White Label ATMs: Non-bank entities to operate in payment system
Aditi Jhunjhunwala 22 June 2012

As per RBI guidelines notified on 20th June, only big business houses and corporates would venture into this area. However, these entities need to ensure the safety of the customers and public at large

The Reserve Bank of India (RBI) had come up with draft White Label ATMs (WLAs) guideline on 14 February 2012 and has now finally notified the same on 20 June 2012 vide DPSS.CO.PD. No.2298/02.10.002/2011-2012. Presently only the entities in the banking sector are allowed to set up and operate the Automated Teller Machines (ATMs) which have contributed largely in encouraging ATM adoption and modifying behavioural strategies in the domain of personal banking. The statistics by the RBI say there has been 30% year-on-year growth in the total number of ATMs deployed since 2008. However, the ATM penetration on a per capita basis was considered to be less in comparison with other countries like Canada. Therefore, a need was felt by RBI to deploy more ATMs in Tier III to VI centres.

In order to meet the financial resources needs and in the best interest of the country RBI finally has given a green signal to non-bank entities for setting up WLAs in India. Simply put WLAs are those which do not have any bank names or logo hence, known as “White Label ATMs”. This move will not only help the rural population adapt to the banking habit but is also expected to result in financial inclusion of large number of people outside the banking system. WLAs are also expected to reach out to larger public even in remote areas as an alternative strategy to reach customers at large.

Requirements to set up a WLA

  • Parties for setting up a WLA:
  • Non-bank entity (also referred to as WLA operator or WLAO)
  • Authorised ATM network operators/card payment operators like Visa, MasterCard, etc
  • Sponsor bank for cash management, fund settlement and customer grievance redressal

Deadline for application by non-bank entity

  • Any non-bank entity desirous to set up WLA shall have to take permission from the RBI under the guideline for Payment and Settlement Systems Act, 2007 (PSS Act) for non-bank entities . Interestingly, RBI has set up a time frame of four months only from the date of these guidelines to seek such authorisation in case an entity wants to set up WLAs. Beyond, the period of four months the seeking window shall be closed. Though RBI has taken a liberal step by introducing the set-up to private entities as well but has also ensured that there are not many players in the game and so a tight deadline along with strict eligibility criteria has been prescribed. It is further noteworthy that the authorisation to WLAO cannot be assigned or transferred without prior approval. Going ahead relaxation may be expected.

Specific criteria and guidelines—pre and post application

An entity seeking authorisation shall have to ensure the following:

  • Non-bank entity (applicant entity) to be entities incorporated under the Companies Act, 1956
  • The Memorandum of Association (MoA)  of the applicant entity shall have one of the businesses as that of operating WLAs
  • Minimum net worth of Rs100 crore as per the last audited balance sheet
  • Minimum networth criteria to be maintained at all times
  • WLAO can chose its own location
  • In case of any FDI/ODI in the applicant entity or from, the applicant entity the entity shall further seek the authorisation of competent authority under the policy by Department of Industrial Policy and Promotion (DIPP) under the consolidated policy on FDI and regulations framed under the Foreign Exchange Management Act (FEMA). The same must be submitted while seeking authorization
  • The authorisation by RBI shall be valid only for one year initially. For any extension of the authorisation an application to be made three months prior to completion of one year
  • The applicant entity to submit the scheme at the time of application for authorisation
  • Acceptance of deposits at the WLAs by the WLAOs will not be permitted
  • Only domestic cards would be permitted initially

Therefore, it seems that presently only entities with huge business volumes can afford the activity and top the charts. Moreover, non-banking finance companies (NBFCs) with wider reach in rural areas may like to opt for the same.

Scheme by WLAO
Scheme A:
For 1 year    Installation of minimum 1000 WLAs
For 2 year    Installation of minimum twice the number in year 1
For 3 year    Installation of minimum twice the number in year 2

The ratio of 3:1 would be applicable, i.e. for every three WLAs installed in Tier III to VI centres; one WLA can be installed in Tier I to II centres.

Scheme B
A minimum of 5,000 WLAs every year for three years.

The ratio of 2:1 would be applicable, i.e. for every two WLAs installed in Tier III to VI centres; one WLA can be installed in Tier I to II centres.

Scheme C
A minimum of 25,000 WLAs in the first year and at least another 25,000 in the next two years.

The ratio of 1:1 would be applied under this scheme.

One can realise that with the number of requirements under the scheme and with the networth requirements RBI has well ensured that not everyone except giant business houses would be able to undertake the business set-up to ensure integrity and public safety as there is surely an inherent risk by letting private entities enter to set up and operate WLAs. Further, no switch-over of scheme is permitted. As said, going ahead the RBI may decide to relax the norms.

What does one pay to use the WLA?

The WLAO cannot charge any fees directly to the bank customer but shall receive the fees directly from the bank. So, the user, just as before, pays nothing for using the WLAs. However, the extant guidelines on five free transactions in a month as applicable to bank customers for using other bank ATMs would be inclusive of the transactions effected at the WLAs. Therefore, though the use of WLAs would reduce the burden of bank investment and also divert the customer from bank ATMs to WLAs due to wider accessibility, the charges applicable after the five usages in a non-bank card issuer WLA/ATM shall be attracted. Therefore, this might not be so popular.
Seems to be a welcome step for the banks and the corporates

For the banks setting up of WLAs should be a welcome step as the investment will not be required due to participation of private entities and therefore, the banks can actually invest the funds elsewhere in the day-to-day operations. The bank is always a part of the entire process as the WLAO will be taking the necessary services of the bank. Therefore, without investment it is able to cater the needs of the customers and reach out a wider market.

For corporates, surely a new line of business to venture into but as said only the big houses can think of taking a dip. Though both banks and corporates need to ensure the safety of the customers and public at large as there might be chances of transaction failures as well, a customer grievance cell is important. Such WLAs are very common in other countries like US and are treated as an extension of ATMs. In many countries bank even outsource the ATM projects. Therefore, we should all take it as a positive measure as any first step taken is always filled with suspicion and anxieties. We are to wait and watch hoping the show.

(The author is a senior associate at Vinod Kothari & Company and can be contacted at [email protected])

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