The introduction of white label ATMs will not be an unmixed blessing, unless RBI keeps a tight vigil over their operations. Whether they will prove white elephants or not will depend on what safety precautions will be mandated by RBI to be complied with by all the stakeholders
The Reserve Bank of India (RBI) had released draft guidelines last month for introduction of “white label ATMs” with a view to expand banking services in the country. So far only banking institutions authorised by the RBI were allowed to set up ATMs and operate them as per its guidelines. As present there are 87,000 ATMs owned and operated by banks in the country, but they are located mostly in urban and metro areas. With a view to further expand banking services in hitherto unbanked and under-banked areas, the RBI has proposed to grant licenses to set up ATMs to private companies fulfilling certain conditions and has invited comments from the public to finalise the guidelines shortly.
Simply put, white label ATMs (WLAs) are those ATMs set up, owned and operated by non-banking companies, which would like to run it as a business enterprise and earn profits. These WLAs do not display any bank logos or labels and hence they are called as white label ATMs and they will serve all banks’ customers, as these WLAs will be interconnected with the entire ATM network in the country.
The proposal to expand the ATM network, whether owned by banks or otherwise, to hitherto unbanked areas is no doubt a welcome addition to the banking network, as it will not only help to inculcate banking habit among the rural population, but will also result in financial inclusion of a large number of people who are presently outside the banking system.
In fact the biggest beneficiaries of this proposal will be commercial banks themselves, as WLAs will serve as an extended arm of a bank and provide cash dispensation to their account holders at a nominal cost, without the need to set up a branch or an ATM of their own, thereby considerably saving on cost which can very well be used for their mainline operations. It is by promoting the habit among the banks’ customers of using ATMs over a longer period, all the banks will benefit tremendously as it will result in lesser customers visiting the branches to withdraw cash and other banking needs, thereby saving in transaction costs, man-power cost, and fewer customer complaints of delay and such other problems generally encountered in branches of banks due to heavy rush observed particularly during the first week of the month.
The proposal, therefore, will be useful to both the banks and their customers, and deserve consideration. But before they do so, certain precautions and safety measures are to be put in place to ensure that these WLAs do not become white elephants to the consumers, who may be easily taken for a ride in the absence of strict rules and regulations and a mechanism to ensure their compliance.
At present customers of most of commercial banks enjoy ATM facility on the following terms.
1. A savings bank customer of each bank can use the ATM of his bank through the ATM card issued by his bank, any number of times free of all charges for withdrawing cash or for any other services offered through the ATM, provided he/she keeps an operating SB account with that bank.
2. If a customer of bank ‘A’ uses the ATMs of bank ‘B’ or any other bank, he will not be levied any charges for the first five transactions in a calendar month. Thereafter for every transaction, he or she will be charged Rs20 per each cash withdrawal and Rs8 to Rs10 per each non-financial transaction like balance enquiry, etc, if he uses other banks’ ATMs.
The RBI in its draft guidelines has suggested that the operator of the WLAs will be entitled for fees to be collected for every transaction completed by using their WLAs as detailed here under:
1. “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 effected on the WLAs. The charges for the transactions should be displayed on the screen before the customer initiates the transaction.
2. The WLA operator would not be entitled to any other fee from issuer bank other than the ‘interchange’ fee payable to the ‘acquirer’ bank under the present bank-owned ATM scenario. The WLA operator shall also not be permitted to charge any fee from the customers for the use of the ATM resources.”
These guidelines apparently show that the WLA operator will get their fees twice, once from the customer who uses the WLA and secondly from the ‘interchange fee’, the fee which a card issuing bank pays to the ATM operator to cover the cost of the transaction, and this cost is absorbed by the card issuing bank. The RBI should look into this aspect and clarify this matter for the benefit of the public.
However, if the proposed rules are implemented, the customer will lose the benefit of free five transactions in a month, if he uses the WLAs and will be charged for every transaction as decided by the operator of the WLA. This will be a disincentive for the banks’ customers to use these WLAs. As is well known, ATMs are predominantly used by the middle and the lower middle-class of our population, who are sensitive to bank charges. It is therefore, necessary for the RBI to ensure that the present benefits available to banks’ customers are not curtailed, nor the operators are allowed to charge fancy rates for using their ATMs,
More than anything else, the RBI should not lose sight of the most important aspect of inherent risks involved in allowing private entities to set up, own and operate WLAs as there is a distinct difference in attitude between banks and the private parties in owning and operating ATMs. Banks today look upon ATMs as a service to their customers and not as income generating activity per se, and take enough care to protect the interest of their customers with a view to protect their own image. All over the world ATMs are the cause of a large number of bank frauds, and India will be no different, more so when the nameless WLAs are installed, where the emphasis will naturally be on generating more income and protecting the interest of the user may receive secondary importance.
As per the report of the expert group constituted by RBI last year, 99% of the ATM cards issued by banks in India are magnetic strip cards and the data stored on them are vulnerable to skimming and cloning, meaning that they are more susceptible to frauds. The expert group has recommended that it is desirable to upgrade the magnetic strip cards to smart chip-enabled ATM cards with PIN, as these are considered safe from the user’s point of view. This is a massive job as there are about 240 million debit cards and 20 million credit cards in India at present, and most banks’ host systems are not ready for issuance of chip cards.
Besides all our existing ATMs numbering 87,000 are not currently enabled for accepting chip-based cards, though many of them are capable with upgrades to hardware and software. Most countries in the world have migrated to chip-based card with PIN on regulatory mandate as these cards provide protection against both counterfeit (skimming) and lost and stolen card frauds.
The RBI is yet to take a decision on upgrading the ATM cards and the related ATM infrastructure to chip-based PIN cards, as they are awaiting the progress of Unique Identification Project (UID) to determine as to whether UID based biometrics can be adopted as the second factor authorisation for all card transactions. In case UID based biometrics is to be adopted it will require an upgrade of the acquiring infrastructure including ATMs with finger print readers.
The RBI in its circular issued to banks in September 2011 had conveyed that the position of Aadhaar-based biometric authentication as a second factor authorisation for card transactions would be reviewed by December 2012 to assess the need for a complete switch over to chip and pin technology for card-based transactions. Now that the RBI has proposed to allow setting up of white label ATMs, it is all the more necessary for RBI to hasten the process of review and take a decision much earlier, so that all future ATMs, whether owned by banks or private entities, are geared to meet the highest safety requirements mandated by RBI to protect the interest of banks’ customers.
It goes without saying that the RBI should consider the interest of banks’ customers paramount and safety of their money more sacred than rushing ahead with white label ATMs to be set up by private parties, for any hasty decision can jeopardize the interest of the public with dire consequences.
As the saying goes, “it is better to be safe than sorry” and hopefully RBI appreciates this in its own enlightened self interest.
(The author is a banking and financial consultant. He writes for Moneylife under the pen-name ‘Gurpur’)
Fiscal discipline, productivity improvement, and petroleum pricing reforms are the three key steps to pull the Indian economy out of the high-inflation trap, Crisil’s report titled ‘Putting a lid on inflation’ said
New Delhi: In order to control inflation, the government should come out with a credible roadmap for reducing fiscal deficit in the forthcoming Budget, reports PTI quoting rating agency Crisil.
“To reduce and stabilise inflation, the Budget 2012-13 needs to lay out a credible roadmap to cut the fiscal deficit-GDP (gross domestic product) ratio by restraining consumption expenditure,” said the report titled ‘Putting a lid on inflation’.
It added that creating a fiscal space through expenditure reforms would enable the government to invest in agriculture as well as infrastructure, where supply is deficient.
Fiscal discipline, productivity improvement, and petroleum pricing reforms are the three key steps to pull the Indian economy out of the high-inflation trap, it said.
Headline inflation fell to an over two-year low of 6.55% in January, after remaining in double digits for most of 2010 and 2011.
Finance minister Pranab Mukherjee, in his Budget to be presented in the Lok Sabha on 16th March, is expected to announce steps to contain deficit which during the current fiscal is likely to exceed the estimate of 4.6% of GDP.
As regards inflation, Crisil said, it has been high in the last six years on account of adverse shocks from shortfall of food items and rise in fuel and commodity prices.
“The supply shocks had a lasting impact and inflation became persistent, as the government policy increased consumption demand but did not do enough to improve supplies through investments,” it added.
The current pricing regime for petroleum fuels not only increases subsidy burden but made retail price adjustments sharp and unpredictable.
“Aligning international and domestic prices of petroleum fuels will reduce the surprise element of abrupt changes in administered prices. This will not only cut the subsidy burden but also rationalise demand for these products,” Crisil chief economist Dharmakirti Joshi said.
“There were about four issues which came up for resolution before the EGoM and three of them have been resolved fully. Basically the issues were relating to the 700 Mhz band those have been resolved,” telecom minister Kapil Sibal told reporters
New Delhi: An Empowered Group of Ministers (EGoM) on Monday decided to allocate 700 Mhz spectrum band for offering fourth generation or 4G telecom services, reports PTI.
“There were about four issues which came up for resolution before the empowered committee and three of them have been resolved fully. Basically the issues were relating to the 700 Mhz band those have been resolved,” telecom minister Kapil Sibal told reporters here.
This particular band (700 Mhz) is considered to be very efficient and could fetch the government revenues more than it got through auctioning of 3G spectrum last year.
According to officials in Department of Telecom (DoT), spectrum in 700 Mhz band require probably half the investment to roll out services compared to what was required for rolling out services in wireless broadband spectrum auctioned in 2010.
The information and broadcasting (I&B) ministry has earlier placed its claim in this spectrum band saying that Doordarshan has 40 Mhz frequency assignment for mobile video link and 8 Mhz for digital transmission in four metros.
“The I&B has kindly agreed to vacate that band and that issue has been resolved,” Mr Sibal said.
In other major issue on vacation of 1700 Mhz to 2000 Mhz spectrum band between defence and telecom ministry, Mr Sibal said that most of the matters related to it had been resolved and expressed hope that it will be completely resolved in next meeting of EGoM scheduled for the coming week.
“Then there were some issues relating to 1700 Mhz to 2000 Mhz band. We have had a full discussion and hopefully it will be resolved next week,” Mr Sibal said.
In this case, the defence ministry had shown interest to give DoT only 150 Mhz and retain the rest 150 Mhz while DoT has been pushing the ministry to give it 230 MhZ and retain 70 MhZ in the civilian areas to operate sophisticated equipments but allot all 300 Mhz in the urban areas.
This spectrum can be used for 3G services, 4G services and it is a progressive band for CDMA technology as well.
As per the MoU signed between the two ministries, the defence ministry had agreed to vacate 25 MHz of 3G spectrum and 20 MHz of 2G in phases. In return, the DoT had committed to set up an exclusive defence band and defence interest zone for the armed forces.
The project, however, is stuck because of financial constraints. According to sources, the Planning Commission has approved Rs800 crore for the project as against demand of Rs6,767.94 crore by DoT which included Rs5,000 crore earmarked for OFC based network for defence services.
The EGoM, headed by finance minister Pranab Mukherjee, was also attended by home minister P Chidambaram, defence minister AK Antony, telecom minister Kapil Sibal, Planning Commission deputy chairman Montek Singh Ahluwalia, information & broadcasting minister Ambika Soni.