NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Friday, September 11, 2015

In order to boost a space that has grown at a snail’s pace, the government on Wednesday approved 100% foreign direct investment (FDI) under the automatic route for non-bank entities that operate cash machines, subject to certain conditions. Wednesday’s move, the government said, will help improve financial inclusion in the country.

“FDI will definitely help to improve the funding of the capital-intensive WLA (white-label automatic teller machine) infrastructure business. We are seeing this as a boost to the WLA business due to more long-term funds flowing to this business,” said George Alexander Muthoot, managing director, Muthoot Group, which operates such teller machines.

Industry experts, however, believe that given the hurdles that have plagued the growth of the WLA segment, it remains to be seen if there will be any significant traction. “The underlying business model does not change fundamentally. Will they find cash management facilities and support is a question,” said Vijay Mani, senior director, Deloitte in India.

White-label ATM operators need a sponsor bank to operate the machines. According to Reserve Bank of India (RBI) rules, these sponsor banks will be liable to settle transactions and maintain cash at these ATMs. Maintenance and servicing will be the white-label ATM operator’s job.

White-label ATMs are those operated by non-bank companies that can be used by any domestic debit, credit or prepaid cardholder to withdraw cash, make a balance inquiry, change the personal identification number or ask for mini statements. Charges for customers remain the same as those levied by a card-issuing bank.

Among the licence holders are Tata Communications Payment Solutions, Prizm Payment Services Pvt. Ltd, Muthoot Finance Ltd, Vakrangee Ltd, BTI Payments Pvt. Ltd, Srei Infrastructure Finance Ltd, and RiddiSiddhi Bullions Ltd.