RBI’s new initiative of WLA Teller Machines – a policy from 1980s?

First an explanation of acronym called WLAs os White Label Automated Teller Machines. Basically these are ATMs run by non-bank entities.

In Feb-12, RBI issued draft guidelines to allow WLAs. Yesterday,  RBI allowed WLAs to function:

The Reserve Bank of India, today released on its website, the final guidelines on “White Label Automated Teller Machines(WLAs) in India”. White Label ATMs are ATMs set up, owned and operated by non-bank entities incorporated in India under the Companies Act, 1956. Till now, only banks were permitted to set up Automated Teller Machines (ATMs) as extended delivery channels.

Under the guidelines, non-bank entities incorporated in India under the Companies Act, 1956 will be permitted to set up, own and operate ATMs in India. Prospective operators/applicants would need to seek authorisation from the Reserve Bank under the Payment and Settlement Systems (PSS) Act, 2007. For setting up WLAs, entities should have a minimum net worth of Rs. 100 crore as per the latest financial year’s audited balance sheet.

There are 3 schemes under which the interested parties can apply:

Scheme A

  • A minimum of 9,000 WLAs in a period of three years in a ratio of 3:1 – that is, minimum of 1000 WLAs to be installed in Year 1, minimum of twice the number of WLAs installed in Year 1 to be installed in year 2, and minimum of three times the number of WLAs installed in Year 2 to be installed in year 3;
  • For every three WLAs installed in Tier III to VI centres, one WLA can be installed in Tier I to II centres.
  • Out of the 3 WLAs installed in Tier III to VI centres, a minimum of 10 per cent should be installed in Tier V & VI 

Scheme B

  • A minimum of 5000 WLAs to be installed every year for three years in the ratio of 2:1, that is, for every two WLAs installed in Tier III to VI centres, one WLA can be installed in Tier I to II centres.
  • Out of the WLAs installed in Tier III to VI centres, a minimum of 10 per cent should be installed in Tier V & VI centres.

Scheme C

  • A minimum of 25,000 WLAs in the first year and at least another 25,000 in the next two years in the ratio of 1:1.
  • Out of WLAs installed in Tier III to VI centres, a minimum of 10 per cent should be installed in Tier V & VI centres
This is interesting.  The idea is to increase ATM penetration in the country. The draft guidelines mention:
As per the existing rules/regulations only banks are being permitted to set up Automated Teller Machines (ATMs) in India. Banks have played a major role in encouraging ATM adoption and modifying behavioral strategies in the domain of personal banking. The banking space has seen considerable growth through the ATMs, (approximately 87000 ATMs at present) but the same has been restricted principally to the urban/metro areas. Tier III to VI unbanked/under banked areas have not witnessed much ATM presence.
Although there has been about 30% year-on-year growth in the number of ATMs deployed in the country since 2008, ATM penetration on a per capita basis continues to be less compared to other countries. There is, therefore, an abundant scope and a felt need to deploy more ATMs, particularly in Tier III to VI areas of the country.
In the above context, RBI has reviewed the extant policy on ATMs and it has been decided to permit non-banks to set up, own and operate ATMs to accelerate the growth and penetration of ATMs in the country.  Such ATMs will be in the nature of White Label ATMs (WLA) and would provide ATM services to customers of all banks.
So any scheme one opts for, one will have to set up ATMs in cities other than top tier. Infact to set up in top Tier targets for lower tier will have to be achieved.
I have not read into the kind of cities that will fit in this classification. But the idea is taken from a similar experiment done in 1980s to increase branches in rural regions.

Between 1977 and 1990, to qualify for a license to open a branch in a census location which already had one or more bank branches an Indian bank had to open four branches in locations with no bank branches.

In a now famous paper, Rohini Pande of Harvard explained how this  policy helped in lowering poverty:

We use these policy-induced trend reversals in the relationship between a state’s initial …nancial development and rural branch expansion as instruments for rural branch expansion and …nd that rural branch expansion in India signi…cantly reduced rural poverty.

Not sure how and whether WLAs will help. The hypothesis would be that WLAs helped usage of ATMs in lower tier cities. It could be possible that Banks which use these WLA see a rise in their customer base as well. It should lead to more choices and options for customers. Though unlike Bank ATMs, these will be charged from first transaction:
Being non-bank owned ATMs, the guidelines on five free transactions in a month for using other bank ATMs would not be applicable for transactions effected on the WLAs. The charges for the transactions should be displayed on the screen before the customer initiates the transaction.
Hmm.. So there will be a bit of disadvantage. However, in case there is limited choice available customers might use WLAs for emergency purposes. In case charges are minimal may be transactions rise.
And this display of charges upfront is a great nudge as well. People should clearly know that they are being charged for the transaction unlike other Bank ATMs..
Apart from this WLAs can offer some value added services (not sure what they are). They obviously cannot offer deposits.
Will be very interesting to see how this experiment shapes up. Could be a very exciting natural experiment for researchers in times to come (assuming non-banks find RBI guidelines business friendly etc.)…

3 Responses to “RBI’s new initiative of WLA Teller Machines – a policy from 1980s?”

  1. Neelansh itkan Says:

    Sir, pls do change your setting “reading” settings, so that I can read it in my email feeds.
    Thank you.

  2. Kiran Says:

    I don’t think white label ATMs can charge customers (could you tell me from where did you paste that paragraph?). Here are the relevant guidelines (from June 20th release) which inform that –

    8. The extant guidelines on five free transactions in a month as applicable to bank customers for using other bank ATMs would be inclusive of the transactions effected at the WLAs.

    9. The WLA Operator would not be entitled to any fee from the card issuer-bank other than the “Interchange” fee payable to “acquirer” bank under the bank owned ATM scenario.

    10. While the WLA operator is entitled to receive a fee from the banks for the use of ATM resources by the banks customers, WLAs are not permitted to charge bank customer directly for the use of WLAs.

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