Cash is king, but where are the ATMs?

The cash crunch that hit different parts of the country and the associated inconveniences may actually worsen in the immediate future, notwithstanding the government’s claims that steps are being taken to restore normality. And the reason for that is simple – there are just not enough ATMs being addedto cater to the rising demand for cash in an expanding economy.

The number of ATMs in the country were at 2.22 lakh in March 2017. At the end of February 2018, the number of ATMs was actually lower by nearly 800 at 2.21 lakh. And during that period, about 85 million new debit cards have been issued, as banks added a number of Jan Dhan accounts. If one presumes an average of about 3000 customers per ATM, that alone would have required the addition of another 30,000 ATMs in the last year.

And why aren’t banks as well as the ‘white-label’ operators adding ATMs? The economics of the ATM operating business has apparently become unattractive. Although banks gain by using ATMs (transaction costs at ATMs are said to be cheaper than branches by almost 80 per cent, apart from lessening the traffic at branches), they have been going slow.

Ever since the RBI mandated that bank customers can use any bank’s ATMs, there has been a tug-of-war between card-issuing banks and acquiring banks and ATM operators over the issue of the fee (called interchange fee) that needs to be paid by banks for the use by their customers of other banks’ ATMs.

The interchange fee, originally fixed at ₹18 per transaction, was brought down to ₹15 a while ago.

Since then, costs have gone up and has made the business unviable, says Himanshu Pujara, Regional Managing Director, Asia Pacific, Euronet Services India, and spokesperson of Confederation of ATM industry (CATMi). That view is endorsed by Sanjeev Patel, CEO, Tata Communications Payment Solutions Limited, which runs white-label ATMs.

Rising costs

They point to the new costs that have to be incurred following RBI’s recent circular imposing new standards on cash management activities – including mandating a minimum fleet size of 300 vehicles, the presence of two armed guards in the vehicle used for cash replenishment, being GPS-enabled and providing live feed to monitor movements. The RBI has also asked ATM operators and banks to move to a ‘cassette replacement’ method against the ‘top-up cash’ method followed currently. Besides ATM operators will also have to reconfigure their ATMs with new software to accept EMV chip-based cards as against magnetic stripe cards being used currently. Although there is a staggered deadline for implementing some of these changes, the total cost could work out to nearly ₹5,000 crore over the next two to three years.

There is no agreement on who should bear the increased costs. Himanshu says that numerous representations for a hike in the interchange fee have been made to both the RBI as well as the concerned steering committee at the NCPI (which has banks as its members), but to no avail. Clearly the strain is beginning to tell, if one looks at the decline in number of ATMs and the noticeable lack of enthusiasm for adding new ATMs.

Given the problems in the banking sector and the lower profits that are likely to be posted for the just-concluded fiscal, it may be difficult for banks to agree to a hike in fee and therefore costs. And yet, if they don’t do it, the problems that one saw with cash crunch across different States and cities, could only exacerbate.

Operators will be compelled to shut down their ATMs or operate them at lower capacity.