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ATMs – Enabler to Connect the Unbanked

The Indian economy is poised for phenomenal growth over the next two decades. India’s per capita income in real terms (at 2011 -12 prices) during 2014-15 is estimated to have attained a level of Rs. 74,104 showing a rise of 5.9 per cent as compared to Rs. 69,959 during 2013-14, according to latest statistics. The banking industry will undoubtedly be a critical cog in this transformation. Not only are we going to see a continual upsurge in banking assets, but we will also observe a rising innovation in terms of products and solutions, banking of the ‘unbanked’ population, an increasing percolation of the ‘Digital’ phenomenon.

Serving India’s unbanked through ATMs

India, home to 21 per cent of the world’s unbanked adults, faces a substantial challenge in matching steps with the rest of the world in universalising banking access. According to a recent paper by the World Bank, three countries – India, China and Indonesia accounted for 38% of the world’s unbanked adults, of which China accounts for 12% and Indonesia 6%.

The government’s mission to provide a bank account for every household and social security schemes for the poor is slowly taking root, with more people signing up for them, improving the prospects of achieving financial inclusion for all. In addition, the share of bank accounts with a zero balance has fallen to about half of the total under this initiative compared with as much as 76% in October last year. According to data from the Pradhan Mantri Jan-DhanYojana website, 16.9 crore accounts were opened as of July 15 across public, private and rural regional banks with a combined balance of Rs 20,288 crore. The share of zero-balance accounts has come down to 50.6%, suggesting that account usage is increasing.

The financial services infrastructure has evolved in multiple ways with rural customers having access to banking services through business correspondents (BCs), opening of ultra-small banks, point of sale terminals (PoS), mobile ATMs, door-step bankers etc. Banking and financial institutions are increasingly leveraging technology as an enabler for India’s unbanked population. Increasing ATM penetration in tier II and III towns will be central to realizing the financial inclusion dream for every Indian.

The ATM industry has evolved over the past 20 years and banks are increasingly outsourcing their ATM operations to specialized service providers in the segment. During the year 2008, the pay per use model surfaced wherein service providers generated their revenue from per transaction fee. Nowadays, the transaction based model has been significantly adopted by the industry. According to recent reports, more than INR 35-38 billion was generated by service providers under the ATM managed services model, while nearly INR 28-32 billion under the brown label model in FY’2014.

The outsourcing of ATM services has grown in line with the number of ATMs in India, currently standing at 205536. The volume of transactions at ATMs in India has been increasing majorly due to two reasons that are, increasing debit and credit card base, in addition to the rising number of ATMs in the country. Since the revenue of ATM managed service providers is also dependent on the number of transactions taking place on ATMs, growth in transactions indicate rising revenue of service providers operating in India.

Increasing Financial Literacy

Achieving the objectives identified by the government through the PMJDY program requires raising the level of financial literacy in the country, especially among the rural population who lacked access to formal financial services in the past. While opening accounts is an admirable beginning, simply holding an account at a bank does not signal the success of the program. In this regard, the National Payments Corporation of India (NPCI) is in the process of developing a Unified Payment Interface (UPI) that can be used to transfer money from a bank to any other bank or to make payments to a vendor using a smart phone and the Aadhaar card. Therefore, ensuring that the full benefits of PMJDY usage are leveraged by Indian citizens across various strata of society will require deft programs targeted at inculcating financial literacy amongst Indians, ably supported by a financial ecosystem driven by a supportive regulatory environment.

Richard Canday,

Associate Vice President – Corporate Affairs at Electronic

Payment And Services Pvt. Ltd.

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