The basic value proposition of an Automatic Teller Machine (ATM), in addition to 24x7 customer service, was its lower operational cost for the bank - servicing through an ATM is almost 3 times cheaper compared to a branch. Courtesy the recent RBI rule of making 3rd party cash transactions free of charge, the dynamics of banking economics have chaged drastically. Here, I present a few perspectives on the impact of this new rule. Consumers: Benefit. Consumers of smaller banks benefit much more owing to free access to wider ATM networks of larger banks.
Large Banks: Net Benefit. Consumers of smaller banks tend to withdraw more and more from the more accessible ATMs owned by larger banks. Though the consumer is no more charged, the small banks will have to pay the larger banks a fee for such transactions. Thus, a new profit centre is born. Better Cash Inventory Forecasting practices will need to be developed.
Small Banks: Net Loss. They invariable end up making net payments to the larger banks. In turn the smaller banks would be forced to charge customers indirectly viz. higher minimum balance, higher maintanance charges etc. Alternately, they would need to ramp up networks quickly. Though this may not directly lead to consolidation in the banking sector, this step will definitely step up pressure in that direction.
Consumer behavior: With greater access to ATMs, consumers may tend to withdraw cash in much smaller quanta than before. The volume of transactions will go up causing longer queues at ATMs. This may prompt banks to review their Cash Inventory/ denomination policies. The use of plastic money will however continue to grow.
Banking Industry: Improved ATM penetration - Spur growth of ATM networks with the change in economics of ATM netwroks. Accentuated need for consolidation as described above.
At a tactical level, banks are likely to target making their ATM networks as a profit centre. Eventually, ATM networks will no more be strategic differentiators for the banks. The move could take banking as an industry to a higher level of differntiation in service. The customer remains the KING!
yeah, Very informative and analytical nature of the blog will make everyone to realize the hidden benefits, But as a consumer I still expect "Deposit" operation to be included in that so called ATM machine, like ARM - Automatic Receive Machine :). So may be the banking branch offices may not be required if that is the case. What do you friends!! ?
ReplyDelete"What do you say friends???" correction to above comment last line :)
ReplyDeleteI also see a potential business idea. Why not a private ATM which dispenses cash and charges banks a transaction fee. How about Reliance ATMs and Airtel ATM :)
ReplyDeleteConsidering the Running cost , capital investment & feasibility vs Total catered Customers this policy is a boon to small banks. Have a look at the tangible and intangible costs associated. For ex. VSAT (cheapest alternative to comm) itself costs 1 Lac Rs , Over and above are back up leased line cost, Real estate cost, Maintenance enginner cost (All ATM’s have to follow more than 90% service levels best in industry standard is 98% and hence need dedicated Engineer ), ATM machine and lot more.
ReplyDeleteThis era is of “Think global & wok local” . Existence of diff localized SBI under single umbrella is clear indicative of it. Considering the Indian scenario of majority of population belonging to Sub-urbs/Rural this policy will give equal defensive chances to even smaller banks.
Rather than just working on lines of Tech oriented things like ATM there are other things like Subsidized & easy loaning, Insurance, credit cycle extension and Farmer education initiatives which can be worked upon to bring more sales. There is a need to find fortune at the “bottom of the pyramid” and not just competing with the big whales (obviously you will be eaten up) . There is still an unspeculated market potential in India.!!!!
As far as Cash forecasting is concerned it’s not diff job. Everyday once the ATM machines are filled up with cash and banks have enough liquidity to take care even if they have to fill it up once in a day for regular 30 days (Unlike unforecastable chaotic scenario’s like ICICI bankruptcy rumors when all ATM’s went out of Money within hours ).
Looking from birds eye view this initiatives will bring more value in Cash -Cycle supply chain,
1) Coz companies will spend money diligently and not just think over a “Tag of war” competition and boast-off of their IT infrastructure by placing back to back ATM’s in close proximity .
2) Harmoniously distributed crowd at ATM’s, better infra utilization.
3) Companies can work collaboratively and think of service level (which definitely and directly affects Cash Forecasting).
4) Future market opens up for Outsourced ATM services where the Vendor would invest in better equipment (Biometric ATM’s-especially useful for Rural population)
Thanks,
Ratna Deep
Rightly said Kanth! Need to look into RBI policy and economics though :)
ReplyDeletelast week i had checked my SBI account and was shocked to see they have deducted 50 rupees as an annual maintenance charge of debit card.This was not the case last year.Now following are my views on the topic
ReplyDeleteConsumer: Rightly said Pawan consumer will get benefits provided the new form of maintenance charge wont come.
Large & small banks:Banks that tried to save capital cost by going slow on their ATM expansion would now have to pay for it,thereby creating a natural competition for expansion of their existing network.I can see an analogy between this event & the typical Capitalism where richer getting richer & poor geeting poorer was true & here the sense would be bigger getting bigger & smaller getting smaller.
Consumer behaviour:No difference in the ATMs would be trying to launch indian ATMs towards proven White ATMs .