ATM industry: Changing landscape and emerging trends .ATM industry: changing landscape and emerging

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  • ATM industry: changing landscape and emerging trends

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    ContentsIntroduction p3/Trends p5/Innovation in a time of change p6/ Challenges faced p7/ Frauds related to emerging technology: past and present scenario p9/Threats p10/Way forward p12

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  • ATM industry: changing landscape and emerging trends 3

    Introduction of Automated Teller Machine (ATM) in the banking sector can be demarcated as a major milestone in its evolution. The cash dispenser was born almost 50 years ago, in 1967. For many this was the first tangible evidence that retail banking was changing. The introduction of the ATM marked the dawn of contemporary digital banking. Even after nearly five decades of existence, the ATM channel is still proving to have retained its central role as a core banking touchpoint with customers.

    Currently, the ATM industry in India is rapidly transitioning from traditional methods of ATM operations into internationally accepted ones. The business of ATM outsourcing has been growing exponentially in India, since the ATM industry continues to move from banks managed services to end-to-end deployment of service vendors. The ATM industry offers a wide range of servicesATM site sourcing, site development, electronic journal (EJ) and switch management services, managed services, maintenance services and installation services. Cash management is another aspect of the ATM industry. The current cash cycle management of ATM involves cash pickup, cash movement, grading, counting, replenishment and others.

    In an effort to extend banking services in India, especially in rural areas, white label ATMs have been introduced by the Reserve Bank of India. Following this, Federal Bank of India became the first bank in India to deploy white label ATMs in India through a tie-up with Tata Communication for Payment Solution Limited (TCPSL).

    Increasing involvement of customers with the banking and financial organisation is resulting in overall growth in the market size of the ATM industry. Consistent efforts taken by the Government and institutions to reduce the unbanked and under-banked population in emerging economies is favouring industry growth significantly. However, card skimming, card tapping, online frauds and inappropriate network connectivity are major factors hindering the growth of ATMs market share. With the growing technological advancements, the ATM industry has managed to curb these potential threats from malpractices. Global regulatory authorities are organising security standards and system to reduce fraud prevalence, due to which global ATM market size is expected to witness acceleration over coming years.

    Many technological standards are formulated to overcome the problems faced by customers, banks and ATM service vendors, such as, Scrutiny Standard Council (SSC), International Organization for Standardization (ISO), European payment Council (EPC) and Payment Card Industry (PCI). Currently PCI PIN Security Requirements and PCI PTS POI Security Requirements are most accepted standards among these.

    Recently, the Deputy Governor of the Reserve Bank of India delivered a keynote address at NPCI National Payments Excellence Awards function, Mumbai. There he said, there is a need to debate and put in place the following in the best possible manner. They are

    Robust data collection, big data analysis and analytics framework for creating benchmarks.

    Platforms for industry wide sharing of fraud data.

    Need for self-regulatory organisations amongst various industry sectors.

    Security standards for mobile payments, including Internet of Things devices and security aspects of social networks-based payments.

    Leveraging block chain or distributed ledger technology.

    Encouraging contact less payments, including through QR code, tokenisation.

    Innovation through regulatory sandbox. 1

    1 https://rbi.org.in/scripts/BS_SpeechesView.aspx?Id=1058

    Introduction1

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  • ATM industry: changing landscape and emerging trends 5

    2 http://bfsi.eletsonline.com/ncr-completes-sale-of-its-atm-outsourcing-business-to-eps/

    3 https://www.hexaresearch.com/research-report/atm-market

    However, it should be noted that during the last financial year, i.e., 2017-18, it was observed that there is a positive 0.64% average m-o-m percentage growth of the number of transactions and a positive 1.16% average m-o-m percentage growth in the amount of transactions. Therefore, it can be concluded that the effect of the demonetisation is fading with the passing time.

    As far as mergers and acquisitions are concerned, NCR Corporation, a global leader in omni-channel solutions, announced that it has completed the sale of a significant portion of its assets and related customer contracts in respect of its outsourced ATM business in Kerala, Bihar, Jharkhand and Lakshadweep to Electronic Payment & Services Pvt. Ltd. (EPS), a leading payment system company headquartered in Mumbai2.

    A report by Hexa research suggests that the worldwide ATM market is projected to garner more than 26 billion US$ by 2024, growing at around 9.8% CAGR in the forecast period (2016-2024). It had a value of 12.5 billion US$ in 2015. Technological breakthroughs and innovative security standards amid growing wireless devices should propel the market in the near future. This can reduce fraud and lead to safe financial transactions.3

    Over the years, the ATM industry in India has seen a fair growth until 2016, which was marked by one of the boldest step taken by any Governmentdemonetisation. Due to demonetisation the calibration of ATMs had to be changed. There were various restrictions on amount of withdrawals that can be done by account holders.

    If we analyse the data for the last four financial years (2014-2018) and reflect upon the pre and post era of the demonetisation we will be able to observe the following:

    Trends2

    Particular PeriodAverage m-o-m percentage growth of number of transactions

    Average m-o-m percentage growth of amount of transactions

    Pre-demonetisation May'14-Oct'16 1.16% 1.04%

    Post-demonetisation Nov'16-Mar'18 -0.76% -3.31%

    -120.00%

    -100.00%

    -80.00%

    -60.00%

    -40.00%

    -20.00%

    0.00%

    20.00%

    40.00%

    60.00%

    May

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    Month-on-month ATM transactions using debit/credit card growth chartSource-Compiled and analysed based on data from RBI

    M-o-M Percentage growth of the Number of Transactions M-o-M Percentage growth of the Amount of Transactions

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    4 http://www.greenworldinvestor.com/2017/02/08/solar-powered-atms-advantages-components-working-mechanism/

    Innovation in a time of change3With time, technology evolves and as it is correctly said, todays technology is tomorrows scrap. Various leading global banks, in order to enhance customers experience, are evolving their ATMs.Few such enhancements are mentioned below:

    States such as Rajasthan, Chhattisgarh, Odisha, Assam and Madhya Pradesh have requested for several such machines followed by Gujarat, Kerala, Punjab, Haryana, Delhi, Mizoram, Orrisa and Tamil Nadu have sent less than 10 proposals to the NABARD.4

    Cardless ATM access:

    Many global payment leaders have introduced technologies, which allow the customer to carry out transaction without a card, through their smartphones. With growing use of smartphones, many mobile manufacturers are ensuring that their devices are near field communication (NFC)-enabled, which allows the smartphone to communicate with devices in certain proximity.

    SunTrust Bank plans to introduce this technology at their ATMs so that customers can use their NFC-enabled smartphones to access the ATM. Wells Fargo has rolled out a similar technology, which will link its digital wallet Android Pay and plans to further add wallets such as Apple Pay and Samsung Pay, which enables customers to carry out transactions without using their cards.

    While the global industry has adopted these measures, Indian companies have also adopted technologies, which enable the customer to access ATMs without the card and PIN.

    Biometric ATMs:

    DCB Bank has launched its Aadhaar-based ATMs, which enables customers to use their unique Aadhaar number and Aadhaar fingerprint (biometric) instead of the debit card and PIN to dispense cash from the bank account.

    DCB Bank ATMs are not only enabled to facilitate such cardless transactions, but also several money transfer transactions.

    ICICI bank, Bank of India and Axis bank have