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The Dragon and Tiger of the ATM Markets: China and India

The ATM markets in China and India have experienced explosive growth over the past five years. The next three to five years will see an even greater increase from about 125,000 ATMs in 2006 to 350,000 ATMs by 2010, according to a new report, “The Dragon and Tiger of the ATM Markets: China and India” from Celent, a Boston-based financial research and consulting firm.

Key findings of the report include:

• Over the past five years, the ATM market has reached a level of saturation in many industrialized nations. Cash usage in these markets continues to decline due to the widespread use of electronic payment vehicles including credit and debit cards. The end result is that both ATM transaction volumes and profitability are slowing across mature markets such as the US, Canada, Spain, Japan, and the UK.

• While traditional ATM markets are on the decline, overseas markets are rapidly becoming attractive venues of growth and the destinations of choice for ATM industry players seeking to sustain profitability levels. The rapid development of banking and financial services in both China and India represents a significant opportunity for ATM growth, particularly in light of the extremely low penetration levels of this cost-effective self-service distribution channel in both countries.

• The first ATM was installed in China in 1987. Since the Gold Card Project started in 1993, ATMs increased drastically, growing at a CAGR of 43%. At the end of 2006, there were 102,000 ATMs across the country. They are concentrated mostly in urban areas. ATMs in rural areas are very sparse, and there is still significant room for growth. Celent expects ATM installations to increase over 20% percent year by year, reaching 233,000 ATMs by the end of 2010. Major growth will come from midsize and small cities as well as suburban areas.

• The first ATMs were installed in India in 1988 by a few foreign banks. The next 12 years saw the addition of only about 1,000 machines. Since 2000, growth in ATMs has been exponential, with a CAGR of 70%. As of March 31, 2006, there were 21,523 ATMs across India. They are concentrated mostly in urban areas. Celent believes that the next major phase of growth will come from semi-urban and rural areas. According to many leading banks in India, they are targeting a ratio of 1:2.5 for bank branches vs. ATMs by 2012. This means the number of ATMs will grow to around 175,000, assuming the number of branches remains at the same level.

• The growth of ATMs is closely related to the growth in debit and credit cards in both China and India. Cards in circulation, both credit and debit, have grown rapidly over the last five years. In China, the issuance of bank cards has grown at a CAGR of 24.6% since 2002, reaching a total of 1,130 billion cards at the end of 2006. With ATM growth increasing at a CAGR of 17.8%, reaching 102,000 ATMs, the card usage environment improved. The credit card CAGR of 39% since 2002 in India is similar to the ATM CAGR of 41% over the same period. Over the past two years, banks have begun concentrating on driving the usage of debit cards.

• In India, Celent expects that over the next year, average ATM card annual fees of US$10—12 will be common across every bank. Interchange fees are on average US$ 0.50 for cash withdrawals and US$ 0.10—0.20 for balance enquiries.