White Label and Brown Label ATMs Explained

WHITE LABEL AND BROWN LABEL ATMs

The concept of ATM has given a boost to banking sector in the past decade. Now it’s time to get charged up to higher level through advanced concept of WLAs. Which if properly operated, will help India in achieving financial inclusion.

ATM: Automated Teller Machine

-          A machine that automatically dispenses cash as per a valid request made through a Debit/credit card.

Types of ATMs:

Depending upon  who manages/operates the ATM, these are classified broadly as three types:

1.       Bank owned/operated ATMs

2.       Brown label ATMs

3.       White label ATMs

1.       Bank owned / operated ATMs: initially Banks used to take care of all the needs of ATMs. Starting from searching for suitable place for ATM, to, cash management and back end server connectivity.

But these costs will amount to lakhs and became huge burden to Banks. This is often seen as detrimental to the spread of ATMs. The drawbacks in these are covered by another concept called Brown label ATMs

2.       Brown Label ATMs: A third party takes care of trivial tasks such as place searching, electricity connection, security provision and interior design. The ATM machine is also owned by the thirty along with the physical infrastructure. Banks only handle part of the process that is cash handling and back-end server connectivity. The ATMs will bear the brand of the concerned Bank.

3.       White label ATMs:

These are ATMs setup and operated by third parties totally. In India NBFCs  are given nod to operate in association with a sponsored bank for cash handling purpose. They don’t bear the logo of the bank and instead they have their own brand.

White Label ATMs in-depth for prelims and mains perspective

Given the brief overview of White Label ATMs (hereafter WLAs), we will now proceed to history, necessity and implementation of these  WLAs in India.

The concept of WLAs is popular in Canada.

Why WLAs??

1.       Although there are 90,000 ATMs all over India, they are mostly restricted to Tier I &II cities.

2.       Tier III to VI unbanked/under banked areas have not witnessed much ATM presence.

3.       The ATM penetration rate is pathetic. In India there are 74 ATMs per one million population. Whereas 200 per one million in case of China and 1300 in case of USA.

4.       The need for presence of ATMs is very much needed in rural areas.

Non-bank financial companies (NBFCs) are financial institutions that provide banking services without meeting the legal definition of a bank, i.e. one that does not hold a banking license.

How are WLAs implemented:

1.       RBI has laid down rules for establishment of WLAs according to this, every operator has to apply for authorization under payment and settlement Act 2007.

2.       There are three modes/ schemes in which operators can establish WLAs.

1.       Scheme A:-

a.       Minimum of 9000 WLAs has to be established in the following manner

                                                                                       i.      Minimum of 1000 WLAs in the first year

                                                                                     ii.      Minimum of twice the number installed in first year and

b.      Minimum of Thrice the number installed in second year

c.       The ratio of rural to urban WLAs:  3:1 would be applicable, i.e. for every 3 WLAs installed in Tier III to VI centres, 1 WLA can be installed in Tier I & II centres.

2.       Scheme B:-

a.       Minimum of 15000 WLAs in the following manner

                                                                                       i.      Minimum of 5000 each year for 3 years.

b.      The ratio of rural to urban WLAs: 2:1 , i.e., i.e. for every 2 WLAs installed in Tier III to VI centres, 1 WLA can be installed in Tier I & II centres.

3.       Scheme C:-

a.       Minimum of 25000 WLAs in the first year and minimum of 25000 in the next two years.

b.      The ratio is 1:1

Rules of operation:

1.       Every WLAs operator should show starting capital of Rs.100cr.

2.       After obtaining green signal from RBI, they should tie up with a sponsor bank.

Sponsor bank is the bank which will supply cash to the WLA operator for the ATMs.

3.       Regarding the failed transactions the card issuer bank has the responsibility of solving the issue and sponsor bank will help it.

4.       Tariff:  the charges will be similar to  other bank ATMs. Five free transactions  per month and  above that specific fee will be levied on each transaction.

What can be done at WLAs:

                As of now these are the services available in WLAs:

1.       Balance enquiry

2.       Cash withdrawal

3.       Mini statement

4.       Pin change

Other services which might be implemented:

1.       Movie ticketing

2.       Mobile recharge

3.       Donations

4.       Other services.

Current status of WLAs:

                As far as now, only handful of NBFCs have obtained green signal from RBI to establish WLAs.

The important ones are:

1.       Tata Communications Payment Solutions Ltd. (TCPSL)

2.       Muthoot Finance

3.       Srei Infrastructure Finance

4.       Vakrangee Software

5.       Prizm Payments

6.       AGS Transact

But as of now only TCPS a subsidiary of Tata communications has started it’s operations. Below table gives a brief overview.

NAME OF THE OPERATOR	BRAND NAME	SCHEME OF OPERATION	SPONSOR BANK	FIRST WLA
Tata Communications Payment Solutions Ltd. (TCPSL)	Indicash	Scheme B	The Federal Bank	Chandrapada (v), Thane (dist), Maharashtra.
Muthoot Finance	--NA--	Scheme A	--NA--	--NA--
Srei Infrastructure Finance	--NA--	Scheme A	--NA--	--NA—
Others yet to be released

What are the benefits to Banks:

1.       The huge costs operating an ATM which will amount to 60,000 Per month can be avoided

2.       The rural outreach will help in increasing customer service and thereby business

3.       All the essential services presently available can be provided by paying nominal fee per transaction to the operator.

What are the benefits to WLA operators:

1.       Card issuer banks will pay  fee per transaction basis. That is operator TCPSL will receive Rs 15 for every cash transaction and Rs 5 for a balance enquiry.

2.       Since they are with their own brand and infrastructure, they can promote their partner or

parent brands.

3.       Advertisement revenue can be earned.

4.       The site of the ATM might be used to provide other services like ticketing, bill payment or, maybe, even photocopying service.

Challenges involved:

1.       Depending upon the rental, every white-label ATM needs to get 75-125 transactions a day to make the investment viable

Appendix:

Details of tier-wise classification of centres based on population

(i) Classification of centres(tier-wise) Population(as per 2001 Census)

Tier 1 - 1,00,000 and above

Tier 2- 50,000 to 99,999

Tier 3- 20,000 to 49,999

Tier 4- 10,000 to 19,999

Tier 5- 5,000 to 9,999

Tier 6- Less than 5000

(ii) Population-group wise classification of centres

Rural Centre Population upto 9,999

Semi-urban centre from 10,000 to 99,999

Urban centre from 1,00,000 to 9,99,999

Metropolitan centre 10,00,000 and above

by NITHESH GARUDADRI