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“I became an entrepreneur by accident,” says L. Kannan, CTO and Founder, Vortex Engineering Pvt. Ltd., a Chennai-based manufacturer of low-cost, low-power ATMs for rural and semi-urban India. Interestingly, Kannan had never used an ATM nor seen the inside of one till he was approached by Professor Jhunjhunwala of IIT-Madras to build one at a time when ATMs were not as abundant as they are today.

After graduating from IIT-M in 1988 as a mechanical engineer, Kannan remained unemployed by choice till 2001. With an inherent interest in wealth generation for rural India through entrepreneurship, Kannan started Vortex in 2001 to actualize technologies for it.

The idea for a rural ATM, however, had been thought of by Professor Ashok Jhunjhunwala. It was the culmination of a systematic investigation by the TeNet group and ICICI Bank with the objective to leverage ICT (Information Communication Technology) to reach financial services to rural areas. The Reserve Bank of India (RBI) had issued notices to banks to focus attention on banking services for rural and under-banked areas in India for 100 percent financial inclusion.

The data gathered by many agencies found that 80 percent of households in rural India do not have access to formal credit. Rural ‘informal’ borrowing is in excess of $80 billion. “There is no doubt that financial services need to reach deeper into Indian villages,” says Professor Jhunjhunwala. The obvious solution was an ATM.

However, the ATMs needed to be acclimatized for the rural market. And that’s when Professor Jhunjhunwala reached out to Kannan with a wish list. “Apart from other things, it needed to be one-tenth or at least one-fifth the cost of a conventional ATM,” recalls Kannan. The cost of a conventional ATM in those days was Rs.8 lakh and after a top-of-the-hat calculation, Kannan estimated the cost of the new product to be Rs.25,000-Rs.30,000. By 2004, Venture East funded Vortex with Rs.30 lakh to go ahead and build a low cost ATM.

But funding was not enough; it required additional features for it to function smoothly in rural India and several stages of prototypes before they zeroed in on a suitable model.

Its differentiators included functioning in a non air-conditioned, dusty environment, withstanding temperatures up to 50 degrees Celsius, as sending a troop of maintenance personnel to service these ATMs was out of the question.

Secondly, it needed to be biometric-enabled, a confidence building measure, as culturally people felt more secure. “Ninety percent of ATM frauds in cities are because the tech-savvy elite inadvertently write PIN numbers carelessly,” explains Kannan. “The chance of rural poor losing money was much higher, which would shake their confidence in the system,” he adds. And then the ATM had to be rugged enough to last power outages (four to eight hours) and low voltage, without blowing up and able to handle all quality of notes. “The need for money in rural India is important, you cannot deny it when they need it,” emphasizes Kannan.

By 2007, and after a third model, Kannan had a self-contained, biometric-enabled model, with an in-built battery backup for four hours, and the looks of a conventional ATM, ready. Also, the machine consumed less than 100 watts of power per ATM, which is one-tenth of conventional ATM.

While conventional ATMs work on a method known as vacuum picking or friction picking, i.e. the act of picking one note after another, conveyed through complicated pathways on belts, Vortex’s machine works on a completely beltless design. This method is known as gravity-assisted friction pick. The cassette is placed vertically and notes are disbursed through very short distances. The cash dispenser is developed in-house, something only two-three people in the world do, according to Kannan.

Currently, Vortex has deployed 50 ATMs in the vicinity of Chennai, Mumbai, Bhopal, Chandigarh, Thiruvananthapuram, Coimbatore, Moradabad, Patna, Gorakhpur and Kohlapur. The cash and denominations dispensed in Vortex’s ATMs have been optimized to specific use in each area. Its first variant, the Gramateller Indi, is a single-cassette ATM. The total number of pieces of currency is limited to one cassette; all of the same denomination, though the bank can choose to change the denomination whenever required.

The Gramateller Duo has two cassettes, where cash can be dispensed in two denominations, more importantly, one of them being of larger denomination means you dispense fewer pieces per transaction. Thus, the cash loaded lasts for many more transactions. “This is recommended for semi-urban locations,” he says. In either variant, the denominations are never more than Rs.100.

Vortex provides managed services through which status of cash at ATMs is monitored remotely over the network and banks are alerted. This year Vortex has received its first commercial order from SBI to deploy 550 ATMs across the country, of which 300 will be solar-powered. While the cost to convert a conventional ATM to solar power is around Rs.30 lakh, the cost to convert Vortex’s machine would be less than Rs.1.5 lakh. “I expect a lot of market traction over the next one or two years,” says Kannan.

Vortex’s core interest is to enable banks, MFIs with relevant technology to move faster in the process of financial inclusion. India’s current ATM penetration is 0.04 per 1000 people.

“India needs at least one million machines, we don’t even have 40,000,” states Kannan. With a vision to make ATMs as universal as cell phones, he wants to deploy an ATM is every village of India, which converts to 637,000 villages. Several banks have expressed interest and are testing the ATMs from co-operative banks, Grameen banks, bigger ones like ICICI (pilot) and SBI. Some are live, some running live in a guarded way.

Axis Technologies, which also manufactures biometric ATMs, has till date deployed about 100-odd machines across 10-12 villages in partnership with 10 banks. Their ATMs, developed by in-house technology and design, can also be solar-powered at an additional cost of Rs.35,000. “Unlike Vortex, our machines have a removable cassette which can be taken to the bank to replenish cash,” says Makarand Apte, COO, Axis Technologies. However, the cost of Axis’ ATMs is Rs.1.5 lakh-Rs.3.5 lakh.

Clearly financial inclusion opportunities in rural India are heating up the playing field. Nevertheless, both Axis Technologies and Professor Jhunjhunwala feel that competition here is necessary.

Money Talk
* Initial investment: Rs.30 lakh (Venture East)
* Second round funding: Aavishkar (undisclosed)
* No. of ATMs deployed: 50
* No. of states: 10-12
* Topline 2009-’10: Rs.1 crore

©Entrepreneur May 2010

Tags:
ATM, financial inclusion, L. Kannan, low-cost, manufacturing, Rural, Vortex Engineering Pvt. Ltd.