ATMs, The ultimate Self-service Channel – A Macro View

The first ATM in India was installed at Andheri East in Mumbai in 1987. It was installed by HSBC bank for its Sahar Road Branch and since then, Indian ATM industry has come a long way, to be the ultimate self service channel.

From the core functionality of cash withdrawal and balance inquiry offered in those days, ATM use cases have now come of age. Today a modern full fledged ATM center offers lot many uses for the user apart from the core functionality of deposit withdrawal and inquiry. A few innovative uses being cardless cash, bill payment, dynamic currency conversion, domestic remittance, service requests, standing instructions even ability to accommodate physically/visually challenged customers.

As of June 2012, there were 99,218 ATMs in operations as per Reserve Bank of India website figures. The estimated growth rate for ATMs is around 23-25% per annum and it’s expected that in next 3 years around 100,000 ATMs will come from private and public sector banks and Independent ATM Deployers (white label ATMs) will bring another 60080,000 ATMs by end of 2013.

If one looks at the split of ATMs for public sector and private sector banks including foreign banks, there is approximate 65:35 ratio with the higher part being contributed by public sector banks. In future, though, with advent of IADs, the ratio may get skewed towards IADs, Public Sector Banks and private sector banks could be last.

Shared Services Infrastructure set ups like NFS, Cashnet, Cashtree have ensured that today bank customers can access the entire ATM base without having to worry about interconnectivity. Technological advances, specifically Wireless technologies, biometrics and smart ATMs are allowing ATMs to be deployed anywhere, to be used by anyone and for almost everything (integrating QR codes to disseminate info or enable a cardless transaction e.g.).

With NFS coming and launch of Rupay card has ensured that the foreign switchers have fewer roles to play in domestic ATM acquiring market, though, on the international front, they continue to hold sway. The interchange market has also become mature with interchange and switching rates coming down due to NFS paying a big role in it. The RBI decision to not allow IADs to charge customers directly has also ensured that interchange rates may have peaked and going ahead, depending on efficiency gained through shared services network, economies of scale, technological advances bringing down cost of ATMs and peripherals, the interchange rates may head south only.

The banks primarily looked at ATMs earlier from a customer service perspective but later added aspects of channel migration, customer acquisition, higher brand recall, differentiation strategy and now even adding revenue perspective to it with addition of value added services like prepaid mobile top up.

Today new business models and use of ATMs are emerging apart what is mentioned earlier, like earning revenue from interchange, forex conversion (Dynamic Currency Conversion), merging m-banking with ATM banking to bring m-commerce capabilities to ATMs, 3^rd party Advertising as per guidelines and of course, cashless ATMs to follow to drive sales volumes at retailers without having to incur card usage charges (for merchants).

The increasing base of Prepaid Cards, m-wallets and initiatives like Aadhar card, to facilitate direct money transfer to cards and permitting withdrawal through ATMs, is going to drive the transaction growth apart from RBI and Government’s initiatives to extend basic banking service to a much larger population.

The managed services space is also seeing great growth with TCBIL overtaking Prizm in a short span and more players like Wincor AGS combine, Euronet and even OEMs managing to stay on the growth path.

The major market drivers for ATMs continue to be customer service, channel migration drive from banks to shift customer transactions from branches to ATMs, use of ATM channel as part of differentiation and acquisition strategy, growth of shared service infrastructure, low ATM density (As of June 2012, the entire country of India had about 99,000 plus ATMs to serve an enormous population. This averages out to a ratio of 1 ATM per 13,333 citizens. By contrast, the U.S. has about 400,000 ATMs, or 1 ATM for every 779 citizens — more than 17 times higher than India's ratio), advent of open loop prepaid cards and m-wallets with biometric expected to play in major role in improving penetration, acceptance and usage of ATMs in rural areas.

Multi currency ATMs, Cash recycling ATMs at retail stores/chains, Cashless ATMs, Bunch note acceptors and coupon dispensers are expected to find more acceptance and will help in growth of ATM market overall. If cheque truncation solution at ATMs deliver to the promise they hold with help from technology vendors and regulator, that could be another key driver to aid growth of self service industry.

In terms of key challenges for the ATMs, the set up and management cost, real estate prices, more use cases for ATMs, possible threat from mobile money & cash-out facility at PoS outlets and shift towards e-payment channels obviating need for cash withdrawal to some extent, will be the ones to overcome apart from finding a viable business model for ATM expansion in tier -3-to tier 6 cities and rural areas.

To conclude, there is huge potential for growth of ATM market, more specifically self service terminals, in India and the tailwinds are strong enough to take the ship to the edge of the world, if there is any.

Note – The views expressed are author’s personal views and for any feedback, he can be contacted at rajnishkhare@gmail.com

Who will own the customer – The Brick & Mortar Giants or the Digital Warriors?

The Digital commerce, Online Purchases & Payments for Goods or Services, is showing tremendous growth and holds vast potential in time to come. Days are not far, where a young and upwardly mobile population will drive the 1^st phase and I believe, the next two phases will be driven by value seekers (price and convenience) and the under banked/unbanked population gaining access to payment capabilities over electronic media.

To borrow some statistics, the growth of the e-commerce market is driven by 2 key factors, showing healthy growth trends - Total number of consumers transacting online (online shoppers) and revenue per online shopper. Quoting 2010, there were around 8 million internet users expected to go to 385 million by 2015 and 8-10 million online transactors/customers expected to go to 38 million by ’15 with hours spent on internet expected to increase from 15 hours now to 22 hours by ’15 on monthly basis. The no of payment options is also, on average, a healthy, more than five – cards, internet banking, mobile, IVR, prepaid cards, gift cards, and cash on delivery, offered by more than fifty percent players today.

The most significant challenge, in addition to internet penetration, payment options, adoption rates, is, how one perceives the customer experience on offline channels (retail stores) and is able to improve them in online world.

The brick and mortar retail stores have a no of advantages. They offer reasonable array of products, provide look, touch and feel experience, enable interaction with a retail assistant to know latest offers, make available instant payment & reasonable delivery timeframes and present a face, one can remember, if there are any problems, one comes across later. Through a customer care desk, they also offer exchanges, replacements and substitution options, if needed, to take care of post purchase experience and finally, they (the stores) are not going anywhere in a hurry.

The e-commerce players also offer some significant advantages over retail store or chains. They can host millions of SKUs online, provide with feature and price comparisons, offer bundled deals, enable convenience (buy anytime, from anywhere), bestow ease of delivery and present variety of purchase options, usually more than five. Additionally, they offer, online customer support (virtual agents), even call centers and well defined policies/built-in systems to handle post purchase experience.

Does that mean they have significant advantages over retail stores/chains and will be able to score over them in future?

Let’s look at some observations on the growth of e-commerce. The e-commerce market is growing in triple digits year on year, scores of online players are mushrooming, offering anything from advice, well diversified products and services portfolio, convenient payment and delivery options, apart from exchange policies/systems. The penetration of broadband (mobile and wire line), PCs and smart devices, no of online banking customers, online shoppers and time spent on internet, all is growing at a good pace.

All this points to a significant market share being captured or to be captured by e-commerce players. If that is the case, then, retail stores should start winding up before falling traffic/margins forces them.

But is it happening? The no of retail stores continue to grow and organized retail in India is estimated to grow in double digits as policy liberalization takes effect, people spend more time in malls & shops (entertainment value, need to connect and retail therapy inducing happiness in a stressed world), disposable income grows, credit culture finds acceptance and shift to better living happens.

So what is it that is important from a strategic point of view - Co-exist profitably thru strategic alliances (combining online/offline) or try to score over retail stores/chains?

The answer lies in taking customer experience to new heights, profitably, and building a brand, reflecting trust in a website, which only has images and words on it.

There are three important aspects the online space can look at to grow and to capture a market share, which can hold them in the long run, in a good stead.

The e-commerce players have to build the pre-purchase experience - look, touch, and even smell. The interactive web, 3D technologies and virtual reality (try the new hairstyle by uploading your photo), can help build an experience comparable to physical visit to stores, if not better.

They need to invest in building the supply chain infrastructure, so sorely needed, to be able to cut down on delivery time (same day delivery) to counter the advantage the retail stores have. The warehouses, the Couriers (logistics), the replacement capability (return or same day pick-up) can take care of the need for early delivery. The payment options need to be as many as needed and India has to beat other online markets like china, where more than 70% of the e-commerce players, offer five or more payment options.

Finally, in online world, brand (read trust, visibility, experience with website) is most important and e-commerce players, if they want to improve the purchase value and frequency for all the assortment they have to offer, right from a photo printing service to travel services, to mass e-tailing to niche sectors to utility sectors to finally high value brand shopping online, they need to invest in marketing and advertising and build a connect with the customer at emotional level and not only at transaction level.

The e-commerce players, who will own and master these important aspects, will be the biggest gainers and someday, will rival retail chains like Wal-Mart, Tesco, Carrefour, just to name a few as examples, and I believe, its not a distant future but a, reasonable few years ahead, reality.

To sum it up, who owns customer experience, will own the customers and rewrite future, be it the Brick and Mortar Giants or Digital Warriors, the clock is ticking.

Note - The views expressed are author's personal views and for any feedback, he can be contacted at rajnishkhare@gmail.com