In this article, Utkarsh Trivedi, of The National Law University Odisha, Cuttack discusses White Label ATMs and gives the steps on how to go about opening it.
What are ATMs?
Automated teller machines or ATMs are machines installed by commercial banks that aid the user in withdrawals, checking balances, transferring money and paying utility bills. The banks, after a prescribed number of free transactions, charge the user a nominal fee to use an ATM. To use an ATM, the user needs an ATM card, i.e. , a debit card (Visa, MasterCard, Rupay, etc) and a pin, which is set up by the user himself, at the time of generating the ATM card. The user can then use the card and its pin to complete as many transactions as he/she demands to.
White Label ATM
As the name suggests, White label, meaning that these ATMs are not owned by any bank but are the property of a non-banking entity. The Reserve Bank of India, in 2011, to promote financial inclusivity, permitted the non-bank entities incorporated in India under the Companies Act to open these ATMs. These non-banking companies would sign a Service Level Agreement with a sponsor bank and a network provider, which would ensure cash flow in the ATMs. These ATMs allow autonomy of operators on deciding locations and creating their own brand with fixed annual targets mandated by RBI. Customers of any bank can use such white-label ATMs, but they will have to pay a fee for using the service. All the transactions through these ATMs will be charged. White-label ATMs accepts only cards issued by banks and does not accept cash deposits.
FDI in White Label ATMs
The Central Government recently approved 100% Foreign Direct Investment on White Label ATMs, this means that any foreign company can sign a pact with a service provider and a commercial bank in India and open an ATM. White Label ATMs are not free to use. The first five transactions are free every month, but subsequently a transaction fee of Rs.15 and balance inquiry fee of Rs.5 which is the commission paid by your bank to the White label Company. As the White label company cannot directly charge money on you, doesn’t mean White label ATMs are totally free, because your bank will cut those charges from your account.
These Non-banking entities earn on a commission basis, for example, a fixed amount for the transaction, say Rs. 15 every transaction. They also earn through advertisement hoardings inside the ATM premise.
Idea behind White Label ATMs
The Reserve Bank of India, in 2012, allowed Companies registered under the Companies Act, 1956 to open ATMs (White Label ATMs), to ensure more geographical reach and financial inclusivity, keeping in mind the population of the country. This was done to keep the customer services in check throughout the entire banking process.
The method of filling up a form after queuing up at a branch of the bank you have your account in, was very time-consuming and hectic, therefore, these White Label ATMs have been brought up, to ease the pressure on the banks while giving the private companies a way to make profit out of the financial system, with the end goal being the betterment of the masses.
Status of ATMs in India
The ATM penetration in India hasn’t been the best. Given below is a table which gives compares India with some other countries, just to give you a fair idea where we stand:
|Country||Approximate number of ATMs per 10 lakh population|
The government, therefore, by inviting more and more private institutions to invest in building ATMs is catering to the needs of the masses, who are living in the age of digitalisation but still don’t have the basic necessity of an ATM around them. There is just 1 ATM for every 13000 people in the country, and if the rate of getting more ATMs is not increased, the alarming rate of population increase will lead to the dearth of the financial sector, in our country.
What is The PSS Act, 2007?
The Payment & Settlement Systems Act, 2007 provides for the regulation and supervision of payment systems held in India and designates the RBI as the authority for that purpose and all related matters.
It was, in 2011, by incorporating this act, that White Label ATMs were given the statutory allowance to be opened up. Non-bank entities are permitted to set up White Label ATMs in India, after obtaining authorisation from RBI under the Payment and Settlement Systems (PSS) Act 2007. It was in the Late 80s that the first ATM in India was opened. In 2012, RBI gave the authorization to open White label ATMs and in 2013, the RBI started giving licenses.
Procedure to open a White label ATM in India
According to the guidelines issued by the Reserve Bank, the step by step procedure to open a WLA is as follows:
- Fill up the form available on the website of the RBI.
- The entity applying for such payment system needs to have a minimum net worth of Rs. 100 crore. Any non-bank entity can apply to open a White Label ATM, and it is not just restricted to NBFC.
- Non-bank entities intending to set up White Label ATMs under these guidelines may approach RBI for seeking specific authorisation, within four months from the date of issuance of these guidelines, beyond which the authorisation seeking window will be closed.
- The net worth of at least Rs 100 crore has to be maintained at all times.
- The authorised non-bank entity (henceforth referred to as WLA Operator or WLAO) would have the freedom to choose the location of the WLA.
Some other important provisions
The RBI mandate has that every Non-Banking entity that opens a WLA will have to adhere to the following schemes.
In the first year, the company shall open a minimum of 1000 White Label ATMs; In the second year, minimum of twice the number of WLAs should be installed, than those in the first year; Subsequently, a minimum of three times the number of WLAs installed in the second year.
The ratio of 3:1 would be applicable, i.e. for every 3 White Label ATMs installed in Tier III to VI cities(population less than 50000), 1 WLA can be installed in Tier I to II cities(Population more than 50000). Out of the 3 White Label ATMs installed in Tier III to VI Centers, a minimum of 10 % should be installed in Tier V & VI Centers.
A minimum of 5000 White Label ATMs should be opened every year for three years wherein the ratio of 2:1 would be applicable, i.e. for every 2 WLAs installed in Tier III to VI Centers, 1 WLA can be installed in Tier I to II Centers. Out of the WLAs installed in Tier III to VI Centers, a minimum of 10 % should be installed in Tier V & VI Centers.
A minimum of 25,000 White Label ATMs has to be opened in the first year then at least another 25,000 in the next two years.
The ratio of 1:1 would be applied under this scheme. Out of the White Label ATMs installed in Tier III to VI Centers, a minimum of 10 % should be installed in Tier V & VI Centers.
These schemes ensure that these companies don’t just look out for profit margins, but, also help the government in the betterment of the rural areas in providing inclusivity, financially.
Current Legal Status of White Label ATMs
Answering a question raised in the Parliament, on 26th Feb 2016, the Minister of State for Finance stated, “Three different schemes are available to WLAOs for setting of White Label ATMs which incentivize the setting up of White Label ATMs in Tier III to Tier VI Centers (population less than 50000). As of 31.12.2016, 11706 WLAs have been set up.”
Indicash is the leader in WLA, being owned by Tata Group, it has set up more than 60% of the White Label ATMs, i.e. 9,000 ATMs as on October 2016.
There are eight WLAOs in the country including Tata Communications Payment Solutions Ltd (9,060 ATMs), BTI Payments Pvt. Ltd. (4,096 ATMs), Hitachi Payment Services Pvt. Ltd. ( 652 ATMs) and Vakrangee Ltd. ( 328 ATMs). As at November-end 2016, WLAOs were collectively running 14,564 ATMs.
The decision to open more ATMs, in the form of privatised, non-banking entities has been a brilliant one. The schemes that regulate the opening of such White Label ATMs have ensured that these institutions don’t just keep in mind the incentives, but also cater to the needs of the rural masses in the country. Only after they open a given number of WLAs in rural centres, will they be allowed to open a WLA in an urban setting. Hence in my opinion, this is a masterstroke for financial inclusivity.
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