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Managing automated teller machines (ATMs) is turning out to be big business, with companies that have taken over the outsourced functions, commanding valuations of smaller nationalized banks.
One of the leading companies in this space, Financial Software & Systems (FSS), is clinching fresh investments at about $350 million (more than Rs 1,900 crore) valuation, topping the market capitalizations of banks like Dhanlaxmi, Punjab & Sind, Development Credit bank and Laxmi Vilas Bank. The Chennai-based company is tracking Rs 650 crore revenue this fiscal, up from Rs 240 crore two years ago, reflecting a buoyant marketfor companies building and managing payment infrastructure.
AGS Transact, Prizm Payments and Electronic Payments and Services, among others, are raising funds at robust valuations, as banks push for increased ATM density, which is touching the one-lakh mark. These firms are wooed by large foreign investors such as General Atlantic Partners, Blackstone Group andActisin an industry that's now $2.5billion in size.
FSS declined to comment on the deal, while AGS Transact could not be reached for immediate comments. What has set the market on fire is RBI'stwo-year-olddecision to allow accountholders free access to any ATM across the country.
Although access is free for customers, banks pay each other a transaction fee every time their depositors access ATMs of other banks. This has turned ATMs into profit centres for banks and the number of machines has grown from 60,000 in March 2010 to 75,000 last year and is now a few hundred short of the one-lakh milestone.
Eight home-grown companies are set to consolidate their position with the finance ministry carving out the market into circles, and awarding the management of PSU banks' ATM network to one company. "The growth opportunity has come faster than expected because of the decision by PSU banks to outsource deployment of 62,000 ATMs over next two and half years," said Loney Antony, MD, Prizm Payments.
FSS would raise $60 million (Rs 336 crore) in equity and $120 million (Rs 672 crore) in long-term debt, while AGS Transact, in which private equity firm TPG is an investor, is looking to raise Rs 400 crore to speed up ATM deployment and to improve payment gateways for internet and mobile banking.
"We are now seeing the beginning of the second phase of ATM deployment where machines are set to grow from one lakh to 1.75 lakh in two years. Transactions will continue to grow because there is a huge population of accountholders without ATM cards. Add to this, the customers who will be brought in under the financial inclusion plan and the transactions are set to grow manifold," said Mani Mamallan, founder of EPS.
Banking infrastructure management companies are seeing exponential growth in revenue as almost 70% of the cash withdrawals are through ATMs and the cost of each transaction is pegged at around Rs 10. The transaction costs that these companies recover from banks gotowards various expenses of maintaining an ATM-network management, cash management, security and hardware maintenance.
The rising Internet and mobile banking have added a new dimension to their growth plans. A recent AvendusC apital reportsaidI ndia's internet consumers would jump three fold in the next three years to over 380 million riding on the back of better broadband penetration.
The PSU banks move to outsource the ATM management by circles has led to intense bidding war, with some companies under cutting rivalsdriving down the revenue share. Some industry observers said this would negatively impact the return on investments for private equity investors in the near term. Pedigree US investors Sequoia Capital, JacobB allas andNew Enterprise Associates have cut initial deals in the sector.
Source: EconomicTimes
One of the leading companies in this space, Financial Software & Systems (FSS), is clinching fresh investments at about $350 million (more than Rs 1,900 crore) valuation, topping the market capitalizations of banks like Dhanlaxmi, Punjab & Sind, Development Credit bank and Laxmi Vilas Bank. The Chennai-based company is tracking Rs 650 crore revenue this fiscal, up from Rs 240 crore two years ago, reflecting a buoyant marketfor companies building and managing payment infrastructure.
AGS Transact, Prizm Payments and Electronic Payments and Services, among others, are raising funds at robust valuations, as banks push for increased ATM density, which is touching the one-lakh mark. These firms are wooed by large foreign investors such as General Atlantic Partners, Blackstone Group andActisin an industry that's now $2.5billion in size.
FSS declined to comment on the deal, while AGS Transact could not be reached for immediate comments. What has set the market on fire is RBI'stwo-year-olddecision to allow accountholders free access to any ATM across the country.
Although access is free for customers, banks pay each other a transaction fee every time their depositors access ATMs of other banks. This has turned ATMs into profit centres for banks and the number of machines has grown from 60,000 in March 2010 to 75,000 last year and is now a few hundred short of the one-lakh milestone.
Eight home-grown companies are set to consolidate their position with the finance ministry carving out the market into circles, and awarding the management of PSU banks' ATM network to one company. "The growth opportunity has come faster than expected because of the decision by PSU banks to outsource deployment of 62,000 ATMs over next two and half years," said Loney Antony, MD, Prizm Payments.
FSS would raise $60 million (Rs 336 crore) in equity and $120 million (Rs 672 crore) in long-term debt, while AGS Transact, in which private equity firm TPG is an investor, is looking to raise Rs 400 crore to speed up ATM deployment and to improve payment gateways for internet and mobile banking.
"We are now seeing the beginning of the second phase of ATM deployment where machines are set to grow from one lakh to 1.75 lakh in two years. Transactions will continue to grow because there is a huge population of accountholders without ATM cards. Add to this, the customers who will be brought in under the financial inclusion plan and the transactions are set to grow manifold," said Mani Mamallan, founder of EPS.
Banking infrastructure management companies are seeing exponential growth in revenue as almost 70% of the cash withdrawals are through ATMs and the cost of each transaction is pegged at around Rs 10. The transaction costs that these companies recover from banks gotowards various expenses of maintaining an ATM-network management, cash management, security and hardware maintenance.
The rising Internet and mobile banking have added a new dimension to their growth plans. A recent AvendusC apital reportsaidI ndia's internet consumers would jump three fold in the next three years to over 380 million riding on the back of better broadband penetration.
The PSU banks move to outsource the ATM management by circles has led to intense bidding war, with some companies under cutting rivalsdriving down the revenue share. Some industry observers said this would negatively impact the return on investments for private equity investors in the near term. Pedigree US investors Sequoia Capital, JacobB allas andNew Enterprise Associates have cut initial deals in the sector.
Source: EconomicTimes
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