WLAs come to India. Good news, but could be better

6 years after the banking industry requested the RBI to permit White Labeled ATMs (WLA), the regulator finally relented last month. Now, non-banking entities will be able to operate WLA networks, in association with a sponsor bank responsible for settling the transactions.

First, a look at the good stuff. Despite annual growth of approximately 30% in the number of installed units, there’s no doubt that India needs a lot more ATMs than the 87,000 or so that are available at present, particularly in the Tiers III to VI regions. Commercial banks already have so much on their plate that they are both unlikely and unable to make additional investments in underbanked areas, especially when their previous investments are yet to yield returns. The RBI hopes that the new entrants will be able to bridge this deficit with their WLAs.

On the face of it, this expectation seems reasonable. Around the world, the WLA model has succeeded in many countries – Canada, United States and Chile to name a few. One of the biggest benefits of allowing non-bank participation is increased innovation. When organizations from innovative industries such as retailing or hospitality enter another domain, they leverage their strengths in customer management, experience design, channel innovation, co-creation and cross-sales to enhance the existing operating model or build a new one. The result? ATMs become ITMs (Intelligent Teller Machines) that offer advice, cross-sell financial products, dispense physical goods, and offer a host of value added services, besides doling out cash. And this is when operating a WLA network becomes financially attractive.

Which brings us to the not so good stuff about the RBI proposal. As things stand, WLA operators will only be entitled to an interchange fee from issuer banks. They may only accept bank-issued cards at their ATM. While they are permitted to earn revenue through advertisements and value added services, it is not clear as to how far they may innovate on the latter. If the regulator’s intention is to encourage a number of players to enter the business, it must make it worth their while. One way to do this is to permit WLA operators to differentially price their services, depending on what is on offer. And then who knows, maybe these ATMs will become so versatile as to offer branch-goers an irresistible alternative.