Diebold Integrated Services Quest

Diebold Integrated Services Quest
I was one of many attending Diebold’s Integrated Services Day held on April 15 at its’ headquarters in Canton, Ohio. After 150 years of business primarily as a hardware manufacturer, Diebold last week announced that its business model is shifting away from products toward integrated services. Over the next five years, Diebold will strive to have 75 percent of its business coming from the servicing side of the business, up from roughly 50% in the current year. While not entirely unique among ATM manufacturers, Celent finds this move significant on two levels. For Diebold, the move is a smart one, with hardware sales growth increasingly challenged across the globe. NCR and Wincor Nixdorf are seeing similar dynamics. The larger attraction lies in a new business model for ATM deploying financial institutions. In today’s capital starved environment, Diebold’s move replaces significant capital expenditures with more easily obtained ongoing operating funds. Its move comes when envelope free ATMs are being deployed by a growing number of banks. Deposit automation ATMs are becoming more attractive as banks truncate checks at points of first presentment across the enterprise. In that environment, traditional envelope deposit taking ATMs – particularly remote ones – incur disproportionate servicing costs. Diebold’s move strengthens its position versus independent service operators that have comparatively little experience with the new machines. Collectively, Diebold, NCR and Wincor Nixdorf are making it easier for financial institutions to replace aging “cash dispenser” ATMs with more capable self-service devices.

New ATM Rules on the Block

New ATM Rules on the Block

On April 1, India entered a new era in ATM banking. The Reserve Bank of India, central banking authority of India, brought about a proposal to allow the bank customers to withdraw money from ATMs of any other bank in India free of charge. Earlier, a fixed charge was levied on the customer by the banks for any cash withdrawals from their ATMs. The transaction fee was reduced to a maximum of Rs. 20 (around 50 cents) on March 31, 2008 and further made free of charge with effect from April 1, 2009. India has now joined countries like UK and France which doesn’t charge any usage fees on bank customers.

While this is a boon for customers, the banks will have to rethink their business strategies. Although the usage fees are not charged to the customer, the bank would extract the fees from the bank which maintains the account of the customer. This inter-change fee is not fixed and will be decided by mutual bilateral agreement between the banks. Thus, the strategies of banks would now revolve around these inter-change fee rates.

The strategy would vary depending on the size of the bank

  • The banks that would gain from this move are those with a large number of ATMs. As of December 31, 2008, State Bank group had the highest number of ATMs with 11,250 ATMs around the country, followed by ICICI bank at 4,600 ATMs and Axis Bank at 3,570 ATMs. According to initial reports, these banks are expecting a rise of 10-15% in inter-change transactions.
  • The banks with small number of ATMs will be rethinking their ATM expansion strategies. Setting up an ATM in India would cost about Rs. 6 lakhs and a maintenance cost of about Rs. 50,000 – Rs. 60000 per month. Hence, the smaller banks might be better off paying the inter-change fees than setting up and maintaining an ATM. However, initial reports suggest that there is no slowdown in the ATM expansion plans, as many banks expect an increased usage of ATMs and would want to capitalize on the trend.

Also, in addition to the banks making their moves, white-label ATMs are also being planned to be launched in India. The ATM market will be going through an interesting phase and it is worth a watch over the next few quarters.

Can the villagers spell A-T-M?

Can the villagers spell A-T-M?
Gone are the days when only the rich withdrew money from ATMs in India. India has seen exponential growth in ATMs, with a cumulative annual growth of about 70% since 2000. During 2007-2008 alone, the number of ATMs grew by 28.4%. However, there has been a clear lack of symmetry in their spread. The ATMs in India are concentrated in urban areas, and penetration into the rural market has been slow and lethargic. Around 70% of India’s population, with a literacy rate of about 60%, lives in the rural regions. To access the unbanked population, banks are looking to expand into the rural and semi-urban areas. With many of the rural population unable to read or write, how are banks tackling the problem of making the ATMs accessible to them? The Celent Report The Dragon and Tiger of the ATM Markets: China and India touches upon the usage of innovative channels like Biometric ATMs (with authentication through face, iris, and fingerprint recognition technologies) and handheld PDAs. As an update to the report, State Bank of India, the largest public sector bank, announced that it will be installing 150 biometric ATMs in the country by the end of March 2009. Other banks have installed biometric ATMs as proofs of concept at different villages all over the country. Most of these biometric ATMs work on fingerprint technology as the means of authentication. NCR and Diebold are the major players providing biometric ATMs in India. Other products like Grammteller, a low-cost ATM developed by IIT-M TeNet group and Vortex, have also entered the market and promise to significantly reduce the cost of operations for the bank. Despite such advances, some issues remain for the banks to sort out.
  • Connectivity. Without proper broadband penetration, banks will have trouble setting up ATMs in remote villages.
  • Energy. With many villages receiving less than eight hours of electricity per day, uninterrupted power is something that the banks need to think about
  • Maintenance. Remote villages will lack technical expertise to handle ATMs.
  • Security. Both the network security and the physical security of the ATM booths need to be handled.
The silver lining is that the rural population has been showing technological affinity for mobile and e-commerce. The process would be slow, but the banks should be able to reap the benefits over a period of time. How long? We will be there to find it out.