Muthoot Finance enters White-Label ATM, to invest Rs 300cr

Indian gold loan company, Muthoot Finance Ltd became the first and only Non-Banking Finance Company (NBFC) to have obtained license for setting-up WLAs in India. The Muthoot Group launched its first White-Label ATM at its corporate office in New Delhi and has plans to invest Rs 300 crore in the next three years. The rollout will be mainly in tier-3 and tier-4 cities. 

• Goal: To set-up 9,000 WLAs over three years – 1,000 in the first year, 2,000 in the second year and 6,000 in the third.
• Partner of Muthoot Finance to set up WLAs: FIS Payment Solutions Services.
• Sponsor Bank for WLAs venture: Federal Bank.

The ATMs will be user-friendly, even to the differently-abled – equipped with Bio-metric thumb & voice-recognition.

The other entities that are offering White label ATMs:

• Prizm Payment Services, a unit of Hitachi of Japan set up its first White Label ATM “Money Spot ATM” at Chendre village in Alibaug Taluk, Raigad district of Maharashtra on January, 2014;
• Tata Communications Payment Solutions launched the India’s first ever network of white label ATMs called “Indicash” in June 2013 at Chandrapada in Thane district of Maharashtra. 

What are White label ATMs?

• ATMs set up and run by non-banking entities are called White Label ATMs (WLAs). 
• Customers from any bank can deposit or withdraw money from such ATMs. 
• They will provide ATM services to customers of all banks. 
• In June 2012, theReserve Bank of India (RBI) has permitted non-banking companies to set up ATMs, referred to as WLAs, to increase the penetration of the facility across the country. 

Objective of permitting non-banks to operate WLAs: To enhance the penetration of the machines in semi-urban and rural areas, where bank-run ATMs are a few or none. The move is in line to the governments objective of achieving financial inclusion. 

Excerpts of the RBI’s policy to set up & operate White label ATMs:

• Non-bank entities would be permitted to set up WLAs in India, after obtaining authorisation from RBI under the Payment and Settlement Systems (PSS) Act 2007.
• As  per  the  Payment  and  Settlement  Systems  Act  2007,  the  non bank  entities  should  have  a  minimum  net  worth of  Rs  100  crore  & have to apply to RBI for seeking approval.
• Every WLA operator is required to tie up with a sponsor bank, which takes care of cash operations, dispute resolution and regulatory reporting aspects.
• Being non-bank owned ATMs, the guidelines on five free transactions in a   month for using other bank ATMs would not be applicable for transactions affected on the WLAs.
• WLA operators can also earn extra revenue through advertisements and value-added services. Further, it allows autonomy of operators on deciding locations and creating their own brand with fixed annual targets mandated by RBI.

White-label ATMs accepts only cards issued by banks and does not accept cash deposits.

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Some Additional Information about WLA:

What is White label-ATM?

• Traditionally, Automated Teller Machines (ATMs) have respective bank’s logo. So just by looking, this is SBI’s ATM, this is ICICI’s ATM and so on.
• But White label ATM doesn’t have such Bank logo, hence called White label ATMs.
• RBI has given license / permission to non-bank entities to open such ATMs.
• Any non-bank entity with a minimum net worth of Rs.100 crore, can apply for white label ATMs. (not just NBFC, any non-bank entity can apply.)
• Late 80s: first ATM in India; 2012: RBI issues guideline for White label; 2013: RBI gives license/permission.
• Tata Communications Payment Solutions Limited =the first company to get RBI’s permission to open White label ATMs.
• They started their chain under brandname “Indicash”.
• Other White label= Muthoot Finance, Srei Infra., Vakrangee Software, Prizm Payments, AGS. More than 15 companies given such permission.

What’s the difference between Brown label vs White label ATM?

Brown Label ATM	White label ATM
When banks outsourced the ATM operations to a third party.	When ATMs are owned and operated by non-bank entities but they are not doing ‘outsourcing-contract’ from a particular bank.
The private company owns & operates the ATM machine, pays office rent. They negotiate with the landlord, electricity company, telecom company and so on.	Same
The bank (which has outsourced this work) provides cash for that ATM.	Sponsor bank provides the cash.
ATM has logo of that bank (which has outsourced this work).	No. White label ATM doesn’t have such logo. Not even of the sponsor bank.
No such compulsion.	They’ve to compulsory open a few ATMs in (tier 3 to tier 6) areas. (explained after a few paragraphs)
RBI not involved directly. These outsourcing companies have contractual obligation with their respective banks.	RBI directly involved because these white label Companies have to separately get license/permission from RBI to run business.

Stakeholder/Players in White label ATM game?

RBI	Gives license/permission to open White label ATMs. Under Payment and Settlement Systems Act, 2007. (And NOT under Banking regulation act or SARFAESI Act, Ombudsman or any other act.)
(non-bank) White Label ATM company	Rents the place, looks after maintenance and servicing of the machine.
Sponsor bank	Loads the cash in those White label ATMs. This also ensures counterfeit/fake currency notes are not circulated through white label ATM.
Payment network operator	§  Visa, Mastercard, the National Financial Switch (NFS under National Payment Corporation of India.) §  They provide technical connectivity in the system.

Why do we need White Label ATM?

1. ATMs offer convenience to customer (Because he doesn’t need to visit Bank branch every time). ATMs are open 24/7, and even on holidays.
2. Convenience to bank, because they don’t have to keep large staff/office (compared to a system without ATMs). It reduces their cost of branch-operation.
3. But in India, ATM penetration has been very low. Observe:

Country	Approx. No. of ATMs per 10 lakh population
USA	1400
UK	500
China	200
India	less than 100

How does White Label ATM help in financial inclusion?

RBI requires White label-ATM companies to install machines in the ratio of

Two ATMs in (tier 3 to 6 place) :  One  ATM in (tier 1-2 place).

Confused? Observe:

Center city census definition: population is ____ White Label ATM Metropolitan Tier 1 10 lakh and above if company wants to Setup ONE ATM here, Urban 1 lakh and above Semi-Urban  Tier 2 50,000 to 99,999 Tier 3 20,000 to 49,999 Then, company must install TWO ATMs here.  Tier 4 10,000 to 19,999 Rural Tier 5 5,000 to 9,999 Tier 6 Less than 5,000.  For example, RBI has permitted Tata to deploy 15000 White label ATMs. Meaning [2/(2+1)] x 15000 = 10,000 ATMs will be setup in the rural and semi-urban areas. = more access to ATM= financial inclusion.

Facilities @White label ATM?

1. Any customer from belonging to any bank, can use it.
2. Every month, Five transactions are free.
3. White label ATM users can also withdraw a maximum of 10,000 per transaction.
4. Open 24/7 and on holidays
5. Value added services like mobile recharge, utility bill payments etc.

Where does the Commission come?

White ATM Company doesn’t run for charity or goodwill. Company has to make profit. So where does the asli-maal/commission come?

Before White label ATM	With White Label
1.     If you used card in your own bank’s ATM= everything free. 2.      If you used card on other bank’s ATM= first five transactions free (every month). After that commission charges of Rs.~17-20 for taking out money and Rs. 5-9 for making balance inquiry or mini statement. (This commission directly charged on your account.)	1. First five transactions free every month. 2. Then, transaction fee ~Rs.15 and balance inquiry fee ~Rs.5 BUT this commission is paid by your bank to the White label Company. 3. White label company cannot directly charge money on you. (RBI rules). 4. Although it doesn’t mean White label ATM=totally “Free” because your bank will cut those charges from your account.

Additionally, White Label ATM company can make commission from

1. value added services @their ATM e.g  electricity /telephone bill payments, mobile recharge, DishTV-Tatasky recharge etc.
2. Selling advertisement space in the room and above the door.

White label ATM: Challenges/Limitations/Problems

1. For a white label ATM company, biggest challenges = office rent + Security guard.
2. If they want to make profit, every White ATM needs to get at least 75-125 transactions per day= very unlikely, especially when RBI requires them to setup 2/3rd of the ATMs in semi-urban and rural areas.
3. Even in Bangalore, some of the white-label ATMs are getting barely 2-3 customers every week=loss making business at the moment.
4. Despite the entry of White Label ATM companies, the regular banks have not slowed down their ATM expansion drive, because branded ATM=passive advertisement and customer loyalty. Result? ATMs everywhere =too much competition= small players will bleed out just like in aviation business.
5. Last year, a lady was brutally attacked in ATM booth in Bangalore. Police have warned all banks to put security guards=input cost increased. Banks themselves admitting “five transactions free every month=loss making” in this scenario.
6. SBI has the largest ATM network in India (30,000+)= economies of scale= they’re supposed to be making profit. But this week, even SBI chairman herself has admitted their ATM business is making losses. So, it is unlikely that White label ATM companies will run profitably for a long period of time.
7. Customer complaint: failed ATM transactions = matter falls into Issuing Bank (=bank where you have account). Some critiques fear it will lead to taarikh pe taarikh because data records are with sponsor bank and machine maintenance is under ATM company’s responsibility.