Increased smartphone use, internet penetration, and a vibrant e-commerce ecosystem are spearheading digital adoption in the country. Even though an increasing number of people have been transacting digitally through UPI, Net banking, and other payment options, there is a large section of the Indian demographic that is dependent on cash for their day-to-day transactions and has never transacted digitally.

In April 2023, the Unified Payment Interface witnessed a total of around 886 crore transactions, amounting to approximately ₹14.16-lakh crore in value. Additionally, a recently released report titled ‘e-Conomy India 2023’ launched jointly by Google, Bain & Company and Temasek has asserted that India’s internet economy is poised to grow to $1 trillion over the next eight years.

This report also mentions that as of February 2023, there were 70 crore internet users in India and only 35 crore has used digital payment. This highlights that many in India are yet to use digitalised financial transactions. The Reserve Bank of India’s pilot survey to gauge the country’s affinity towards cash concluded that for more than 50 per cent of the sample population, cash remained the most preferred mode of payment.

A survey-based ICRIER-NABARD study on ‘Digital Financial Inclusion of Women in MSMEs’ found that while most of the women entrepreneurs and employees have a bank account, 66.3 per cent of MSME owners and 35.6 per cent of MSME employees prefer to use mobile banking. The low usage of mobile banking is primarily due to safety concerns, and 47.4 per cent of women said that they still prefer to go to bank or ATM.

While MSMEs and other vulnerable groups are gradually moving into the formal banking system, the survey found that access to bank and ATM is important as sometimes cash is needed in day-to-day transactions. Many employees of MSMEs do not have smart phones and face connectivity issues in remote regions, therefore, they prefer access to banks/ATMs.

Financial inclusion

The government has been trying to encourage the unbanked and under-served population to enroll themselves in the formal banking system through the Pradhan Mantri Jan-Dhan Yojana and direct benefit transfer schemes. Although people have bank accounts, due to the unavailability of cash withdrawal sources, people withdraw their cash in one go and many Jan Dhan accounts continue to remain with zero balance. This not only leads to the withdrawal of cash from the banking system but also delays digital financial inclusion. An effective way to address this issue would be to develop trust in the formal banking system by increasing its ease of access through ATMs.

As the country moves into the formal financial sector, ATMs will continue to remain the most trustworthy and widely accepted ready source of cash for most of the population. While ATMs are useful, operating ATMs requires significant investment in hardware, software, maintenance, security, logistics, and infrastructure. These operational costs can be quite substantial and are rising. The ATM industry is dependent on interchange fee, which has not been revised in line with the rising costs.

The ATM interchange fee is paid by a customer’s bank (card issuing bank) to the bank whose ATM is used by the customer. This fee was last revised in 2021 as per the Report of the RBI Review Committee on the Interchange Fees, 2019 to ₹17 for financial transactions and ₹6 for non-financial transactions. Given that ATM operations are becoming unviable, the rate of ATM deployment has dropped by 4.75 per cent in rural areas in India since 2022.

This is a significant drop considering that the rate of ATM deployment in rural India had increased from 2021 to 2022 by 10.93 per cent. ATMs will continue to be critical in ensuring people’s access to banking facilities. Policymakers must ensure ATMs are made available across the country for financial inclusion.

The writer is Professor, ICRIER. Views are personal

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