Banking — Focus on ATM segment

The spend of banking sector on hardware and software last year has been

estimated at about $35 billion. A recent study by Gartner on the IT spend by

various vertical industry segments in India ranks banking on the third spot

behind communication and manufacturing. This is despite the large IT budgets of

the banking firms.

Indian banking sector comprises of more than 50 major banks. All these banks

together account for more than 300 million bank accounts.

In the past couple of years Indian banks have taken to ATM banking in a big

way. The growth of ATMs in India has doubled year on year over the last three

years. By 2010 the ATM segment in India is expected to grow at a rate of

70-80 percent annually and the number of ATMs is expected to touch 40,000.

The ATM usage, an average of 45 transactions per day in 2000, has increased

to 250 transactions per day. Some of the large banks such as SBI and ICICI have

witnessed more than 1000 transactions per day on certain ATMs.

In March 2000, only 3% of transactions in India were conducted at an ATM; in

March 2001 that figure jumped to 45%.

 Fig: Growth of ATMs in India

ATM usage is also dictated by the card base. Today, India has around 10-12

million debit or ATM card holders and about 4 million credit card holders. The

combined (debit and credit) card base has grown by 50 per cent in the last three

years. This translated into a corresponding increase in the ATM usage.

The gap analysis between the number of card holders (16 million) and the

number of bank accounts (300 million) in India points to the growth potential of

the card base and hence the ATM market.

State Bank of India which at present has over 1,700 ATMs plans to add another

1,800 into the chain. The next largest bank, ICICI plans to increase its ATM

count to over 2000. The increased installation of ATMs is not a phenomena

restricted to the large banks. Smaller banks like Corporation Bank plan to have

more than 1000 ATMs by the year end.

The major hurdle in ATMs’ growth is the expense involved in installing and

maintaining an ATM. The cost of installing an ATM is Rs 13 crore. The cost of

maintaining one ATM varies between Rs 15 to 18 crore per annum. The maintenance

cost is higher than in the other regions of the world because unlike ATM

installations abroad, in India the ATMs located in small air conditioned rooms

with a guard.

Another impediment is the time taken to obtain statutory clearance to set up

the VSAT (Very Small Aperture Terminal) connection through which ATMs

essentially communicate with the central servers.

To cut costs and save time, banks in India have taken to the international

trend of sharing ATMs between them. (In fact the shared ATM concept first came

to India as back as 1997 Indian Bank Association came up with a network of

neutral ATM called Swadhan mooted by. Around 900 ATMs were networked under this

project but Swadhan never went online.)

Today, the shared ATM concept is again back with CashNet and the trend seems

to be catching. Cashnet is the name of the shared ATM network of UTI Bank,

Citibank, IDBI Bank and Standard Chartered. Four public sector banks - Bank of

India, Union Bank of India, Syndicate Bank and Indian Bank - are also pooling

their ATMs.

SBI and ICICI which have not yet announced intentions of joining any shared

network and are actively expanding their networks, agree that shared network is

where the future is.

At present the concentration of ATMs are centered in large cities. However,

the banks are looking at expanding their networks to smaller towns. Here is

where the benefits of shared ATM network will be fully realized.

As of today the RBI does not permit ATMs to be owned and run by third-party

vendors in India. Hence the big banks are still going gung-ho over the

development of ATM network.

 Vendor View Point

India ATM market is at present divided between two vendors: NCR and Diebold

(erstwhile Diebold HMA).(Diebold bought out HMA’s 50 per cent stake in Diebold

HMA).

       Fig: Market share of ATM Vendors in

India

NCR plans to further consolidate its hold on the Indian ATM market. It has

started an ATM manufacturing facility in Pondicherry. It plans to start another

ATM manufacturing facility cum professional service center in Bangalore by

September 2003. NCR plans to source most of the ATM components from India.

Diebold has set up a manufacturing centre in Goa. Having bought out its

partner HMA’s stake in the erstwhile JV (Diebold HMA), Diebold is getting

aggressive on the pricing front.

The only Indian player in the scene is Tata Infortech which has an ATM

manufacturing unit in Pondicherry primarily for exports. Now with the Indian ATM

market booming Tata Infotech has turned its sights on the domestic market.

Another trend in ATM market is the outsourcing of ATM management. At present

NCR, Diebold and Euronet Worldwide and a host of local solution providers

provide ATM management solutions in India.

Business Assessment:

• The booming ATM market has brought out new opportunities not only for ATM
  
  equipment manufacturers but also to software and other solution providers.
• Banks are moving to outsourcing the set up and maintenance of ATM centers so
  
  as to focus on their core functional area.
• As banks go in for more and more of shared ATM networks newer challenges
  
  come in the network integration and maintenance scenario.
• Banks are looking at players who can provide an end-to-end solution from
  
  setting up an ATM to supporting and maintaining it.
• As the ATMs spread at an exponential rate it brings with it challenges of
  
  uninterrupted uptime and connectivity which are essential backbone on which an
  
  ATM works.