I was passing by my wife’s native village a few months ago and something caught my eye. It was a small ATM kind of premise with INDICASH billboard. My wife asked me curiously “has TATA also opened a bank?”.It is he typical reaction many people express when they see White Label ATMs in India.
What is White Label ATM?
White Label ATM is series of ATMS established under Payments & Settlements Act of 2007. These White Label ATMs do not come directly under Banking regulation. Usually private entities operate these ATMs. However there will be a sponsor bank which will load the ATMs and ensure cash is stocked up in these White Label ATMs.
These White Label ATMs offer convenience to the customer and ensures there is ATM facility available in even rural and Tier III towers. While in US there are 14000 ATMs per 1 crore citizens, this penetration is less than 1000 ATMs for same population size in India.
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Currently TATA Communication Payment Solutions, Vakrangee Software, Muthoot Finance, SREI Infra, AGS and 15 other companies have been given permission to start White Label ATMs in India.
White Label ATMs in India
The existing rules and regulations prescribed by the Reserve Bank of India allow only banks to set up Automated Teller Machines (ATMs) as delivery channels. They have a significant role in encouraging the use of ATMs and seeking its adoption by customers.
The introduction of the teller machines has changed the way a customer interacts with the bank. In addition, the machine made the withdrawal of cash at any time of the day. Customers no longer have to visit the account-holding branch, fill up the withdrawal leaflet and submit the same to take money from the account.
The investment in setting up ATMs is part of the strategy that helps the bank to offer a variety of services to customers. Furthermore, the platform offered interoperable access to different ATM Network Operators and Card Payment Network Operators.
According to the draft released by the RBI, there are over 90,000+ ATMs across the country. However, majority of the establishments are in Tier I and II centers. In view of expanding the devices to other centers, the RBI has come up with the White Label ATMs that allows private players to establish the machines. There is a need to expand the machines across Tier III to VI centers (classification prescribed under Census of India 2011).
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Who can open these ATMs?
The Reserve Bank of India collected feedback from banks, authorized ATM Network Operators and non-bank entities in the year 2012. Considering the feedback, RBI allowed non-bank entities to own, build and operate White Label ATMs in the country.
However, it is only possible for entities that fall under the Companies Act 1956 to set these ATMs. Entities that are willing to set up and operate teller machines in India will be labeled as “White Label ATM Operators” (WLAO). The ATMs will be known as “White Label ATMs” (WLAs).
The approval provides the opportunity for these entities to serve the customers of different banks in India, based on the cards issued by respective banks. The role of the entity is acquisition of transactions of bank customers’.
Therefore, the entity will have to establish a technical connectivity with the existing ATM Network Operators or Card Payment Network Operators. The setup is only possible after obtaining the necessary permission from the RBI under the Payment and Settlement Systems Act, 2007.
The guideline is available at http://rbidocs.rbi.org.in/rdocs/Publications/PDFs/86707.pdf.
After the issuance of a directive from RBI, companies or non-bank entities have four months to seek approval for establishing WLAs. Furthermore, it is important for such identities to maintain a minimum net worth of Rs 100 crore as per the latest financial year’s audited balance and maintain the same at all times.
Criteria and Guidelines for Non-Bank Entities to Set Up, Operate and Own White Label ATMs
These guidelines are mentioned for the technically interested readers. Else please scroll to next section (General rules of White Label ATMs)
The eligibility criteria will be as follows:
- The Memorandum of Association (MOA) must cover the proposed activity for the operation of WLAs.
- In a situation of Foreign Direct Investment (FDI), it is important for an entity to receive appropriate approval from the competent authority. It falls under the procedure notified by Department of Industrial Policy and Promotion (DIPP) and regulations framed under Foreign Exchange Management Act (FEMA).
- The latest financial year audited balance sheet of the entity should possess a net worth of Rs 100 crore.
- The net worth of Rs 100 crore should be maintained at all times.
- The non-bank entity, also referred to, as WLA Operator or WLAO, will have the freedom in selecting the location of the White Label ATM.
- According to the proposed guidelines, the authorization for setting up WLA is valid for one year. During application submission, it is necessary for the entity to provide the scheme and the number of white label ATMs for the installation. The particulars of the scheme is as follows:
- Year 1 – minimum 1,000 WLAs
- Year 2 – minimum of twice the number of WLAs installed in Year 1
- Year 3 – minimum of three times the number of WLAs installed in Year 2
Furthermore, the ratio of 3:1 is applicable for the entity. Under it, for every three WLAs setup in Tier III to VI centers, the entity can set up one WLA in Tier I & II centers. Out of the three WLAs setup in Tier III to VI, Tier V and VI centers will have a minimum of 10% investment.
- The non-bank entity will establish a minimum of 5000 WLAs for a period of three years.
- The ratio of 2:1 is applicable, under which, the entity will install one WLA in Tier I & II centers for every two WLAs installed in Tier III to VI centers. A minimum of 10% installation is necessary for Tier V & VI out of the White Label ATMs established in Tier III & VI centers.
- Under it, during the first year, the entity will establish a minimum of 25,000 WLAs and a minimum of 25,000 units in the next two years.
- The ratio of 1:1 is applicable under this scheme. The entity will have to establish a minimum of 10% in Tier V & VI centers out of the total WLAs established in Tier III & VI centers.
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General rules of White label ATMs
- It is not possible to transfer the authorization of WLAO without prior approval from the Reserve Bank of India.
- It is not possible to switch the scheme after assigning the same to an entity. The timeline for implementation of the project will begin subsequent 30 days from the date of issuance of the authorization.
- If the entity/company wishes to extend their service for the second year, they have to seek the extension of the authorization, three months earlier to the fulfillment of the first-year operation.
- The above stated terms and conditions are portion of The Payment and Settlement Systems Act, 2007 and the company should adhere to the same. Furthermore, there is a need to submit the necessary documents that indicate the achievement of the annual target and ratios to the RBI within one month after completion of one year.
- The transaction from the WLAs is only possible for domestic cards issued by banks in India.
- White Label ATMs do not entertain deposits. Their operation is limited to withdrawal of cash.
- The White Label ATM Operator can display advertisements and other value added services on the screen according to the regulations prescribed by the Advertising Standards Council of India (ASCI). The advertisement of financial products should confirm to the regulatory frameworks of RBI, IRDA, PFRDA and SEBI. The advertisement screen will disappear as soon as the customer begins his/her transaction to prevent any distraction.
- There is five free transactions per month imposed by the RBI and applicable to all bank customers would be inclusive in the transactions carried out at any of the WLAs.
- The WLA Operator will not receive any fee from card-issuing bank other than the “interchange” fee payable to the “acquirer” bank that falls under the bank owned ATM scenario.
- The WLA Operator will not charge any fee directly from the customer but will receive a fee from the bank for the use of ATM resources by the customers. After 5 transaction , a charge of Rs 15 per withdrawal transaction and Rs5 per balance enquiry transaction is applicable. But this will be paid by Bank to the White Label ATM Operator. However your bank will reduce this from your account. So its not technically free. If it is free everywhere why will businesses be interested in opening these ATMs:)
- Failed transactions attract compensation, and the WLAO will follow the regulatory guidelines. Furthermore, guidelines governing the bank operated ATMs also apply.
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Responsibilities and Roles of Various Stakeholders in WLA Model
- Non-bank entities will set up and operate WLAs only after receiving the authorization from RBI under the Payments and Settlement Systems Act, 2007.
- The entity cannot take over the bank operated ATMs. It is essential for a company to draw a strategic plan to install the WLAs according to the criteria set during authorization. It is further vital to mention the value added services that the company plans to offer at the WLAs at the time of authorization.
- The WLAO can have more than one sponsor bank. The transactions at WLAs serviced by the sponsor bank will receive the entire settlement through it. It is important that the Sponsor Bank is an authorized member of ATM Network Operator/Card Payment Network Operators, authorized by RBI and a member of RTGS. The WLAO will ensure a smooth transaction at White Label ATMs without any operational constraints while considering multiple sponsor bank relationship.
- Cash management at WLAs is the responsibility of the sponsor bank. If required, the bank can arrange individual requirements with other banks for serving cash necessities at different places. Although the money belongs to WLAO, the quality and genuineness will be of the sponsor bank. Agents or the WLAO will have no access to the money at any of the White Label ATMs.
- The WLAO will also establish connectivity with authentic ATM Network Operators/Card Payment Network Operators. The entire transaction and their settlement will move through the books of the Sponsor Bank through the ATM Network Operators/Card Payment Network Operators with whom the WLAO established connectivity.
- Servicing and maintenance of the WLAs is the responsibility of the WLAO.
- Cash Management
- Funds Settlement
- Suitable Service Level Agreement (SLA) between the WLAO and Sponsor Bank is necessary to ensure the supply of genuine and quality notes.
- The Sponsor Bank/Banks have the freedom to initiate an understanding with other banks for delivering adequate cash at different WLAs, which do not come under the coverage of the Sponsor Bank.
Inter-bank funds transactions and settlements involving the Issuing and Sponsor Banks will follow the settlement procedures established by ATM Network Operators/Card Payment Network Operators.
The official RBI guidelines of each stakeholder can be found on RBI website.
III. Customer Grievance Redressal
- Although the responsibility of a failed transaction vests with the issuing bank, the Sponsor Bank offers required support during the period and ensures that the WLAO provides relevant details and information to the issuing bank. The Sponsor Bank should sign an agreement and arrangement with the WLAO.
- The directives of the RBI in case of a failed transaction at a bank operated ATM also apply to a failed transaction at a WLA. For any delay in resolving a complaint, the issuing bank will pay the penalty to the customer. The Sponsor Bank will compensate the loss to the issuing bank. It is necessary for the Sponsor Bank to enter into an agreement with WLAO for recovering such amounts.
Authorized ATM Network Operators/Card Payment Network Operators
- ATM Network Operators/Card Payment Network Operators have the chance to offer direct connectivity to authorized WLA Operator. It is only viable under emergencies, and the settlement is through the Sponsor Bank.
- The ATM Network Operators/Card Payment Network Operators have to bring the WLAO under their Network’s Procedural Guidelines, and Dispute Resolution Mechanism put by Reserve Bank of India under extent directives.
Drawbacks of White Label ATMs
The main drawback is that since each bank is inter-related a potential failure by one bank will spread rumours and doubt regarding other banks. For eg., say ABC sponsor bank has low quality operation and someone who holds ATM card from XYZ bank did not get cash from any White Label ATM.
That person will start generating/spreading word that either Sponsor bank or Issuing bank does not have sufficient cash. This will start to spread a negative image of all banks involved in a system due to one bank’s inefficiency. One solution could be to remove the sponsor bank as intermediate which will ensure that one White Label ATM Operator is responsible to interact directly with settlement systems.
The second major drawback is that Customer Grievance, quality and genuineness of the cash depends on the Support Bank. However, WLAO offers its assistance throughout the process and ensures speedy resolution. We all know what happens when there are multiple parties involved. The buck will never stop at one party
Though there are certain drawbacks, White Label ATMs are really a step in the right direction. We can’t have a perfect system at the start. The perfect or optimal operating procedure will be discovered in due time. Let’s hope White Label ATMs assist to bring the much needed financial inclusion in India.
So what is your thought on these ATMs. Do you feel secure when using these White Label ATMs in India? Do you think these White Label ATMs will help bridge the scarcity of ATMs in rural areas? Share your thoughts.