Macroeconomic and global trends affecting India's ATM industry

A new report from global professional services firm PwC has revealed that the ATM industry in India has been a steadily lucrative one over the years. Barring a flurry of large fluctuations before and after the government’s demonetisation drive, the industry has grown steadily, recording an average month-on-month percentage growth of nearly 1% through last year.

The banking sector in India has been hit from almost every direction in recent years, ranging from faults in their internal operations, to fraud, to government policies, and overall global trends. One sector that fluctuates in tandem with developments in the banking sector is the ATM industry.

For instance, the Government of India introduced its landmark demonetisation policy in 2016, wherein the highest currency denominations in the country were discontinued, rendering most of the substantial cash reserves in the country useless. Furthermore, there was a cap on the amount of money that could be withdrawn or converted at a time.

Unimaginably long lines at the bank and frustrated tellers were the face of demonetisation, but behind the scenes was the plethora of tasks involved in recalibrating ATMs to dispense the new currency in accordance with the new withdrawal limits, leading to a substantial spike in activity for the ATM industry.

Big Four accounting and advisory firm PwC, in its new report titled ‘ATM Industry: Changing Landscape and Emerging Trends’ has detailed some of the services that are included within the ATM sector, such as site sourcing & development, electronic journal & switch management services, maintenance & installation, and cash management services.

This pool of services – and all the people involved therein – have been affected by a lot more than demonetisation in recent years. The government has been working towards spreading banking services beyond the rapidly expanding urban centres in the country to further include the rural population, which continues to make up the majority in India.

To this end, the Reserve Bank of India introduced the concept of white label ATMs – essentially independent machines operated by non-bank entities. Thereafter, the Federal Bank of India partnered with Tata Communication for Payment Solution Limited to install white label ATMs across the country.

In addition, the global ATM market has seen a number of standards being imposed on it in recent times, particularly with respect to their technological framework. These include the Security Standard Council, the International Organisation for Standardisation, the European Payment Council, and the Payment Card Industry.

As a result, the ATM services industry has received, and is set to receive, considerable boosts  to business as banks and proprietors move to comply with the shifting regulatory framework. According to PwC’s report, these factors have all combined to cause steady growth in the ATM industry.

According to PwC’s analysis, the month-on-month (MoM) percentage growth in the volume of transactions across India has also been increasing steadily, barring the period just after demonestisation was introduced, when the priority among customers was to convert cash rather than withdraw more.

The volume of transactions, as well as the amount involved therein consequently saw a huge drop of nearly 100% for a period of around three months at the end of 2016, following which growth spiked to unprecedented levels of around 50% as people began withdrawing the new currency.

This activity is likely to wane in the near future, however, as an increasing pool of India’s population gains online access, and banks gravitate towards a cashless form of financial transactions. An example of this trend is Infosys’ recent partnership with Tonetag, which hopes to introduce a form of payment through sound waves, eliminating cash-based transactions for as many as 800 million users.

Commenting on this trend, Partner for Financial Services at PwC  Vivek Iyer said, “The ATM industry requires strong support from the (Reserve Bank of India) so that innovation can help bring the (operating) cost down and encourage banks to keep deploying ATMs. The cost of running an ATM infrastructure is around 50% more than the cost of running a digital infrastructure. Hence, banks will tend to move towards digital.“