We have witnessed the days of competition when banks were trying to outdo the other by opening the maximum number of ATMs but the pace seems to have dried out now. Are we increasingly becoming a cashless society? Will ATMs become extinct in the coming decade? Are we heavily depending on our mobiles and laptops for banking?Are we relying more on digital transactions and e wallets? Whatever the answer may be, one thing for sure stands apart is that growth of ATMs in India has started flattening. Covid 19 pandemic on the other hand has dampened the use of cash world over.India too, did not remain aloof from this and encountered a paradigm shift from ATMs to other digital payment modes since the year 2019.
The same can be explained with the help of two indicators. The first is embedded in the number of ATMs per 100,000 adult population for India and the world. It can be easily reflected that ATMs in India grew at a fast velocity up to 2014 but thereafter its tempo has slowed down with the growth track being almost flattened out. On the contrary, the growth all over the world is in ensuing an almost contrasting pattern that remained quite buoyant and, particularly, post 2017 the growth accelerated, broadening the gap between the two curves. If juxtaposed with the world average of 51.7 ATMs per one lakh population in the year 2020, India is way below, at an average of 21.5 ATMs per one lakh population, that is much lower than China, which is at 87.9 ATMs per one lakh population and Brazil too, which is at 96.6 ATMs per one lakh population. The truth remains that India continues to be among the countries with the lowest penetration of ATMs. Though India has 650,000 villages, but there is approximately only one ATM for 10 villages which remains a big hurdle for financial inclusion.The other indicator can be seen in the way the ATMs are being increasingly replaced by technological innovations like mobile banking, Point Of Sale,E-Wallet and now may be even CBDC ( Central Bank Digital Currency )
Hiccups faced by ATMs in India
- The economic slowdown, Covid-19 pandemic alongside the increased digitization in cities has given another blow to the ATM industry that is already stuck in unviable operations. Most of the SCBs and independent ATM operators otherwise also called the white label ATM operators, have brought down the number of ATMs operated by them.
- The total number of ATMs in India stands at 239,761 by end of June 2021, marginally up from 234,357 in March 2020, according to RBI data. The industry has seen diminutive growth since 2017, following strong annual growth of 14% between 2012 and 2017. The diminishing growth in ATMs is putting a serious strain on the bank customers across the country and they are exploring the alternate digital channels.
- An addition to the miseries was made by the announcement made by RBI that all such ATMs who go out of cash should try and ensure timely replenishment to avoid cash outs. “Any non compliance in this regard shall be viewed seriously and shall attract penalty “ . This came as a jolt and exacerbated the existing wound and many banks had planned on shutting down of some of their ATMs so as to escape such monetary penalties. Though later on this guideline was withdrawn but this had struck as a lightening.
- There was also a discernible change in the consumer behaviour following the pandemic. The majority of the population highly reduced their activities at ATMs for the fear of the COVID virus. A drastic shift to Google Pay,PayTm and PhonePe was seen and we witnessed even the smallest of the hawkers carrying the QR Code along with them to smoothen out the sales. Then there was also the long pending issue of revision in the interchange fee (payment from the cardholder’s bank to the ATM owner). Many of the ATM operators especially the white-label ATM operators decided against deploying new machines unless and until there was an upward revision in the interchange fee. Companies were missing out on their money since the interchange fee was way scant. Muthoot Finance Ltd and SREI Infrastructure Finance Ltd, even withdrew themselves from the business as it was financially unviable. Muthoot had 217 ATMs in March 2020, and none by September 2020.
- It is gauged that the white-label operators have drained over Rs 1,000 crore to set up 25,000 ATMs in India, at an average cost of Rs 5 lakh per ATM. Based on the location, each ATM may exhaust a running cost of Rs30,000 to Rs50,000 per month. We may draw that 90-100 transactions are required per day to make its operations viable and profitable .
- In 2016 at the time of demonetization we witnessed the stockpiling of Rs 15.31 lakh crore notes that came through the deposits by the customers subsequent to which it was not anticipated that currency in circulation would knock with such a huge bang that it would reach an amount of over 28 lakh crore rupees as of March 2021. Nevertheless banks are still on the ride of shrinking their ATM base which is adequate enough to exhibit that a huge chunk of this CIC (Cash in circulation) is still outside of the banking industry.
- In June 2019, the RBI had set up a committee spearheaded by V.G. Kannan, the then chief executive of Indian Banks’ Association, to analyse the interchange fee structure. The aim was to stimulate ATM deployment in the country, especially in the unbanked areas. The committee had also pondered on the issues involved around the cost effects of regulatory guidelines for enhancing ATM security and control measures. Intensified security measures at the ATMs and the vehicles fetching cash had also impacted the overall economics of ATM deployment.
ATMs in India – an uplift Strategy
Further implementing the recommendations of the committee, the RBI on June 10, 2021 hiked the interchange fee on each financial transaction at an ATM to Rs 17 from existing Rs 15. The ceiling on customer charges was raised to Rs 21 per transaction from Rs 20 as before, beyond the free transactions for customers. This hike takes into account the higher outgo on interchange for banks. It shall be placed into effect from January 1, 2022. For years, private banks and white label ATM operators had been expecting an increase in the interchange fee to Rs 18 from Rs 15. In simple words, one will have to pay more for using other banks’ ATMs beyond the free limit. The interchange on non-financial transactions was also enhanced to Rs 6 from Rs 5 for non-financial transactions in all centres, effective from August 1, 2021. These rules and guidelines also hold true for transactions done at cash recycler machines, other than for cash deposit transactions.
India also has one of the lowest ratios of ATM cash withdrawals as compared to the cash in circulation, according to an RBI report, `Benchmarking India’s Payment Systems’ released in June 2019. It is also an index of the low efficiency in recycling cash, meaning, the cycle of cash withdrawals, payments made with it and again depositing the cash through the banking system, said the report. The data for the last 3-4 years reflects that banks have now slowed down in setting up new ATMs. There have been several instances of the PSU bank mergers wherein the managements have decided to shut down ATMs if the merged banks were having independent cash machines in the same locality. Moreover, since the cost involved in deploying an ATM is higher, one can’t blame banks if they have decided against opening new ATMs and use the already existing machines by paying a lower fee for every transaction by their customers.
The fast emerging fintech industry will surely further erode the utility of ATMs for both banks and non-banks, which have deployed these, as well as customers. In fact, the entire payments system all over the world is constantly seething, both in scale and scope. Dealing with these changes will definitely define the future landscape of the payments system. As suggested by the Nandan Nilekani Committee on Deepening of Digital Payments, ATMs need to undergo change and should be seen as an access point for customer education, awareness, and support. In addition, they have to support the gamut of banking facilities that includes cash deposit, bills payment, funds transfer, tax deposits, mobile recharge,investments etc. Evaluation of ATM transactions needs to be done on cost-plus basis, keeping in view the official changes introduced by RBI from time to time. It is worth mentioning that the cost should be taken on the basis of actual amount incurred rather than estimation. It could be done through fixing the fee through comprehensive ‘inter-bank agreements’ after assessing all possible technical and non-technical parameters. Utility and significance of ATMs are inextricably linked to the use of cash in an economy. If cash starts losing its dominance as ‘the-king’, the co existence of ATMs could automatically head towards an end. Intimidated by the ongoing rise of cryptos, a range of central banks across the world are no more reluctant to experiment with the digital currency. Bahamas has already unrolled the first official digital currency of the world whereas El Salvador has recognized Bitcoin as legal tender. China, Japan,Sweden,Bank of England and European Central Bank are already working on the trials of CBDC and RBI is the latest to join the crusade.
Nevertheless, it’s too early to write a eulogy for cash as well as ATMs. It is very much possible that ATMs start being replaced with cash recyclers. It has already dawned over the Banks and independent ATM deployers (IADs) that ATMs or their advanced version, the ACR (Automated Cash Recycler), are very much required in India, so as to serve the cash requirements of the population. Digital payments, especially UPI, has undoubtedly multiplied its fold during this period, but cash remains the lubricant of the economy. In the days to come , we might be seeing the ATMs regaining their rightful spot and lustre as the accelerators of economic and inclusive growth. They might claim their thrust among the other dispensation models like UPI, microATMs, e-wallets, etc. But the need of the hour is such that there will be enough play for all.