With a thrust on financial inclusion, banks are focusing on expanding their reach in a cost-effective way.
This has spawned the need for heavy investment in technology and electronic payment channels.
As banks are looking at such infrastructure as ancillary assets, wanting to focus on core activity, they’re reluctant to commit their resources here, throwing space open for other players.
Much of this activity is getting outsourced to the private sector.
Automated teller machines, a key segment in electronic payments, are set to more than double in number over the next two to three years.
At present, they number a little over 1,00,000, according to National Payments Corporation data.
A senior public sector bank official said there was a robust business opportunity for private equity players.
The stable fee income flow from banks that use the services of ATM companies is a glue.
Given the low penetration of ATMs, this revenue is expected to move up in tandem with a rise in transactions, he asserts.
H V Harish, partner, Grant Thornton India, a tax and business consultancy, said PE firms weren’t enthusiastic about making direct investment in finance companies.
PEs did invest in the finance segment around 2007, attracted by the huge potential and returns.
But their experience was not satisfactory.
For them, investing in providing technology and support services to the financial sector is easier.
This gives the benefits of returns from the sector without exposure to the risks of direct investments (in banks and non-bank finance companies), said Harish.
Those gearing for white label ATM space (these are ATMs owned and operated by non-banks; bank customers pay a fee for withdrawing money from these)