The Indian ATM industry has witnessed rapid growth in the past decade. Economic development, growing income--especially in the urban areas--and a transition from class banking to mass banking have been the main drivers for growth of the Indian ATM industry.
According to a report by international financial research and consulting firm, Celent, titled "The Indian ATM Industry: Gearing Up for the Next Phase of Growth", the industry is now entering the next phase.
"The main drivers for future growth are likely to be regulatory changes relating to financial inclusion, increasing penetration, and white-label ATMs," it said.
According to the report, the number of ATMs has doubled in the last three years, reaching 99,218 ATMs in June 2012. The industry is expected to continue on the path of high growth and reach 200,000 ATMs by 2016. As per the report, most of the new ATMs--50 to 65 percent--will be deployed in tier 2 and 3 cities, while tier 1 cities will grow at around 20 percent.
The biggest push has come from India's central bank and banking regulator, the Reserve Bank of India (RBI). RBI and the government have been focusing on the issue of financial inclusion for some time now.
A large proportion of India's population remains unbanked or under-banked. Banks have traditionally targeted urban areas for setting up new branches and ATMs due to higher population density and relatively lesser investment in infrastructure.
Traditionally banks have owned proprietary ATMs. However, they are increasingly sharing ATM networks with other banks to increase reach. The majority of ATM networks are either independently owned or operated under a shared ownership model.
In February this year, RBI came out with guidelines for setting up white-label ATMs (WLA). A WLA operator is defined as an authorized non-bank entity that can run an ATM, and is allowed the freedom to choose the location of the WLA. However, the operator will have to adhere to annual targets and the ratio of WLA between tier 1 and 2 and tier 3 to 6 centers, as may be stipulated by the RBI.
"After a decade of rapid growth, the urban market has now become saturated, while the rural regions remain largely untapped. Therefore RBI in recent years has been trying to design policies to encourage financial institutions to look beyond the urban region," the report said.
Outsourcing of ATMs is a recent phenomenon in India, since strict regulations in the past had prohibited non-banking companies from carrying out banking operations.
Banks are slowly expected to move out of ATM operations and focus on their core business. "It is likely that only around 25 to 30 percent of all ATMs will be managed by banks in 2016," the report said.
Around 30 to 40 percent of ATMs will be managed under the managed services model, while the rest will fall under complete outsourcing.
As per the report, since many banks have already built up a significant ATM base, they are unlikely to completely abandon their role in ATM management.
"It is difficult to predict the split between brown-label and white-label at this point, but the brown-label model is likely to dominate in the short to medium term," the report added.
The outsourcing of ATMs will also mean more business for hardware vendors, as they are expected to see considerable rise in demand for ATM machines. "Given that almost all vendors are [as of now] engaged in services and maintenance of ATMs, some may like to foray into the domain of white-label ATMs," the report said.
Large local players that provide managed services and outsourcing services to banks are likely to move up the value chain and consider the white-label opportunity. Other firms associated with this industry, like telecom operators, network companies, and security and infrastructure providers will also see growth opportunities in the evolving scenario.
"Some large established international players looking for growth opportunities may enter the Indian market with their established reputation and superior services. Many of them have seen their markets in developed economies reach saturation level in the last few years. Some providers may want to look at overseas markets for future growth," the report said.