Rising maintenance cost forces banks to outsource ATM management.

Rising mainte¬nance costs, oc¬cassioned by growing cus¬tomer demands for better efficiency of self-service channels, is compel¬ling deposit money banks in Nigeria, to outsource their Automated Teller Machine (ATMs) deployment and management function to third party service pro¬viders, industry insiders have said. These third party providers will, according to our sources, be paid on the basis of each transac¬tion. Available statistics show that there about 12, 000 ATMs in the country. Banks dedicate significant financial and management resources to ongoing op¬eration and support of their ATM networks, according to industry insiders. Busi¬nessDay checks however reveal that the average an¬nual support spend on an ATM in Nigeria, is $2,500. In stark contrast, this figure is half of what obtains in Indo¬nesia and South Africa, both spending around $4,500 per ATM per annum.

A new research study has shown that ATM main¬tenance costs are grow¬ing 7 percent annually. To this end, banks have been taking a closer look at alternative ways of managing their ATM net¬works, which is no longer a revenue generator as the Central Bank of Nigeria (CBN) had earlier cancelled the N100 monthly ATM card maintenance fee. Tope Dare, director, sales & strat¬egy, Infrastructure Busi¬ness at Inlaks Computers, however confirmed this development in an inter¬view.

According to him, “the industry is moving in the direction where a third party provider takes away all the headaches of manag¬ing ATMs from banks as a turnkey project. They pro¬vide the structure, invert¬ers, connectivity links to bring the ATMs to service and then subsequently maintain the infrastruc¬ture.” An ATM network requires careful attention, including restocking cash and keeping up with secu¬rity mandates.

Market watchers are of the view that outsourc¬ing of ATM management functions is a critical area currently being consid¬ered by many senior bank executives. “Not all banks have the competence to maintain so many ATMs on their own. As the indus¬try matures, outsourcing becomes the norm because availability of capital is scarce and banks would not want to spend the capi¬tal on capital expenditure. OPEX is the way forward,” said Hatim Broachwala, analyst at Karvy Stock Bro¬king Limited. Improving overall customer experi¬ence on the ATM platform has become a priority for many banks now, in line with the mandates of the apex bank, according to industry insiders.

Austin Okere, group managing director, Com¬puter Warehouse Group (CWG) Plc, in a recent note, pointed out that the aver¬age customer experience of the ATM user in Nigeria, Africa’s most populous na¬tion, is still a tale of woes.
“This is mostly self-in¬flicted, and inadvertently by the same banks in whose major interest it should be to drive adoption to cut the relatively high cost of serv¬ing customers within the branch.” Industry insiders say that banks decision to go the outsourcing route may be unconnected to the stagnation of ATM penetration levels. Even with the widespread usage and adoption of ATMs, the population of machines has been stuck at the 11,000 mark for the past six years, resulting in an average of 11.39 machines per 100, 000 adults, according to latest industry findings. A World Bank report shows that adults in the country account for about 56 per¬cent (95.2 million) of the to¬tal population (I67 million). In stark contrast, Indonesia with an adult population of about 90 million, more than doubled their ATM installed base from 16, 700 in 2011 to 36, 500 in 2012, resulting in 37 ATMs per 100, 000 adult population, about three time the ATM per adult capita in Nigeria.

There has been a gen¬eral lull in Nigeria’s ATM market, according to in¬dustry insiders, largely due to the Central Bank of Nigeria’s (CBN) misadven¬ture with the Independ¬ent ATM Deployers (IAD) experiment of 2008 which barred financial institu¬tions from deploying ATMs outside their branches. This move, according to them, resulted in an abrupt halt in the momentum of ATM deployment by banks. But as bank struggle to mini¬mise cost, and improve efficiency of self-service platforms in the current economic conditions, out¬sourcing has become an attractive option, analyst have said.

Jaroslaw Knapik, senior analyst, financial services technology, at Ovum, said, “The idea of not owning the equipment but renting it together with associated services is a pain-reliever for many banks.” Accord¬ing to him, vendor credibil¬ity is essential, and the larg¬er institutions in particular will also seek reassurance that both their customer service levels and overall delivery strategy will not be compromised. Market watchers are of view that outsourcing or managed services approach offers banks the benefits of man¬aging costs and maintain¬ing compliance while pro¬viding the ability to rap¬idly deploy the latest, most innovative technologies. Industry analysts also say it places a long-term focus on achieving peak levels of ATM performance, which also bolsters customer sat¬isfaction and the expands the opportunity to increase revenues through cross-sales and new services.

 

BEN UZOR JR