‘ATM interchange fee needs to go up’

There is huge opportunity in the semi-urban and rural areas for ATMs to expand but the current under-penetration is a function of poor economics, Himanshu Pujara, Regional Managing Director, Asia Pacific, Euronet Services India, said.

The revenues have not been growing fast enough to make up for the rising cost structure, he explained.

Euronet India operates 13,000 ATMs out of about 2.20 lakh ATMs that are operational in the country.

About one lakh ATMs are spread over semi-urban and rural areas. After growing at a rapid pace between 2011 and 2014, there has been a general slowdown in ATM expansion during the past few years. Just about 3,000 ATMs were added last year even as the card issuance rose by 15 crore, Pujara said.

The card-to-ATM ratio, which used to be 2,000 cards per machine, has risen to nearly 4,000 per machine in urban areas, he said.

This has been accentuated by the increasing level of card issuance, particularly following introduction of the Jan Dhan scheme when the accompanying debit card issuance rose sharply.

Euronet India, which derives about 55 per cent of its total income from its ATM business, will have to make tactical calls in this business, Pujara said.

While the potential is very high in the near to medium term, there are also headwinds in this sector that include the increasing shift to digitisation and move towards a more cash-less economy.

The company was able to withstand the post demonetisation shocks, thanks to its focus on digital and electronic processing business, which accounts for the remaining 45 per cent of its income, Pujara said.

ATM transaction volumes, he said, are down 6 per cent compared to the levels seen prior to demonetisation.

The average monthly transactions at ATMs used to be about 73 crore, which is now down to 68.3 crore transactions.

The value of these transactions is, however, almost at the same level of about ₹2,27,100 crore. The average ticket size per transaction is up about 10 per cent to ₹3,300 now, he added.

That can be explained partly by the fact that the ATMs were dispensing higher denomination notes (typically more of ₹2,000 notes). All ATM operators experienced considerable difficulty last year when cash supply was erratic and fixed costs climbed, he said.

Interchange fee

There is need for the ATM interchange revenue to go up, Pujara pointed out. This is the fee that banks pay each other for the use of their ATMs by other banks’ customers. This is currently fixed at ₹15 per cash transaction and ₹5 for a non-cash transaction. This needs to go up by at least ₹3 to enable operators to keep their operations going as costs have risen considerably, he said.

There are security threats, reputation risks, systemic risks, malware attacks and hacking attacks, he said.

Besides, ATM operators also have to make their machines EMV compliant as the deadline approaches for the industry to shift from the current magnetic stripe cards.

The confederation of ATM industry is in dialogue with the regulators in this regard, Pujara said, sounding hopeful that they would get a positive outcome.