Rise of digital transactions forces ATM firms to put IPO plans on ice


Mumbai: Companies that manage ATM networks and were planning share sales to the public have deferred them as banks go slow on ATMs and the number of cashless transactions rise.

Three people aware of the development said AGS Transact Technologies’ Rs.1,350 crore initial public offering (IPO) has been put on hold.

Chennai-based Financial Software and Systems Pvt. Ltd (FSS) started meeting merchant bankers last year for aRs.1,000 crore IPO but has also deferred its plans.

“We have deferred the IPO due to market conditions,” said Nagaraj Mylandla, founder and managing director at FSS.

“We are guided by our merchant bankers on the IPO. The management will take an appropriate decision based on their advice,” an AGS spokesperson said in an e-mail response.

“ATM installations have seen slow growth last year on the back of slower deployment, mostly by state-owned banks, which are busy firefighting bigger issues such as increasing non-performing assets (NPAs),” said one of the three people cited in the first instance. All three asked not to be identified.

The sluggish growth in the industry has resulted in lukewarm investor interest, the first person added.

According to data from the Reserve Bank of India (RBI), growth of ATM installations slowed to 9.8% in 2015, after three consecutive years of above 20% growth. The rate of growth in new ATM deployment in 2014, 2013 and 2012 was 24.6%, 33.7% and 21.1%, respectively.

In November, Mint reported that AGS had discontinued its roadshows due to investor apprehension over the valuation of Rs.4,000 crore being sought by the company and its investors. AGS is backed by private equity investors Actis and TPG.

“The company and investors have indicated that they are in no hurry to launch the IPO and would rather wait out the slowdown,” said another person among the three cited above.

As of 31 December 2014, AGS’s portfolio comprised 9,733 ATMs under its outsourcing business and 6,818 ATMs under its managed services business, according to the company’s filings with the Securities and Exchange Board of India (Sebi).

Experts say the ATM industry is facing a slowdown due to a shift in urban consumer behaviour, the growth of e-commerce and mobile wallets, and the focus on digital banking.

“The whole concept of withdrawing money is on a steady decline. Any kind of doorstep banking is turning out to be much more expensive now and most kinds of payments are being replaced by a mobile app,” said Abizer Diwanji, partner and national leader at audit and consulting firm EY.

Banks are now focusing more on building their digital platforms, he added.

While still a small part of the overall banking universe, mobile banking has been growing at a very fast pace, according to data from RBI. In December 2015, there were 39.49 million mobile banking transactions—2.3 times the number of transactions in December 2014. In terms of value, the growth in 2015 was even more profound: Rs.49,029 crore—4.3 times the growth in the year-ago period.

More customers are also using their debit cards to make payments. While the number of ATM transactions has grown at an average annual rate of 12.3% over the last four years, the number of debit card transactions at merchant establishments has grown three times faster—at an annual average rate of 38.5%. In the same period, the number of ATM transactions per debit card has reduced by 23%.

“ATMs which are more relevant today are the ones which are substituting the branch by helping people drop a cheque, request for a cheque book, update passbook, request for demand draft or make utility payments,” said Kalpesh Mehta, partner at Deloitte Haskins and Sells, India.

Banks have realized that digital is the only way to connect with a larger base of customers and provide services at low cost, Mehta said. There is, however, scope for deployment of ATMs in tier II and III cities and highways, he added.