ATM Outsourcing

- State of the Indian market

Special Report
June 2005
IBS Publishing Pvt Ltd
Telephone: +91 20 56030453
Fax: +91 20 56023653
Web site: www.ibsintelligence.com
www.ibspublishing.com

Contents

KEY DRIVERS FOR ATM OUTSOURCING

HISTORY

ATM OUTSOURCING IN INDIA

ATM OUTSOURCING MODELS

WHITE LABEL ATMs

11

INTEGRATION OF ATMs WITH OTHER DELIVERY CHANNELS

12

VALUE ADDED SERVICES

13

SECURITY ISSUES

14

ASSESSMENT OF BENEFITS BY BANKS

16

THE FUTURE ROADMAP

16

Research Sponsor:

For information related to subscriptions, please email shilpa@ibspublishing.com

or write to IBS Publishing Pvt Ltd, Daya Prabha House, Gulmohar Park, ITI Road, Aundh, Pune 411007, India.
2005 IBS Publishing Pvt Ltd - All Rights Reserved.

ATM Outsourcing
- State of the Indian market
IBS-IBA Special Report
June 2005

Key Drivers for ATM Outsourcing

ATMs are expensive to own and operate, especially for banks with a limited branch
network and human capital already stretched to capacity. Banks have been struggling to
balance the demands of increasing customer care touch points while reducing the cost to
serve. In particular, ATMs continue to be an extremely important customer touch point to
banks, but also represent a significant cost. This cost includes ongoing expenses due to
servicing, monitoring, rent, and other operational costs, as well as capital investment in
the ATMs themselves.
The need for external services providers who help reduce expenses and eliminate
unnecessary capital cost while assuming the burden of ATM operations is therefore
becoming paramount. Managing ATMs is becoming an increasingly complex task with
each passing day with advanced services being offered. Banks have realised that the
value of the ATM is not in its ownership, but in its ability to provide customers with
convenient access to their bank accounts. This has been one of the reasons for bankers
to let external vendors handle the ATM channel.
Banks generally do not consider ATM management a part of their core business. They
would rather focus on customers than on managing the ATM network. That is why they
prefer to outsource ATM related services. Logistics of some of the services like security,
cash replenishment, network and switch maintenance require skills that banks do not want
to invest in, says A K Upadhyaya, assistant general manager, information technology,
Bank of Baroda.
There are other factors also that drive banks to ATM outsourcing. One such factor is
transaction volume. For instance, the rise in the number of ATMs installed in the US has
resulted in reduction of transaction volume per ATM. Even in India, the rate at which
ATMs are being deployed is
presently greater than the rate
Table 1: Key Drivers for ATM Outsourcing
of growth of ATM transactions.
This reducing margin per ATM
Availability of expertise
is one of the key drivers of
ATM outsourcing. Operational
Optimal use of resources
efficiency and cost efficiency
Proactive maintenance
are the two major factors that
are driving banks to outsource
ATM related services, says
Loney
Antony,
managing
director, Euronet Services
India.

Single point of contact

Committed uptime
Quicker implementation of technology upgrades

Operational
complexity
Systematic reporting and MIS
relating to network monitoring
and maintenance, monitoring
Trained staff
of performance both for on-site
Enables the bank to concentrate on its core business
and off-site ATMs, cash
replenishment and forecasting;
places significant demands on
the valuable management resources in banks. Also, management of the call centre, first
and second level support functions, and vendor relationship management are some of the
areas that banks increasingly find better to outsource to third parties that have a credible
and reliable service offering. Outsourcing helps banks to manage technology
obsolescence, security and uptime more efficiently, says Deepak Chandnani, managing

2005 IBS Publishing Pvt Ltd - All Rights Reserved.

ATM Outsourcing
- State of the Indian market
IBS-IBA Special Report
June 2005

director, NCR India. While selecting such third parties, banks assess the infrastructure
available with them and their ability to manage multiple aspects of the ATM network.
Many financial institutions today dedicate significant financial and management resources
to the ongoing operation and support of ATM networks. As financial institutions
increasingly come under pressure to cut costs and boost margins, they are discovering
that outsourcing their ATM network can bring improved performance and a reduction in
operational costs. The key to making the ATM outsourcing relationship successful and
profitable is knowing what to look for in the outsourcing relationship, choosing the right
service provider, measuring the outsourcing ROI and maximising value of the outsourcing
relationship.

History
Very few inventions of this magnitude and complexity are successful in their first iteration.
In 1939, a serial inventor by the name of Luther George Simjian created the Bankmatic
automatic teller machine. Simjian filed 20 separate patents related to the device and
persuaded what is now Citicorp, to give it a trial. After six months, the bank reported of
insignificant demand.
Don Wetzel was the co-patentee and chief conceptualist of the modern automated teller
machine, an idea he said he thought of while waiting in line at a Dallas bank. At the time
(1968) Wetzel was the vice president of product planning at Docutel, the company that
developed automated baggage-handling equipment. The other two inventors listed on the
patent were Tom Barnes, the chief mechanical engineer and George Chastain, the
electrical engineer. It took five million dollars to develop the ATM. The concept of the
modern ATM first began in 1968, a working prototype came about in 1969 and Docutel
was issued a patent in 1973. The first working ATM was installed in New York based
Chemical Bank.
The first ATMs were off-line machines, which meant that money was not automatically
withdrawn from an account. Bank accounts were not connected by a computer network to
the ATM. Therefore, banks were at first very exclusive about who they gave ATM
privileges to, giving them only to credit card holders with good banking records (history
repeated itself in India during the last decade of the century that has gone by). Wetzel,
Barnes and Chastain developed the first real ATM cards, cards with a magnetic strip and
a personal ID number to get cash. ATM cards had to be different from credit cards so that
account information could be included.
In the UK, John Shepherd-Barron is credited with the invention of the ATM. His vision for a
24 x 7 cash dispenser was conceived back in the mid-1960s. At the time, he was
managing director of De La Rue Instruments in London. The invention of the ATM brought
together different ideas, experiences and technologies. For example, Shepherd-Barron's
armoured trucking division was then responsible for moving most of the cash in the UK.
He had earlier brought over the idea of armoured trucking from the US.
Shepherd-Barron was involved with printing money and then moving it as a part of his job.
Inevitably, the next step that seemed to follow was dispensing money automatically. He
got his first break after he convinced a general manager at Barclays Bank to build a cash
dispensing device. The first machines followed soon after a deal was signed with the bank
to develop six ATMs (then called DACS for De La Rue Automatic Cash System) on a trial
basis, followed by 50 more machines. It took one year to develop the machine and make it
work.

2005 IBS Publishing Pvt Ltd - All Rights Reserved.

ATM Outsourcing
- State of the Indian market
IBS-IBA Special Report
June 2005

DACS was installed outside a north London branch of Barclays Bank in 1967. ShepherdBarron's invention had become a reality. Shepherd-Barron took the concept to both, the
US and Japan, poised to become two of the world's largest ATM markets. Soon
Shepherd-Barron got his first US order from First Pennsylvania Bank for six machines to
be installed in Philadelphia. The idea was later taken to Japan and installed by banks that
paid royalties for seven years.
Unimaginable as it may seem, the ATM was never patented, allowing rival machines to
enter the market and, in turn, setting pace for a rapid growth rate. However, there was a
reason behind not wanting to patent the ATM technology. Shepherd-Barrons legal team
believed that applying for a patent would have involved disclosing the coding system,
which in turn would have enabled criminals to decipher the code and make it vulnerable In
December 2004, 79 year old Shepherd-Barron was appointed an Officer of the Order of
the British Empire in honour of his contribution to the banking industry.

ATM Outsourcing in India

Setting up an ATM network involves finding premises to install, creating the infrastructure
in terms of surveillance system, air-conditioning equipment, uninterrupted power supply,
and acquiring and installing the ATM itself. Then comes the connectivity that could be
through landline or VSATs. A transaction switch needs to be installed centrally to which all
the ATMs of the bank and the branch systems (in case of distributed database
implementation) or the core banking system are connected.
Operating the ATM network involves cash replenishment and management, monitoring,
incident management, call centre management, vendor relationship management, security
and reconciliation. It also involves running and maintaining the transaction switch and
network. All these activities can be outsourced. Presently in India ATM outsourcing is
done partly, i.e. ATM's and sites are owned by the bank and these are being maintained
by various vendors for network, cash replenishment, switch operations, call centre etc.,
says a banker from the co-operative sector.
While banks in the US only own cards, banks in India own networks, observes V. K.
Ramani, president information technology, UTI Bank, which owns
V.K. Ramani, UTI Bank
the third largest ATM network in India, with State Bank of India and
ICICI Bank owning the largest two networks. UTI Bank has over
1,650 ATMs across the country. The bank outsources ATM
installation and switching. Once the bank identifies a site to setup
an ATM, other things like setting up the VSAT network, air
conditioning, processing services, cash management and
replenishment and hiring of security agencies is outsourced, says
Ramani. UTI Bank has installed a Base24 ATM switch from ACI
Worldwide, which is managed by Chennai-based Financial Software
& Systems (FSS).
Between doing everything themselves, like Shamrao Vithal Co-operative Bank which has
35 onsite ATMs, to Bank of India which has adopted a totally outsourced approach,
various types of partial outsourcing exists among different Indian banks. In some cases a
part of the infrastructure is outsourced, while in others only services is outsourced, while in
yet others only switching and networking is outsourced.
In India, ATM machine suppliers and switch suppliers presently dominate the ATM outsourcing market. For instance, Diebold Systems, a wholly owned subsidiary of NYSE-

2005 IBS Publishing Pvt Ltd - All Rights Reserved.

ATM Outsourcing
- State of the Indian market
IBS-IBA Special Report
June 2005

listed Diebold provides managed services for Bank of Punjab's network of over 220 ATMs.
Diebold uses its Event Management Software, which interfaces with the bank's ATM
switch provider to monitor the status of the network and electronically receive ATM status
messages at a dedicated 24 x 7 monitoring centre at the bank.
NCR, another major ATM supplier, provides managed services involving 24 x 7 monitoring
and incident management to banks such as SBI, HDFC Bank and Corporation Bank which
have large ATM networks. We use a fully automated system for ATM monitoring, which
uses our proprietary diagnostic tool to generate a ticket which gets routed to the relevant
vendor for fixing the problem, says Chandnani. We have an escalation matrix in place to
automatically escalate the observed incident within the related vendors organisation till it
gets resolved.
Other service providers, which have sufficient experience in
systems integration, facilities management and who enjoy
healthy relationships with the financial industry in India are likely
to join the fray. For instance, Anand Sankaran, vice president total outsourcing, Wipro Infotech, says We are already in the
business of system integration. Quite a substantial part of ATM
related infrastructure and services falls within the IT domain, so
ATM outsourcing would be a logical extension of our business
lines. So far, only ATM vendors or switch suppliers have been
dominating the outsourced ATM service market in India. There
Anand Sankaran
is no system integrator in the field. Such service providers are
Wipro Infotech
planning to leverage their existing relationship with the banks
and the confidence that the banks have in them. Many banks that are our existing
customers would like us to provide these services, especially when the ATMs move to
rural markets where service level agreements would be a key concern, says Sankaran.
Prior to 2001, proprietary ATM networks were set up by the banks in India to create brand
differentiation and for customer acquisition, says Antony. New private banks like ICICI
Bank, UTI Bank, IDBI Bank and HDFC Bank and multinationals like Citibank and Standard
Chartered Bank spearheaded this movement. When Indias first shared ATM network,
Swadhan, was launched in 1997 in Mumbai under the leadership of Indian Banks
Association (IBA), these banks were initially reluctant to share their ATM networks.
Swadhan was an idea whose time had not yet come. Swadhan was being managed by
India Switch Company (ISC), a joint venture between ACI, Tandem, HMA Starware and
Financial Software
& Systems (FSS)
Figure 1: Growth of ATMS in India. Source: Venture Infotek Research
using the Base24
Figu
transaction switch.
It eventually closed
down in December
2003.
But during these
years, a handful of
other banks, like
State Bank of India
(SBI), Andhra Bank
Federal Bank, and
Punjab
National
Bank (PNB) had set
up their own ATM

2005 IBS Publishing Pvt Ltd - All Rights Reserved.

ATM Outsourcing
- State of the Indian market
IBS-IBA Special Report
June 2005

switches. Wider deployment of ATMs had established it as a channel for customer

convenience, which made sharing of ATM networks a commercially viable proposition.
Banks that owned a large number of ATMs saw an opportunity in the transaction-acquiring
business that could contribute to more revenues per ATM deployed. The closure of
Swadhan kick-started bi-lateral ATM network sharing arrangements between various
banks, which continues even now. Very recently, State Bank of India entered into such an
arrangement with PNB and Corporation Bank. The growth of ATMs in India is depicted in
Figure 1, which is based on ATMs connected to Visa / MasterCard networks.
Whatever might be the commercial considerations for these numerous bi-lateral ATM
sharing arrangements, these are not as convenient for customers as multi-lateral and
branded networks. The largest among these multi-lateral networks is Cashnet which
began with just three member banks, viz. Citibank, UTI Bank and IDBI Bank and is
managed by Euronet India. The details of various multi-lateral shared ATM networks are
in Table 2 below:

Table 2: Multi-lateral shared ATM networks in India

Network

Managed
by

#
ATMS

Settlement
Bank

Cashnet

Euronet

5000

IDBI Bank

UTI Bank, Bank of Punjab, Centurion

Bank, Dena Bank, Citibank, Corporation
Bank, Dhanlakshmi Bank, Development
Credit Bank, HDFC Bank

Cashtree

ISC

1800

Bank of
India

Union Bank of India, Syndicate Bank,

Dena Bank, Indian Bank, United Bank of
India

NFS

Euronet

4100

Clearing
Corporation
of India

Andhra Bank, Bank of Baroda,

Corporation Bank, Punjab National Bank,
ICICI Bank, IDBI Bank, United Western
Bank, South Indian Bank, Dhanlakshmi
Bank

Mitr

FSS

2800

Punjab
National
Bank

Oriental Bank of Commerce, UTI Bank,

Indian Bank, Karur Vysya Bank

Bancs

ISC

3000

Bank of
India

UTI Bank, Bank of Maharashtra, Bank of

Bahrain & Kuwait, Greater Bombay Cooperative Bank, Centurion Bank, Central
Bank of India, Punjab & Sind Bank, IDBI
Bank, Ratnakar Bank, SBI Commercial &
International Bank, Cosmos Bank, Air
Corporation Employees Co-operative
Bank, Saraswat Co-operative Bank

2005 IBS Publishing Pvt Ltd - All Rights Reserved.

Other Member Banks

ATM Outsourcing
- State of the Indian market
IBS-IBA Special Report
June 2005

In addition to the above, there is CashOnline, for which Canara Bank is the settlement
bank and other members are Central Bank of India, Indian Overseas Bank, UCO Bank
and Union Bank of India. Most of these networks came into existence during the year
2003.
The functionality of an ATM depends on the instructions which the ATM gets from the
switch. An ATM obeys commands from the switch and is only an execution and
dispensing machine. The switch on the other hand represents the heart of the ATM
network. Many banks have their own switch and those that do not ride on the networks of
other banks. However, that is a business decision every bank management has to make.
Euronet India was selected by the Institute for Development and Research in Banking
Technology (IDRBT), the technology arm of Reserve Bank of India (RBI), to implement a
National Financial Switch (NFS) in the country. NFS consists of both an integrated interATM switch provided by Euronet India and an Internet and ecommerce payment gateway from Opus Software, which will
act as an e-commerce facilitator to authenticate and route
payment details between banks and various parties. The
switch became operational in August 2004. This two-part
solution is the first of its kind at the national level. NFS will act
as the mother of all ATM switches, and all other ATM switches
in the country are expected to join it eventually, says Antony.
The settlement on NFS takes place through the RTGS
system. It is expected to be a major step in building the
Loney Antony
financial infrastructure to allow connectivity for participating
Euronet
banks' ATMs. In many countries, national switches are
developed and run by the country's central bank to ensure
that all local banks can participate in electronic payments.
The SBI group has acquired the numero uno status in terms of ATM deployment in India.
Starting out in 1992, the SBI group had progressed to 250 offline ATMs until 2000. In
2000, the bank floated a global request for proposal (RFP) for the installation of a
transaction switch and selected the Base24 switch from ACI worldwide to be implemented
on HP Non-Stop (Tandem) hardware, which was installed in March 2001. In the next four
years it installed 5000 ATMs. Today, It owns a network of 5300 ATMs, which is more than
double of its closest competitor, ICICI Bank.
SBI is implementing Bancs core banking solution from FNS with TCS as the systems
integrator for its domestic branches and Finacle from Infosys for its overseas branches.
The Base24 switch and both the core banking systems are based at its data centre in
Belapur, Mumbai. The switch has a disaster recover site in Chennai. For connectivity, a
combination of VSAT, landlines and ISDN are being used. The ATM machines are from
both NCR as well as Diebold. The Indian distributor of ACI Worldwide for the Base24
switch, FSS, has been providing technology services to the bank in its ATM initiatives like
issuance of Maestro debit cards and VISA and MasterCard acquiring business. Initially,
SBI had decided not to share its ATM network, but later when it entered into agreements
for ATMs sharing with other banks in India, it decided to use inter-bank transaction
switching and settlement using ASP hosted service FSSNET from the vendor. The bank
uses Prognosis software from Integrated Research, Australia for monitoring the ATM
network, and DCMS card management system from FSS. The SBI group uses our
ProConcile ATM solution for reconciling ATM transactions, says Suresh Kamath,
chairman and managing director, Laser Soft Solutions.

2005 IBS Publishing Pvt Ltd - All Rights Reserved.

ATM Outsourcing
- State of the Indian market
IBS-IBA Special Report
June 2005

The ATM transactions for SBI group have grown five-fold in the last two years. The bank
has issued more than eleven million ATM/debit cards that
generate close to one million ATM transactions involving INR
700 million per day. SBI has a vision of making world class
banking services available to the people of the country, wholly
networked, with multiple delivery channels, says A. K. Purwar,
chairman, SBI, and chairman, IBA.
Both, SBI and ICICI Bank, have been following the policy of
avoiding multi-lateral shared ATM networks and opting for
bilateral arrangements. While SBI has reciprocal ATM sharing
arrangements with UTI Bank, HDFC Bank, Andhra Bank, Indian
Bank, PNB and Corporation Bank, it is not a member of any
multi-lateral network, not even NFS. ICICI Bank has reciprocal
arrangements with Andhra Bank and Federal Bank, but it was
the first bank to join NFS.

A.K. Purwar
Chairman, SBI / IBA

HDFC Bank, which recently joined Cashnet, has also been avoiding multi-lateral ATM
networks so far and relying more on reciprocal arrangements. 'Bilateral sharing of ATM
networks is more popular among banks in India and is likely to co-exist with various multilateral sharing arrangements,' says Rahul Bhagat, vice president, direct banking channels,
HDFC Bank. Antony holds the opposite view, saying Multi-lateral shared networks will join
NFS as a consortium and co-exist with it, but bi-lateral arrangements will disappear over
time.
The field is clearly unequal, as can be seen in Table 3 below. The top six banks own
almost two-thirds of the total ATMs deployed in India. In fact, the top three account for
almost half of the market share. Multi-lateral sharing is seen to be more useful for banks
having fewer ATMs.

Table 3: ATMs Deployed by Major Banks in India

Bank

# ATMs

% Share

State Bank of India and its Associate Banks

5300

30

ICICI Bank

1900

11

UTI Bank

1650

HDFC Bank

1070

Corporation Bank

800

Punjab National Bank

560

All Other Banks

6720

37

Total

18000

100

2005 IBS Publishing Pvt Ltd - All Rights Reserved.

ATM Outsourcing
- State of the Indian market
IBS-IBA Special Report
June 2005

ATM Outsourcing Models

According to estimates by Celent, financial institutions worldwide spent US$4.9 billion on
outsourcing services for ATM operations in 2002. The market still has considerable room
for growth, and ATM outsourcing is expected to grow at a steady pace to US$6.5 billion by
the 2007.
Industry experts believe that although banks have outsourced basic functions for years,
outsourcing of managed services still comprises only a tenth of total ATM operating costs.
Banks are constantly on the look out for alternatives to own and operate their ATMs as the
cost of offering convenience to customers is proving to be prohibitive. Banks have been
dedicating significant financial and management resources to the ongoing operation and
support of their ATMs. But in recent years they have been taking a closer look at
alternative ways of managing their ATM networks.
ATM outsourcing in India can be broadly classified under three broad models. One,
where the bank sets up its own ATMs network and manages it, but outsources specific
services like security, cash replenishment, network and switch management to third party
service providers and suppliers. In this model, vendor relationship management and
uptime of the ATM network remains the responsibility of the bank. SBI, which has a
general manager specifically to handle ATMs, claims to follow this model. According to a
bank spokesperson, We outsource only the facilities management. The bank claims to
handle cash replenishment itself and says that it does not hire security guards. The
security guards have to go at some point of time, especially when offsite ATMs take off in
a big way, says Antony. For a bank with an ATM network which is bigger than any multilateral shared network, the economy of scale is on its side.
The second model stops just short of relinquishing the
ownership. The bank owns the entire ATM infrastructure but
outsources all the services including installation, creating the
infrastructure, monitoring, call centre, maintaining the network
as per pre-defined service level agreements, cash
management and security. This model has many variants with
each bank customising the model to suit its requirements. For
instance, HDFC Bank uses this model for outsourcing
managed services while owning the assets.
'Within
managed services, incident management is crucial for
Rahul Bhagat
maintaining the desired service levels,' says Bhagat. It
HDFC Bank
involves co-ordination with a host of suppliers with whom the
bank may have maintenance contracts. 'We are one of the few banks that have
outsourced incident management with pre-defined service level agreements,' he adds.
UTI Bank, too, has opted for this model where the banks network centre resides within its
premises and external vendors supplement the management activity, both onsite and
offsite, for a fee. We have set up ATMs at 14 railway stations in Mumbai and 24 per cent
of the transactions at these ATMs are generated from non-UTI customers, says Ramani.
In a situation like this, UTI Bank acts as a service provider to other banks using its
infrastructure and network.
Another instance of ATM outsourcing could be through a common shared network where
the ownership of the network remains with the consortium of banks. Elaborates Ramani, If
a bank decides against setting up its own network, it can very well exercise the option to

2005 IBS Publishing Pvt Ltd - All Rights Reserved.

ATM Outsourcing
- State of the Indian market
IBS-IBA Special Report
June 2005

join an existing network. Kotak Mahindra Bank and ABN Amro Bank have chosen this
model of ATM outsourcing. Such banks absorb the transaction costs themselves instead
of passing them to the customer while they rely on another banks network and
infrastructure at almost zero cost.
Several independent payment systems providers such as Euronet, FSS, and India Switch
Company (ISC), now owned by eFunds, are tapping this outsourcing opportunity. Euronet
provides ATM management services to Development Credit Bank, apart from IDBI Bank,
Standard Chartered and Citibank who have outsourced the complete management of their
ATM programs to the vendor. Unlike these banks, UTI and Corporation Bank have
outsourced only their shared ATM services to Euronet India under its Cashnet network. It
has recently signed a multi-year ATM outsourcing and deployment agreement with
Centurion Bank. Under the agreement, Centurion Bank will outsource its entire network of
152 ATMs to Euronet India. The vendor has taken over the operation of the bank's ATMs
and provides end-to-end ATM outsourcing services from its operations centre in Mumbai.
Banks that have already been in the business for a while now prefer a hybrid network to
start off with and later graduate to a common network. Not very long ago the choice of
network was dependent on the amount of fees MasterCard of Visa would charge from
banks. But now that banks have entered the market themselves, it is the domestic shared
network where pricing is shared. It is no secret that banks with a large number of ATMs
are acquirers of large transactions. Those that have
Deepak Chandnani
invested in physical infrastructure will eventually gain
NCR
but those without a network rely solely on the
existing networks of other banks and external service
providers. Banks owning large ATM networks are
more inclined to outsource only managed services,
while banks with smaller networks prefer to
outsource the assets as well, comments Chandnani.
eFunds provides managed services for ATM
networks of banks. These include transaction
processing, ATM health monitoring, cash flow
management, switching and connections. With the US$20 million buy-out of ISCs
business and assets, eFunds will gain access to 12 installations in India. According to Atul
Kunwar, senior vice president - global outsourcing and managing director for India,
eFunds, Banks can either undertake ATM outsourcing functions internally or outsource
some or all of them to vendors like us. Transaction processing can be outsourced at three
levels. In the first stage money moves within Reserve Bank of Indias (RBI) branches
through a Cash Flow Management System (CFMS). When it comes to the RTGS system,
wholesale transaction processing takes place, with money travelling between banks, while
in the case of retail transactions customers are connected through Visa, electron or POS
systems. Banks can either own their ATM networks or outsource them depending on how
proactive the management is. In the former case, a bank may either build a payment
gateway of its own and pay the outsourced services provider based on service level
agreements or pay per transaction per day. According to Kunwar, the ATM concept is
proven, but its roll out is critical and that is where outsourcing comes in.
The setting up of ATMs by UK major retailer Tesco, is an apt example of how the large
retail outlets are entering a territory that, until recently, was considered the exclusive
domain of banks. Payments for services through such ATMs are settled based on
transactions with one bank, for eg. the Royal Bank of Scotland (RBS). If a mall, petrol
pump or drug store wishes to put up an ATM they would need a cash dispenser that will

2005 IBS Publishing Pvt Ltd - All Rights Reserved.

ATM Outsourcing
- State of the Indian market
IBS-IBA Special Report
June 2005

permit multiple interfaces and support an open architecture. Between 75 to 80 per cent of
Londons financial transactions run on eFunds platform.
Wal-Mart Financial Services has started offering cheque cashing, wire transfers and
money orders. ATM services are offered in 1,200 Wal-Mart stores across the US. WalMart is Americas largest employer and maintains a well developed, CRM-based, backend operation. Another example is Vcom, a financial kiosk in 7-Eleven stores that merges
24-hour ATM capabilities with other services. With the kiosk operating in more than a
thousand 7-Eleven stores, and with the company operating a total of about 5,800 stores in
the United States and Canada, this Dallas-based convenience store chain is positioned to
leverage the market. Banks and financial institutions should align with national and
regional retailers and create a trusted and established household brand.
Unlike independent payment service providers, ATM vendors like NCR and Diebold
services are centred around the hardware box and installations. Their agenda is clearly to
maximize ATM transactions, while third party service providers like eFunds, Euronet and
FSS work on the principle of maximizing services and transactions. Independent payment
services providers and ATM vendors are two ends of the same spectrum. The former
either get paid on a per transaction basis or a fixed payment basis.
The third outsourcing model involves leasing of assets. Nagaraj Mylandla, managing
director FSS defines it as, A service provider offers banks outsourced ATM services
whereby the service provider will deploy ATMs for banks and operate those ATMs for a
fixed monthly fee or a combination of a fixed monthly fee and transaction fees. The
location of the ATMs and the deployment pattern will be as per the requirement of the
bank. This is the model currently being used by Bank of India. We have opted for a
totally outsourced model for our ATMs, says V. Babu, deputy general manager, Bank of
India, which has signed up for total retail infrastructure management services (TRIMS)
from ISC. The bank has leased ATMs from ISC for a seven year period with a clause in
the service level agreement mentioning that in case of unsatisfactory service, the bank
can take over the ATMs. According to Babu, the payment is on a per day per ATM basis.
According to Mylandla, When it comes to cost management and optimisation, the service
provider manages vendor relationships for all activities in the service life cycle of ATM
management. This optimises resources and costs for the bank. The cost savings
associated with aggregating vendor management and
resource optimisation is in consonance with the banks
objective of better resource utilisation.
'Banks with capital constraints are likely to favour this model,'
says Bhagat of HDFC Bank, which currently owns the
complete ATM infrastructure and outsources only the
services.
Nagaraj Mylandla, FSS

There are costing issues that need to be sorted out, before

going in for this model, asserts Upadhyaya of Bank of
Baroda, which is planning to increase its ATM network to 1000 ATMs within the next six to
eight months. The bank uses the infrastructure and facilities management service from
Diebold Systems and the Narada switch from Yalamanchili. Wipro is also planning to
either partner with, or use ASP services from Yalamanchili. As a part of ATM
outsourcing, we would provision the ATMs, manage and maintain the ATMs and the
network, and provide ATM operation services, says Sankaran. We have expertise in
managing IT infrastructure remotely. We can leverage on this expertise for monitoring
unmanned ATMs. We provide managed ATM services along with end-to-end outsourcing
with leased assets.

2005 IBS Publishing Pvt Ltd - All Rights Reserved.

10

ATM Outsourcing
- State of the Indian market
IBS-IBA Special Report
June 2005

We are not allowed to put up offsite ATMs or to offer value added services under the
present regulations, says Ravikiran Mankikar, IT head, Shamrao Vithal Co-operative
Bank, which has 35 onsite ATMs. While agreeing that the costs are higher if a bank tries
to deploy and manage its ATMs, his bank presently does not outsource ATM services.
Since all our ATMs are onsite, we do not see it commercially viable to outsource the
entire ATM operations, echoes another banker from the co-operative sector.
Using the right outsourcing business model ensures that all parties involved can benefit
from more concerted collaboration; banks, because they can get a point of presence in the
field at an optimum cost, and retailers because they can recycle their cash stocks on-site,
reduce the cost of cash and earn additional revenue. Banks are extremely skeptical to
outsource their entire operations in the first instance, and usually begin by outsourcing a
small portion of the overall ATM program such as vendor management, cash
management or processing. This allows sufficient time for mutual evaluation of the
processes outsourced and helps provide an economic benefit through reduction in price
and excess management supervision to the bank.

White Label ATMs

The concept of white label ATMs is widely prevalent in developed countries. North
American markets have been more receptive to ATM outsourcing than European markets.
In European markets, a larger percentage of ATMs are located at bank branches (onsite
ATMs), as compared to North American markets where the share of offsite ATMs is much
higher. Hence, the scope for ATM outsourcing is higher in North American markets than in
European markets. In India, as in the European markets, the proportion of onsite ATMs is
higher. However, it is believed that opportunities are available in Europe and India to
provide ATM access in places where customers use ATMs more frequently.
The US has over 3,00,000 ATMs and Americans carry out than 1.1 billion ATM
transactions a month, which is about 26,000 transactions a minute. At last count, 394,500
ATMs were currently deployed within the United States, of which approximately 194,000
or 49 per cent are operated by Independent Sales Organisations (ISO). ISOs are the
engines that drive ATM placements in off-premise locations. They enter into sales, deal
with merchants and distribute the proceeds.
'White label ATMs are only at the conceptual level in India as of now,' says Bhagat citing
regulatory hurdles in India to this mode of ATM outsourcing. Upadhyaya also points out
that there are regulatory issues, particularly the ownership of cash dispensed by service
provider ATMs, which need to be addressed before this concept takes off in India. We are
not averse to the concept of white label ATMs, says P. Vijaya Bhaskar, chief general
manager, department of banking operations and development, RBI. As technology
advances, new products, services and ways of providing these services will change, he
says, adding that due care has to be taken that various risks are taken proper care of.
Detailed guidelines on outsourcing by banks are being formulated in accordance with the
guidelines from Bank of International Settlements. White label ATM deployers operate on
a different business model than that of the banks owning ATM networks, says Chandnani,
adding that the key factors governing this model are the number of ATM cards in a
geography, convenient locations like retail chains, airports and railway stations, and the
affordable charges to the customer.
Ramani of UTI Bank sums it up, Public and private sector banks in India are still in the
ATM building/acquisition mode and it would still take some time before they begin limiting
the number of ATMs in their network or treat them as a non-core business. However, with

2005 IBS Publishing Pvt Ltd - All Rights Reserved.

11

ATM Outsourcing
- State of the Indian market
IBS-IBA Special Report
June 2005

the rise in both, the quantum of transactions per ATM and the number of external service
providers, banks may be able to decide on whether to own ATMs
or totally outsource the ATM management business only after a
couple of years from now. Mankikar feels that smaller banks will
derive considerable benefits from white label ATMs but their
current mindset has to change.
There are around 18,000 ATMs in India at present, but the bulk of
them are located in major cities and towns. Customers in other
areas are demanding the ATM channel, says Babu, holding that
further growth for ATMs in India will come from smaller towns and
rural areas.

Ravikiran Mankikar
SVC Bank

Integration of ATMs With Other Delivery Channels

Adoption of newer technologies, integration of hardware and installing software is easier in
countries that have no legacy systems, unlike developed markets such as the US.
Adoption in North America, experts feel, is likely to be relatively slower. In contrast to the
United States, where ATMs communicate with hosts via proprietary NDC and DDC
protocols, Europe has relied on the more basic ISO 8583 standard. Since ISO 8583 only
defines transaction data rather than specifying how ATM applications should run, it has
been easier for European deployers to move to browser-based technologies.
Banks can choose to take an incremental approach to integration or adopt a broader,
enterprise-wide strategy. An incremental approach is more likely to yield immediate
financial improvements, while the enterprise approach will result in larger reduction of cost
over time. The enterprise approach also yields a better balance between IT and
operational savings.
Both these methods use middleware to enable data flow between delivery channels as
part of a central platform that connects all delivery channels with back-end systems. Such
platforms provide transaction capabilities, business logic and customer data integration.
Most middleware available today has evolved from serving just as a routing mechanism to
providing greater intelligence and boosting CRM efforts.
Newer internet technology applications are comparatively easier to integrate as they can
be added very quickly to the existing infrastructure. ATMs tend to be at the bottom rung of
the priority list for most banks and financial institutions when it comes to channel
integration as they have traditionally been part of a message-based system that has
communicated with proprietary protocols. Besides, they are inherently more difficult to
integrate with other channels as they have data warehouses and one needs powerful
machines for this purpose.
However, it will not be long before ATMs become a critical part of the overall hardware
integration strategy for banks. When this happens, natural synergies with other channels
can be established. Cardholders could register online and be notified when their card has
been used to withdraw more than a specified amount from an ATM, thus reducing fraud
concerns.
Celent Communications estimates that financial institutions will spend between $5 million
and $70 million on integration projects that between one to five years. Developed markets
are expected to lag behind developing markets when it comes to integrating the ATM
network.

2005 IBS Publishing Pvt Ltd - All Rights Reserved.

12

ATM Outsourcing
- State of the Indian market
IBS-IBA Special Report
June 2005

The challenge however, lies with the outsourcing services provider whose agenda should
be to provide a consistent experience for the user, regardless of the channel. This means
that data should be updated in real time or near real time, with the same data available
across channels. So, for instance, a customer withdrawing funds from an ATM or making
a deposit at a branch would see those transactions when he logs in to his online banking
account later the same day.
The desire to better align their channels has grown in recent years as banks are
attempting to differentiate themselves by building better distribution networks and offering
the products and services that their customers want. To do this, they must develop a
single platform to manage customer data; one that can interact with all of their delivery
channels. Such a system would help fine-tune CRM efforts.
Banks and financial institutions are far more receptive to the idea of channel integration
now as it would help them launch more products and services and improve customer
service despite keeping costs under control.

Value Added Services

ATMs are no longer looked upon as mere cash dispensing machines but as avenues to
provide a host of value added services. Banks are looking at accelerating the pay back
period of ATMs by providing these value added services. Says a co-operative banker, In
the outsourcing model, value added services plays a vital role. As part of improved
services, the outsourcing agency always looks forward to give new value added services
to his customer. These value added services include coupon dispensing, gift vouchers,
theatre ticketing, bill payment, loan request etc. By virtue of these facilities, the customer
has the convenience to do even non-banking transactions at ATMs..
Packaged solutions are increasingly being preferred by big banks with multiple delivery
channels, while smaller banks perceive advantages in outsourcing since they are able to
enjoy the advantages of superior technology at very affordable costs. With increased
competition, the lines of differentiation in the retail banking space are becoming very
narrow. The answer lies in more offerings like various consumer payments and other
utilitarian facilities through existing delivery channels. Value added services offered by
service providers are designed to do just that. Service provider partnerships with various
mobile service operators and billers provide financial institutions an access to millions of
potential subscribers in the Indian and overseas markets. Banks can offer prepaid
products like mobile phone top up, long distance calling cards, internet packs etc. to their
customers. The range of services offered on self-service terminals are growing and
expected to go beyond deposits and withdrawals of cash.
Though in its infancy, provision of value added services is
poised to grow significantly, in terms of both usage rates as
well as the breadth of functionality offered by machines. Their
role, too, is set to change, moving further away from being
rationalisation tools, towards being a promotional medium, a
source of profit, and a proactive customer dialogue tool, all the
way through to entry into binding contracts.
V. Babu
We provide value added services like bill payments and
Bank of India
mobile top-up through our ATMs, says Babu. A Bank of India
ATM card can be linked to six different accounts in different cities, and funds between
such accounts can be transferred through the ATM.

2005 IBS Publishing Pvt Ltd - All Rights Reserved.

13

ATM Outsourcing
- State of the Indian market
IBS-IBA Special Report
June 2005

Euronet is a specialist in pre-paid top-ups through ATMs. Antony cites value added
services as one of the main advantages offered by service providers of multi-lateral
networks.
For the ATM industry to sustain itself, an increase in the number of transactions would be
necessary. This can be made possible by increasing the range of services available and
expanding customer demographics. Maintaining profitability in the off-site market
segments and increasing the cost-effectiveness in financial institution ATM networks has
led to banks attracting more customers and generating more value added services, while
reducing the overhead cost of delivering the traditional bunch of services.

Security Issues
Security has and will always be a big issue with ATMs. ATM industry players are hard at
work making ATMs as secure as possible. Encrypted PIN Pad (EPP) is now a standard
feature on all new ATMs manufactured by ATM vendors. EPP is the first security feature
that is likely to be introduced in the Indian market shortly, and EMV will be the next step,
says Chandnani, whose company, NCR, is a frontrunner in ATM fraud management
practices.
ATMs are one of the many devices that are highly vulnerable to frauds. Directions on how
to make skimming and phishing devices is readily available on the Internet. Most
fraudsters know how to copy magnetic strip data, and a criminal can create a skimming
device for less than US$200. These devices can be easily disguised, especially to
untrained eyes. At an off-premise location, a tampered-with ATM could eat cards for days
and have them phished out by a fraudster on several different occasions before the bank
can spot the problem. One reason for the increase in theft devices is that criminals have
more information readily available to them than before.
When one thinks security, guards come to mind, but ATM security is more than that, says
Kunwar. Security comprises tracking card usage trends based on analytics, installing data
authentication features, since transaction data is constantly travelling on the link and
installing fraud detection systems. All these features only curtail fraud to an extent and not
eliminate it completely. The physical handling of cash is a high-risk operation and that is
why agencies with armoured vans like Group 4 Securitas and Brinks Arya are hired by
banks.
Ever since the shift to Windows has enabled ATM channel integration, greater network
connectivity and more dynamic advertising campaigns, it also has increased concerns for
security breaches. With Windows has come the need to move from dial-up to TCP/IP.
However, connections such as these are making banks and financial institutions
vulnerable to hackers. Fears about the vulnerability of Windows-based ATMs to viruses
have not just started to make news headlines. Software developers and ATM technicians
always knew that Windows has differed greatly from legacy platforms. It is difficult to
discourage determined criminals, especially if they know that a large amount of money is
at stake in ATMs. The onus is not only on users but also banks and independent payment
service providers managing ATMs to take precautions.
While measures such as Triple DES and EPP address the problem of internal fraud at the
ATM, the largest vulnerability remains: the ease in which external equipment can be used
to compromise an ATM. The fundamental problem occurs when the magnetic strip is not
secure. Also, EMV chip cards would improve the existing security level.

2005 IBS Publishing Pvt Ltd - All Rights Reserved.

14

ATM Outsourcing
- State of the Indian market
IBS-IBA Special Report
June 2005

It is becoming a challenge for banks to address issues related to security, especially at a

time when they are outsourcing a critical part of their business.
More systems at third party locations require new security strategies in order to counter
growing attacks from criminal elements. Though security consciousness varies widely
from country to country, specifically in the ATM arena, the spotlight is increasingly going to
be on more than just mechanical security, as demonstrated by the growing number of
ATM attacks in certain countries. With growing instances of card-based fraud,
identification of the user beyond doubt and secure encryption processes will start to play a
key role.
Biometric procedures such as fingerprint recognition will be used in future; to introduce
them on ATMs in the form of smartcard based fingerprint data complete with onsite
checking, one will have to start by agreeing upon uniform international standards.
Cardholder security is of utmost concern and banks and ATM vendors feel that consumers
need to be educated on how to prevent being a prey or unknowing party to fraud.
Anti-fraud products allow banks to search systems by account numbers for cards they
think have been skimmed. Such products keep a record so that banks can monitor a cards
activity.
Card information can be stolen in one country and used fraudulently all over the world. To
prevent this from occurring, banks are upgrading to DVRs from the erstwhile VCRs. DVRs
have shown improvements in lenses, cameras and are regarded for their colour output in
lieu of a black-and-white film. DVRs can incorporate multiple features in a single device,
including motion detection, remote search of ATM transactions, built in switching or
multiplexers that would require the addition of multiple devices with typical analogue
recorders.
ATM crime and fraud is being fought by groups like ATM Integrity Task Force, The
Electronic Funds Transfer Association (EFTA), in affiliation with ATMIA. These groups are
publishing recommendations on PIN security and working with the Secret Service and
ATM product and service providers. Global ATM Security Alliance (GASA), an arm of
ATMIA, is organising international efforts to combat cross-border crime rings. It is working
with the Secret Service, Interpol, the Metropolitan Police Flying Squad for New Scotland
Yard and major card issuers.
Major ATM manufacturers also are taking a more proactive approach to fraud prevention.
Several have made modifications to their machines, adding features such as sensors in
card readers to detect foreign devices. Vendors such as NCR and Diebold use a feature
called jitter on their motorised card readers, which changes the speed of the card as it
enters the reader, making it difficult for thieves to get any usable card data. Once the card
is detected over the internal read head, the jittering feature is disabled and a constant
read speed is applied so that the card data can be read.
Fujitsu has received orders from two Japanese banks for its biometric security system
based on vein pattern-recognition technology. The system works by shining a nearinfrared light on a palm placed near a scanner, which takes a snapshot of the palm. Veins
illuminated under the skin appear as dark patterns; this information becomes the basis for
security applications. The information can be loaded into a server or put into an integrated
circuit embedded in a cash card and used at an ATM. Suruga Bank has already installed a
version of the system in 65 of its branches for over-the-counter transactions. The Bank of
Tokyo-Mitsubishi will install the ATM version of the system in 250 of its branches in

2005 IBS Publishing Pvt Ltd - All Rights Reserved.

15

ATM Outsourcing
- State of the Indian market
IBS-IBA Special Report
June 2005

October. Fujitsu is beginning to promote the system overseas through its affiliates and
also plans to develop other similar applications.

Assessment of Benefits by Banks

Do banks make an assessment of benefits from outsourcing ATM services? The models
and matrices for quantitative assessment of benefits derived from ATM outsourcing are in
the process of being developed, says Upadhyaya, whose view is corroborated by other
public sector banks as well. While there is near consensus
among banks that outsourcing of ATM services is needed to
reduce costs and improve service levels, not every bank tries to
assess the benefits.

A.K. Upadhyaya
Bank of Baroda

We at HDFC Bank have detailed matrices to monitor the

qualitative and quantitative aspects of outsourced services and
we do the monitoring quite extensively, says Bhagat. Other
banks are expected to follow suit as their ATM networks grow
and the extent of outsourcing increases.

It all depends on how one look at this business. An institution, which is in the process of
only acquiring, will definitely make lot of investment on ATM deployments and concentrate
on value added systems. Smaller institutions may not look at it as a source of revenue
generation, but will explore the possibility of customer services at an affordable cost and
also to have virtual branches all over the country.
The shared payment business is expected to grow in India in the years to come. Such
network collaborations save the high investment required in deploying a large number of
ATMs. Shared payment becomes a low cost solution for bankers to make cash available
to their customer as per their convenience. Shared payment and bilateral arrangement will
help banks to achieve return on investment. Software suppliers will also look at the
solutions to provide an ATM transactions reconciliation module, CRM on the customer
behaviour and pattern, port services like demat on the ATM terminal, income tax, fund
transfer between cross banking customers etc.

The Future Roadmap

According to FSSs Mylandla, the number of ATMs in the country is around 20,000 today.
This number is likely to grow to 45,000 by 2008. Out of these ATMs we expect about
15,000 ATMs to be available in the outsourcing market, he says. Euronets Antony
estimates an addition of around 6,000 ATMs per year for the next five years and arrives at
the same figure of 15,000 ATMs for the outsourcing market.
The US$14 billion ATM industry is facing the challenge of change. ATMs are now
equipped with capabilities for multiple functions enabling them to do much more than just
deliver cash.
ATM profits have been narrowing. Banks already have the floor space, it only makes
sense that they leverage it for more services. This is because ISOs managing ATMs are
offering over and above what banks ATMs would normally offer just to stay competitive.
Things like advanced functionality technology have been around for a long time, but banks
were reluctant to use it due to customer unwillingness to perform anything beyond cash

2005 IBS Publishing Pvt Ltd - All Rights Reserved.

16

ATM Outsourcing
- State of the Indian market
IBS-IBA Special Report
June 2005

withdrawals, transfers and balance inquiries at ATMs. About 60 per cent of ATM
transactions worldwide are cash withdrawals, while about 20 per cent are deposits,
balance transfers and account inquiries. This demonstrates why banks have had so little
to offer until recently.
With an estimated 1.3 million ATMs deployed worldwide and between 11 billion to 14
billion ATM transactions each year in the United States, the industry appears stable.
Customers throughout the world spent an estimated US$1.8 billion on advanced functions,
such as ticket sales, at ATMs last year. That works out to a shade more than US$1,000 in
revenue per machine. Assuming a machine costs between US$7,000 to $8,000 to
upgrade, given the above situation it would take seven or eight years to be profitable.
Industry experts feel that the future of ATMs will experience two big areas of change. Less
ATM deployment, since more banks will rent fee-free ATM access from other ATM
deployers, and the co-existence of different types of ATMs, a low-end cash-dispensing
ATM and a high-end one. ATM deployers will continue to be very focused on cost
mitigation, but one of the areas that is going to see significant increase is the growth of
ATM servicing by independent providers for maintenance and cash replenishment.
The ATM has been used as a delivery vehicle for a number of new types of solutions.
Cheque cashing, payroll distribution, ticketing, money orders, all have been deployed
using the open solution. While the currency note deposit feature is dependent on the
physical quality of notes, cheque imaging at the ATM is more likely to take off in India as it
moves towards image-based clearing, says Chandnani. Existing NCR ATMs can be
upgraded to offer this functionality.
New standards and technologies are beginning to change the industry. These include
Interactive Financial eXchange (IFX), Windows Open Services Architecture Extension for
Financial Services (WOSA/XFS), and Active XFS are becoming widely accepted.
Technologies such as Hypertext Transfer Protocol (HTTP), Transmission Control
Protocol/Internet Protocol (TCP/IP), Hypertext Markup Language (HTML), and more
recently eXtensible Markup Language (XML) are starting to be used in the ATM channel.
The new standards, in conjunction with these technologies, are allowing ATM acquirers to
deploy a different kind of ATM. This new type of ATM is loosely referred to as a WebATM. The term Web-ATM was coined because of the technologies that these new ATMs
employ and not due to the common misconception that Web-ATMs either use the Internet
for communication or allow customers to browse the Web. On the contrary, for the
foreseeable future, due to both security and performance concerns, Web-ATMs will
probably continue to be driven across dedicated communications networks, such as the
acquirers intranet. Currently, banks tend to purchase ATMs from a single vendor. This is
mainly for compatibility and maintenance issues. Those that do have machines from
multiple vendors often have them because of price considerations, functionality or by way
of inheritance through a merger.
For banks, the proliferation of Web-ATMs has been driven by the need to generate
additional ATM revenue through a variety of financial and non-financial services. ATMs
have traditionally been proprietary, with each major vendor offering hardware and
software that is incompatible with those offered by competitors. Large banks usually have
a variety of ATM machines as a result of merger and acquisition activities. ATM
programming changes and maintenance differs for each vendor, considerably increasing
costs. With ATM vendors now moving toward open architectures that have common
infrastructures, communication protocols and software, having machines that are
compatible can result in significant reduction of support cost.

2005 IBS Publishing Pvt Ltd - All Rights Reserved.

17

ATM Outsourcing
- State of the Indian market
IBS-IBA Special Report
June 2005

Despite some of the obvious appeals of outsourcing, Celent estimates that just 14 per
cent, which translates to US$2.2 billion, of the $15.3 billion in total North American ATM
operating costs in 2002 was allocated for outsourcing services. Currency management,
transaction processing and maintenance together accounted for 75 per cent of all
outsourcing. Many financial institutions have resisted turnkey programs in the past
because of the fear of giving up too much control.
The ATM industry in the next five years is expected to be characterised by multiple
machine types, multiple markets and multiple business models. So far it has helped create
convenience but now it must adapt to become a transaction and information portal for
value-added services at the high end of the market. The key driver for ATM evolution is
going to be consumer behaviour and customer expectations. If the top end of the ATM
range does not become more customised, more personalized, with more wide-ranging
functionalities, then it will be rejected sooner than banks can imagine.
In the coming years, security will continue to be a key issue, with global crime syndicates
and the mafia continuing to target card fraud, skimming, ATM scams and old-fashioned
armed robbery. Electronic money will grow in importance, eventually eclipsing cash in a
few atypical countries like Belgium and reinforcing the decline of cheques. The market for
ATMs in convenience and off-premise locations will grow in size and the bank branch
location for ATMs will decrease in importance.
China and India and other large emerging markets will see phenomenal growth in their
installed ATM base, where cash dispensing will be the primary function for several years
until Internet penetration in these countries reaches the critical mass.
New payment card technology is changing the way we use ATMs and how we will all
transact and do business. ATMs are undergoing massive standardisation and technical
improvement. For banks, the ATM is becoming the common link between the branch and
the Internet, the best of all banking channels - advanced, yet universally accessible. Still,
the adoption of the IFX standard for browser-based interfaces has had limited success in
developing the ATM as the key customer touchpoint. Banks, however, must exploit this
potential by choosing the right products for their ATM channel.
Many banks have outsourced their ATMs to third-party service providers. With some
banks buying independent ATM networks, ATM ownership will become fragmented with a
variety of public bodies, retail businesses, and non-financial services companies, joining
banks in the ATM business.

2005 IBS Publishing Pvt Ltd - All Rights Reserved.

18

ATM Outsourcing
- State of the Indian market
IBS-IBA Special Report
June 2005

OUR VISION

Vendors

Banks

Investors

Our vision is to assist in the

evolution of the banking
technology market

About IBS Intelligence

IBS Intelligence is the management consulting arm of IBS Publishing, building on over
fourteen years of unparalleled knowledge of the users and suppliers of core banking
solutions. Our clients include:
x

Banks undertaking system selection exercises;

x

Research analysts and investors who seek to better understand the market and its
players; and

x

Vendors who wish to re-align their corporate and product strategies to meet market
expectations.

We have borne witness to the mistakes and the masterstrokes and bring with us the
unrivalled advantage of witnessing and recording the strategies that work for our clients.
Our commitment is to use this knowledge to help our clients create a significant impact on
their performance.

For further information on IBS Intelligence, contact

Shirish Pathak
Director
Tel: +91 20 56030453
Email: shirish@ibspublishing.com
Website: www.ibsintelligence.com

About Indian Banks Association

The Indian Banks Association, formed in 1946, is an advisory service organisation of
banks in India. It serves as a co-ordinating agency and a forum for its 156 member banks
to interact in matters concerning the banking industry.

For further information, contact

Rema K. Menon
Vice President (Technology)
Telephone: +91-22-2218-2196
Email: rema@iba.org.in
Website: www.iba.org.in

Disclaimer: The views expressed by individuals in this report are their own, and may not necessarily be endorsed by their respective
organisations.

2005 IBS Publishing Pvt Ltd - All Rights Reserved.

19