set up by licensed non-bank entities — were already 25-35 per cent lower than in bank ATMs, the further fall in transactions can push WLAs over the brink.

“Even before the lockdown, low transactions had been a persisting challenge for WLAs, which have not been able to break even at the current level of interchange fee,” said a CATMi spokesperson. “The lockdown has worsened the situation, which could take a long time to return to normalcy. Unless the RBI intervenes and offers some relief, many WLA operators may be forced to shut shop.”

The RBI has granted licences to non-bank entities to set up WLAs with the aim of expanding the reach of ATMs in semi-urban and rural areas, where banks are not able to put up ATMs. However, the low volume of transactions in rural areas, high fixed costs and low interchange fee (that a bank pays to the entity that maintains the ATM) have weighed on the financial health of WLAs.

The lockdown that has led to a steep fall in transactions has made matters worse. Given that the chunk of the cost of running an ATM is fixed in nature, the abysmal level of activity now threatens the survival of WLAs that have been a key source of access to cash for the poor in rural areas.

Not breaking even

About 70-75 per cent of the cost of running an ATM is fixed in nature, pertaining to rent, power, connectivity charges etc. These costs are incurred irrespective of the volume of transactions. The interest cost paid by WLA operators for borrowing cash from banks to deploy in ATMs is the key variable cost, which varies depending on the level of activity at the ATM.

Given that chunk of the costs are fixed, a sharp fall in transactions at the existing level of interchange fee has resulted in huge losses for WLA operators, for whom ATM services is the main line of business.

Currently the interchange fee is set at ₹15 per transaction by the RBI.

“In a normal situation the average transactions in WLAs are about 70-75 per machine per day, which are far below the 110-120 transactions per day in a bank ATM. Hence, even before the lockdown, WLAs were not able to break even with the level of transactions. With the number of transactions falling by a steep 50 per cent during the lockdown, the losses have only widened for WLAs,” explained a CATMi official.

In the June 2019 monetary policy, the RBI had announced the constitution of a committee to review the ATM interchange fee structure. The recommendations of the committee are yet to be made public or implemented.

As of December 2019, there were 10,852 WLAs in rural areas and 7,133 WLAs in semi-urban areas. WLAs in semi-urban and rural areas constitute about 80 per cent of the total WLAs in the country. The fact that the majority of the WLAs is located in these remote areas is a key reason for the low volume of transactions.

Lower uptime

One of the key reasons for the drop in transactions, evidently, is the restriction in movement of people during the lockdown. But aside from the customer-led slowdown in activity at ATMs, lower uptime in ATMs has also compounded the issue. Uptime essentially is the time when the ATM is available and running to complete a transaction.

The uptime for WLAs, which was at about 85.8 per cent before the lockdown (according to CATMi), has fallen notably to 73.5 per cent after the lockdown. The fall is due to several reasons.

“One, there are issues with moving spare parts for ATMs within the States and inter-State. The logistics issues are graver in rural areas. Add to that most of the WLAs operate on VSAT connection. Issues in connectivity require engineers to rectify the problem, which is also a challenge currently,” said Rustom Irani, MD, Hitachi Payment Services, a WLA operator.

Two, the non-availability of cash has left many ATMs in rural areas high and dry. WLAs have tied up with various banks for sourcing cash. But with the banks themselves facing logistics issues to transport cash to their ATMs in rural areas, providing currency to WLAs has been a challenge.

Post demonetisation WLAs had faced similar challenges and the RBI had allowed them to source cash from retail outlets; this provision was withdrawn in March last year. The RBI instead allowed WLAs to draw cash directly from its currency chests. “But during the lockdown, transporting from currency chests is a big challenge, particularly in rural areas. Hence WLAs have to grapple with either non-availability of cash or sourcing currency at a high cost. The RBI should consider allowing WLAs to source cash from retail outlets, which can help reduce the ATM downtime,” said Irani.

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