Article

Passage to ATMs

In comparison with the developed West, penetration of ATMs in India is low. Nevertheless, there has been a significant shift away from physical branch banking in the metropolitan cities and state capitals, with ATMs and the Internet emerging as major banking channels.

May 19, 2002

In comparison with the developed West, penetration of ATMs in India is low. Nevertheless, there has been a significant shift away from physical branch banking in the metropolitan cities and state capitals, with ATMs and the Internet emerging as major banking channels.

This became clear during a session on technology in banking at the recent Confederation of Indian Industry (CII) Summit in Mumbai.

According to M S Verma, chairman of the Telecom Regulatory Authority of India (TRAI), the percentage of banking transactions conducted at ATMs rose from 3 percent in March 2000 to 45 percent in December 2001. During the same period, Internet banking transactions rose from 2 percent to 7 percent.

At the same forum, the increasing value of the ATM to its host bank was tacitly acknowledged by the state-owned Bank of Baroda's chairman and managing director, P S Shenoy, who admitted that a major reason why public sector banks lacked in value was low investment in technology.

Most of these banks are now working toward building up their ATM networks, he added.

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No ATMs existed in India before 1987 when Citibank deployed the first machine in December. The first shared payment network, Swadhan(which translates from the vernacular as "one's own wealth"), became operational only in 1998 as a pilot project in Mumbai.

V Ramachandran, senior manager of Management Services with the Indian Banks Association (IBA),estimated the current total number of ATMs in India at 4,500 to 5,000, with most concentrated in cities like Mumbai, New Delhi, Kolkata and Chennai and in mini-metros like Bangalore and Kanpur.

Swadhan was launched by the IBA, based on the recommendations of the Rangarajan Committee on Computerisation in Banks. Its success in Mumbai was used as a benchmark for setting up similar networks in other Indian cities.

Ramachandran said that 43 of the 53 major banks in the country are part of Swadhan, which boasts more than 900 ATMs.

The most recent bank to join the network, Ramachandran said, was UTI Bank, which has more than 350 ATMs around the country. Mumbai alone has 175 Swadhan ATMs, although most of them are offline and not connected to the data center.

At an offline ATM, a customer can withdraw only a pre-determined fixed amount of money (normally pegged at between Rs 3,000 and Rs 10,000), which is subsequently debited to his account. At an online ATM, of course, he could withdraw all the funds in his account except the minimum balance he needs to maintain it.

Banks which allow transactions via Swadhan's main switch, known as "switch connect banks" or "online debit banks," include UTI Bank, IDBI Bank, Bank of Punjab, Citibank and Centurion Bank, Ramachandran said. An additional 26 public sector banks have offline connectivity.

ICICI's example

Just how important ATMs have become to banks can be best illustrated by the example of ICICI Bank, which has become the country's second-largest financial institution (behind State Bank of India), following its merger with its parent, the Industrial Credit and Investment Corporation of India (ICICI).

The bank claims that, following its superlative ATM experience, a larger branch network is no longer relevant. Less than four years ago, the bank had barely 50 ATMs in operation, mainly in the four metropolitan centers of the country.

With each machine it set up, there was a clamor for more ATMs, particularly in densely populated residential areas. Accordingly, the bank intends to double its countrywide ATM network during the fiscal year 2002-03, from the existing 1,000 to 2,000, while pegging its branch expansion at 25 percent more than the current level of 325.

While inaugurating ICICI Bank's 1,000th ATM on March 30 at a suburban Mumbai petrol pump belonging to state-owned Hindustan Petroleum Corporation, the bank's managing director K V Kamath said, "Hardly 35 percent of our customers visit our branches. This calls for a level of circumspection in expanding the branch network. But ATMs have proved immensely successful."

Clearly, ICICI Bank's strategy of dumping ATMs all over the country in the last three years has borne more fruit than expected, and allowed the bank to prove wrong the skepticism of some of its main competitors.

"Our experience has shown that ATM transactions average 250-300 per day, with 55 percent of all banking transactions taking place through the ATMs," said Kamath, in a separate exclusive interview. "We therefore see ATMs as the main delivery channel."

ATM advertising

The bank has also made its ATM network generate additional revenue by selling advertising space at its machines. Advertisers have had the option of either using the ATM machine screens for their products or putting the brand message on the scrollers placed below the screens.

Quantum Media, the marketing company responsible for lining up ICICI's advertisers, has struck deals with some corporations, so that ICICI Bank customers could sample the products. For instance, customers of the bank could recently listen to World Space satellite radio at select ATM locations.

Since the advertising program launched in July 2001, advertisers have included such big names as IBM, Cadbury's India, Hyundai Motors, General Motors and Essar Cellphone, with more new advertisers signing on.

"The idea was to not clutter the space and create inconvenience for customers, but to promote a few select brands that match the profile of customers using our ATMs," said O P Srivastava, ICICI Bank's general manager.

A study done last year by ICICI and Quantum Media showed that most ATM users were college graduates between the ages of 20 and 45. Most were employed, and ATM usage was highest in metro centers and state capitals, according to the study.

"The consumer profile is crystal clear, so the companies get a chance to choose their audiences, and accordingly advertise brands and products," said Quantum's director Sandeep Ahuja. "And the cost is not exorbitant; one prominent bank charges just Rs 1,800 (US $37) per machine per brand for a month's advertising."

Several options have been made available to advertisers, such as the attract screen, mid-transaction screen (which is most expensive, since the customer's attention is maximum during this time), receipt advertising and posters and scrollers at the ATM site.

Srivastava said that ICICI was also using ATM screens and the space within the centers to promote its own products, like car and home loans, mutual fund schemes and bonds. It was keeping the ratio of in-house and external advertising at 50:50, he said.

ATM advertising is being shown at ICICI ATMs in off-site locations like these.

The funds that the advertising brings in help in the upkeep of the ATMs, and, to some extent, defray the cost of armed security guards who are posted at non-branch locations 24 hours a day. The cash generated is not sufficient to pay for more ATMs.

"While the ATM is still a physical channel, our attempt is to build up the virtual channel, such as the Internet and call centers," said Kamath. "This is a part of our original clicks-and-bricks strategy, which still holds good."

The bank claims that 10 percent of its customers are using the virtual channels, and it expects this usage to double over the next six months. Therefore, along with ATMs, ICICI plans to double its call centers during the current fiscal, due to end March 31, 2003, while branch expansion takes a back seat.

Bill payment

"We have already tied up with utility providers for various bill payments over ATMs," said Kamath. "Now a customer can even top up his phone card using the ATM." Those partners include electricity provider BSES, telephone services provider Mahanagar Telephone Nigam Limited and cellular phone companies Orange and BPL Mobile.

ICICI would also like to tie up with state governments that have an e-governance plan in place, Kamath said, so that citizens can make various payments through the ATM. "This is what we have done on a test basis in Jaipur, under the Lok-Mitra (which translates as `Friend of the people') program," he said.

Also turning to technology

Similarly, UTI Bank, which recently entered into a tie-up with BNP Paribas for sharing the latter's ATM network, is exploring similar arrangements with other banks.

UTI Bank's chairman and managing director, Dr P J Nayak, who opened the bank's 107^th branch in Thiruvananthapuram in March, said that 92 percent of all retail cash transactions and 86 percent of all cash transactions of the bank are being done through ATMs.

"We therefore have plans to expand the ATM network from the present level of 470 to 800 during the course of the ongoing financial year. We will be locating several of the new ATMs in post offices of the Indian Posts and Telegraphs," Nayak said.

Yet another bank on a technology spree is Corporation Bank, which is arguably the most forward-looking among the public sector banks – a fact evidenced from the Best Bank award it won for the year 2001, from IDBRT of Hyderabad.

As part of its information technology initiatives, the bank has installed 101 inter-connected proprietary ATMs, stretching from Amritsar in North India to Thiruvananthapuram in the south.

Corporation Bank also induced Finance Minister Yashwant Sinha to inaugurate CorpSmart, a card, which combines an electronic purse and ATM functionality, and CorpNet, an Internet banking facility for individual customers.

Apart from enabling customers of the bank to transact business through the inter-connected ATM network from any part of the country, the facility also allows customers of other banks that are connected to Swadhan network to withdraw cash from Corporation Bank ATMs.