Axis Bank signed the largest ATM outsourcing deal with two private companies

Axis Bank, the country’s third largest private sector lender has signed the largest ATM outsourcing deal. It has signed an agreement with two third-party service providers in order to increase its ATM count. Bank is planning to increase its ATM count to more than 9,000 within the next 18 months.

An official connected to the development told bank has signed the contract with two companies Prizm Payment Services and AGS Infotech to set up and manage 5,000 ATMs on a purely variable model.

By end of March 31,2010, the bank had 4,293 ATMs. Prizm will be setting up 3,500 ATMs while AGS Infotech will set up 1,500 ATMs.

The ATMs will be owned and managed by the two service providers and bank will not incur capital expenditure, it will only look after cash settlement and will pay the service providers a fee per transaction.

Bank will pay Rs 13-15 for each cash withdrawal, for balance enquiry it will pay Rs 3-5 to the two service providers. In case of third-party transactions, in which a non -Axis Bank customer uses the ATMs, charges over and above the fixed fee will be split between the bank and the service provider.

On the other hand State Bank of India, the country’s largest lender has the largest ATM in the country with 18,246 units as on December 31, 2009, followed by ICICI Bank with 5,219 ATMs as on March 31. Then is HDFC Bank with 4,232 ATMs.

After this deal Axis Bank will have the second-largest ATM network in the country told the person quoted earlier.

Since the implementation of the Reserve Bank of India (RBI) norms according to which banks cannot charge customers for cash withdrawals, for banks setting up and managing ATMs has become a costly affair. Whenever a customer uses an ATM of another bank, his bank has to pay the bank whose ATM is used an interchange fee of about Rs 18.

Earlier, in April last year, on the directive of RBI banks had stopped charging even third-party customers for ATM withdrawals. But when banks requested RBI to withdraw this directive as the banks were facing lose, they were permitted to charge customers who had used their quota of five free third-party transactions per month.

Thus most of the banks are trying to avoid the expense and headache of setting up and managing ATMs by following an outsourcing model.

Last year, State Bank of India had signed an agreement with C-Edge for outsourcing ATMs. Even the smaller banks such YES Bank and Dhanlaxmi Bank are adopting this model.

A senior executive of a private sector bank said, “While RBI has given banks some respite from the free-ATM rule, we think it’s just a matter of time before ATMs become free again. This will increase ATM expenses for banks.”