PremiumMUMBAI: Reach of automated teller machines (ATMs) is expected to rise, following a central bank decision to hike interchange fees on cash withdrawals and non-cash transactions.
Experts believe this will incentivise banks and white label ATM deployers to set up more cash dispensers, especially benefitting rural areas. Last revised in 2012, ATM interchange has remained at Rs15 for financial and Rs5 for non-financial transactions, despite several representations from the industry. On Thursday, the Reserve Bank of India (RBI) allowed hiking this to R 17 for financial transactions and ₹6 for non-financial transactions.
White label ATMs are set up, owned and operated by non-banks. There are four such operators in India, as per RBI data.
ATM interchange is the charge paid by the bank that issues the card to the bank where it is used to withdraw cash. While the card-issuing bank is called the issuer, the latter is called an acquirer. This charge is divided between the acquirer and the company maintaining the ATM, which is why banks discourage customers from using ATMs of other banks.
There were 213,575 bank ATMs in March 2021, a modest increase of 1.3% from March 2020, showed data from RBI. That apart, the number of white label ATMs stood at 25,013. India’s rural areas account for 20% of all ATMs in the country.
“I think as the interchange increases, private ATM deployers as well as banks will get a good boost and significant penetration of ATM services will happen in India’s unbanked regions," said Navroze Dastur, managing director at ATM-maker NCR India.
Dastur added many banks do not deploy ATMs in smaller towns and rural areas because it does not make commercial sense.
“After this decision, banks and white label ATM players will be incentivized for setting up ATMs. Obviously, ₹18 per transaction would have been better, given the cost associated with adhering to all regulations on ATM and cash management services," he explained.
India had 20.95 ATMs per 100,000 adults as of 2019, lower than several other nations, according to the World Bank.
“The demand for cash withdrawals among consumers is not gone away and one obvious support for that is the way cash in circulation has been growing. I believe there is enough demand for cash withdrawal as a service," said K Srinivas, director of the Confederation of ATM Industry (CATMi).
Srinivas pointed out that the only reason behind lower ATM deployment was the poor interchange fee.
“At the old interchange it was not making sense and there were not enough breakeven transactions to put up an ATM. This hike to ₹17 means that one can now go and deploy ATMs much more aggressively, especially in smaller towns," said Srinivas.
In June 2019, RBI had constituted a committee under the chairmanship of VG Kannan, the then chief executive of the Indian Banks’ Association (IBA), to review the entire gamut of ATM charges. The recommendations of the committee were made public in July 2020.
The committee had recommended using population as a metric for calculating ATM charges. For instance, it had suggested the increase in free transactions at ATMs in all centres with population of less than 1 million (as per census 2011 and to be reviewed from time to time) to six per month, from five at present. For centres with more population, it had recommended retaining the free transaction limit at three.
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