STRATEGIC PARTNERS
India's UTI Bank, which recently signed a deal to locate ATMs in India Post branch offices, is convinced that network sharing is the key to enhanced ATM services. Competitor ICICI Bank prefers to go it alone.
May 14, 2002
Reprinted with the permission ofThe Asian Banker
India's UTI Bank and ICICI Bank recently announced separate initiatives to double the size of their ATM networks. UTI Bank will locate its new ATMs in India Post branch offices in an exclusive tie-up, while ICICI Bank will go it alone and roll out another 1,000 ATMs.
Both UTI Bank and ICICI Bank recently announced they would continue to build up their retail distribution capabilities by setting up more ATMs.
UTI Bank plans to add another 400 ATMs to its existing network of 500 ATMs in its next fiscal year starting April. The bank had sealed an exclusive tie-up with the Indian postal service to set up ATMs in its post offices. The deal will facilitate the use of UTI Bank-owned ATMs by the 124 million customers of the postal service's savings bank.
By offering its own ATM network connectivity to other banks, UTI Bank is seeking to increase its ATM network revenues and recoup the huge infrastructure investments it has made.
Shares well with others
Hemant Kaul, head of retail banking at UTI Bank, said he was "keen on the idea of shared ATM networks," and sees it as the way Indian banking industry will develop in the future.
This view is set against the context of India's mammoth state-owned banks gearing to build their own ATM networks. According to Kaul, state-owned banks lag behind domestic private sector banks in terms of technology and ATM infrastructure development. He concedes, however, that state-owned banks have "deep pockets and will want their own infrastructure."
Currently, state-owned banks have a small shared payment network called Swadhan.
"UTI Bank is part of Swadhan," said Kaul, "But we are not seeing much activity happening on that front."
According to Kaul, the concept of a shared ATM network is still in its infancy in India, currently limited to the Visa and MasterCard networks and limited bilateral arrangements between domestic and foreign banks. UTI Bank currently has bilateral arrangements with BNP Paribas and India Post. Bilateral arrangements between domestic ATM network operators do not exist.
UTI Bank will hope that its tie-up with India Post will nudge other state-owned banks to consider leveraging on existing ATM networks -- such as the one it owns. The benefit proposition for state-owned banks would be a lower total cost of ownership as the costly infrastructure investments have already been made.
Going it alone
The reality from ICICI Bank's view is quite different. It feels that a proprietary approach enables the bank to better build its brand recognition and retain control over its distribution strategy.
"Our short term priority is to build our ATM network and our brand name," said Shri. O P Srivastava, head of ICICI Bank's channel management group who oversees the ATM project at the bank. "We have no plans to enter into ATM sharing agreements with other banks at present."
He also said that the bank was not considering any proposal to tie up with independent ATM network providers, nor non-bank players like large-scale retailers to pursue a joint ATM strategy.
Srivastava further added, "The time is not right for network sharing because all the banks are in acquisition mode, and ATMs are seen as acquisition tools."
While this seemingly contradicts its earlier position when it was in negotiations with India Post, ICICI Bank at least, may have the requisite size to go it alone. ICICI Bank currently has the largest ATM network in India with 1,000 ATMs, and plans to double this figure in the next 12 months.
According to figures provided by the bank, ICICI Bank has issued approximately 1.8 million bank cards, 560,000 credit cards and 530,000 debit cards. It has 4.97 million retail customer accounts. Its recent merger with parent ICICI Group will make it the second largest domestic bank in India, behind state-owned State Bank of India.
Whether Indian banks choose to partner or go solo in their ATM build-up, one thing at least is clear: the Indian market is still vastly under-served by ATMs.
According to Srivastava, ICICI Bank's total ATM transaction volume averages 260,000 per day. This works out to an average of 260 transactions per ATM per day, a figure that has not dipped despite the bank rolling out as many as 50 ATMs a day in certain periods. This is a clear signal of a brisk rate of channel migration and demand for ATM services.
