“Whatever services we give, ultimately it has to be a win-win situation…. We just want a commercially viable model, I cannot afford to lose month after month,” State Bank of India (SBI) Chairperson Arundhati Bhattacharya told PTI in an interview. SBI Chairperson added, she is ready to invest in more ATMs as long as she can explain how she is going to sustain it.

Interesting isn’t it? Just think about it, if the largest state run bank of India is finding it difficult to subsidise ATMs, the smaller players would have a harder time. These statements by the SBI Chairperson intrigued me to nick the surface a little more and start digging for more information. In contrary to the current issue of subsidising ATMs, SBI has awarded Rs. 450 crores (4.5 billion) to CMS for installing 7850 new ATMS in October 2013. Another interesting fact is that India has considerably lower ATM penetration compared to other emerging markets. India has about 110 ATMs per million of population against 900 ATMs per million population in other emerging markets. That means we have to increase out ATM penetration 8 times to catch up with other markets.

If the largest state run bank is not able to sustain their current ATM investments, how can we afford this growth in investment?

Let’s consider that hypothetically RBI agrees to allow banks to charge for ATM Transactions. Will this solve the problem and will banks be able to recover their costs? No. It will become a case of being ‘penny wise pound foolish’. As soon as we see banks start charging for ATM transactions, there will be un-ending queues at branches for withdrawals, as there is no cost of withdrawals in branches, in most banks.

Current cost of setting up an ATM is about Rs. 6,00,000 and maintenance is about Rs. 10,000 – 50,000 per month depending on location. This averages out to about 30,000 per month. For an ATM servicing about 5000 transactions per month, over a period of 2 years average cost of the transaction would be about Rs. 11. If the number of transactions serviced by the ATM is decreased to say 3000 transactions per month, the cost of one transaction shoots to Rs. 18.33. If we consider cost of servicing each customer at the branch is about Rs. 75, ATM still comes out on top as the cheaper means of servicing customers. This means that ATM transactions are actually subsidised out of the cost saved on the branch transactions, provided there is effective utilisation of ATMs.

What if we look at other side of this? Customers who are using ATM to perform transactions are helping banks minimise their branch operations cost. By imposing ATM fees, are these banks going to discourage / penalise these customers? If these customers who are currently using self-service channels, start using serviced channels, there will be a substantial increase in the bank’s operational cost. It will also be interesting to find out more information on reduction of operational costs of banks due to ATM. If we look at this issue from the perspective of self service channels, it is true that all banks have made huge investments in areas such as ATM, Internet Banking, IVR, Mobile Banking etc. But are these investments paying off? This requires the analysis by each bank to understand their investment (initial investment for technology acquisition as well as ongoing operating and maintenance costs) vis-à-vis savings accrued. If the banks realise that these investments are not paying off or they are not achieving expected savings, what is the option? Are they going to scrap these projects? Answer is NO.

In today’s online world, banks cannot survive without these technologies. Therefore it is essential for banks to devise strategies to increase in usage of alternate channels, thereby reducing pressure on their branches. Banks are able to either cut down additional capacity to save cost or utilise the additional capacity to generate more revenue. This savings in cost or additional revenue should fund these self-service channels.

In conclusion, banks will have to relook at their investments that are not directly linked to revenue generation such as alternate channels, data warehousing etc. Defining the success metrics to evaluate return on investment and devise strategies to ensure optimum uptake / usage of alternate channels would be the holy grails for large banks.