Earlier in February this year, RBI, allowed non banking institutions to set up white –label ATMs to expand country’s ATM network. Banks also supported the decision as such machines will reduce their transaction cost and relieve them from the cost of maintaining the payment channel. The customers have to pay a small fee on using the machine each time. The recent development is that public sector banks are also on the way to outsourcing their automated teller machine (ATM) management functions to third party service providers. Finance Minister of India, in a recent meeting with the bank officials asked them to adopt opex model rather than capex model to manage their ATM network.
Under opex model or operational expense model, the installation and maintenance of ATMs are outsourced to a third party and they will be paid on the basis of each transaction. Currently the banks are following the capex model or capital expenditure model where the bank manages every activity right from buying the machine to choosing the site and maintaining the machines daily.
Outsourcing ATM functions will help the banks to reduce the cost considerably. As of now under the capex model, the cost for banks per ATM transaction is Rs 12-18 if the customer uses the ATM machine of the bank and the cost increases to Rs 17-25 if the customer uses ATM of another bank. By adopting the opex method, the cost per transaction will come down to Rs 5-6 if the customers use bank’s own machine. This will also help the banks to transfer the cost advantage to the customer, who can avail service at a lesser cost.
Recently, a consortium of public sector banks has released tender notifications to outsource 40,000 ATMs. According to Ministry of Finance, about 63,000 ATMs will be set up across the country in next two years under the opex model.
Apart from the advantages, there also lie some disadvantages on outsourcing the functions to third parties. The banks outsourcing their teller machine functions should be cautious of the number of transactions presented by the service supplier. They need to check if the transactions submitted to them by the service providers are genuine or not.
Another challenge that banks face are with regard to the location of the ATMs. Many outsourcers insist to change the site of some ATMs especially those located in rural areas as they are not able to achieve break-even on operating the same. This issue is conflicting with the purpose of bank to provide banking service to all levels of the society.
But for banks which are not technologically advanced and those who do not have enough capital to invest in maintaining of ATMs, outsourcing is the only way for them. However, opex model will help the banks to expand their services to rural areas and relieve them from the burden of maintaining large number of ATMs.