Keep the cash machine well-oiled
Today, the country is staring at a very real possibility of 50% of automated teller machines (ATMs), numbering more than one lakh, shutting down by March 2019. Naturally, the big question is: can the disaster be averted? Here are a few solutions that may defuse the crisis.
Rural poor: The biggest stakeholder for the automated teller machine (ATM) industry in terms of numbers is the rural poor. Many members of the Confederation of ATM Industry (CATMi) now state that rural ATMs are financially unviable because of the abysmally low revenues. And, yet, these ATMs represent the lifeline for the rural masses, especially in the aftermath of the Pradhan Mantri Jan Dhan Yojana (PMJDY), where wages are paid directly into people’s bank accounts every month.
GoI should provide financial subsidies to rural ATMs so that low revenues and financial losses can be offset. Subsidies are a good measure to ensure that ATM deployers continue to produce service and even selectively set up new ATMs in under-penetrated rural India. This will meet the objectives of making cash available in the primarily cash-based rural economy and bring about overall financial inclusion.
Deadline implementation: Another possible solution is if the regulators defer the deadline of implementation for ATM hardware and software upgrades, recent cash management mandates and the cassette swap method of loading cash by at least 9-12 months.
Considering that the latest guidelines were only announced in August 2018, and a very limited six-month window was set for their execution, a deferment by a few more months would actually enable ATM serviceproviders explore suitable solutions with other stakeholders. GoI should constitute a task force with representatives of the Reserve Bank of India (RBI), banks, cash in-transit companies and ATM service-providers.
The task force should conduct a joint dialogue on understanding the costs of implementation of these compliance mandates, debate the cost structure, revise the interchange rate — the fee paid by an issuing bank to an acquiring bank for accepting card-based transactions — and finalise the payout mechanism on compliance. This four-way dialogue should result in reaching a middle ground that will benefit all concerned, including end-customers.
As of date, the interchange rate stands at .`15 per cash transaction in ATMs. CATMi has been petitioning RBI and banks to increase it for the last three years. Nothing, unfortunately, has changed. If this rate alone is increased to .`18, which was the pre-2012 rate, some of the costs and losses borne by the ATM industry will be offset.
The ATM deployers serve customers of banks that use these ATMs. Hence, it is only fair that if there is an increase in the cost of running ATMs, part of the cost is recovered from the issuing bank (whose customers use these ATMs) in the form of an increased interchange. Interchange is an interbank fee created to share the costs of providing ATM infrastructure to customers. An increase in interchange doesn’t mean an increase in cost to the end-customer.
If a revised and uniform interchange fee is a problem — especially as urban consumers have access to more ATMs or other methods of digital payments — a differential structure for interchange rate in urban, semi-urban and rural areas can be explored to incentivise the deployment of ATMs in semi-urban and rural areas, which have seen increased RuPay card issuance from the PMJDY. And, in case hiking the interchange rate is also a problem, banks are welcome to simply reimburse the losses incurred by ATM deployers till date on running existing ATMs.
Increasing transaction fee: GoI could consider making cash expensive for the general public by increasing the fee on monthly ATM transactions beyond the first five free withdrawals. Currently, the cardholder is charged a fee of .`20 per transaction from the sixth transaction onwards. This could be increased to .`25 per transaction. This will increase the fee for only a very small category of consumers, as five free monthly ATM transactions is sufficiently high for most consumers’ monthly expenses.
This will have the following dual effects: the issuing bank will provide improved digital payment solutions to customers, and a fraction of cardholders — who actually transact more than five times on ATMs — will begin to transact either at higher per-transaction value or through digital channels. The banks can use this increased levy to compensate the increased costs of compliance.
The ATM industry in India has reached a tipping point. Unless loss-making ATM deployers are adequately compensated, there is likely to be large-scale ATM closure.