Card-less cash withdrawals at ATMs may burden banks with additional costs

Banks now have an opportunity to monetise UPI transactions and hence, should look at marketing this feature more aggressively. There’s an entire generation of consumers who have probably transacted on UPI, but not used a debit card — they are a potential catchment,” says Anush Raghavan, President of CMS Info Systems — the country’s largest cash logistics firm, which feeds cash into automated teller machines (ATMs).

Unified Payments Interface (UPI) transactions — which are free — have crossed the five-billion mark.

Raghavan is making the point that the Reserve Bank of India’s (RBI’s) move to allow interoperable card-less withdrawals will open up a huge revenue stream for banks — at an interchange of Rs 17 per transaction. The interchange is what a bank earns when you transact on ATMs of banks other than the “card-issuing bank” — an expression that will change over time!

Yet, it’s a bit hard to buy into this optimism, given that just about everybody in the ATM business has for a good part of the last five years griped about how big a hole they were in, citing a host of reasons.

These ranged from the low inter-change (which was recently hiked to Rs 17 from Rs 15, but is still lower than the Rs 18 of a decade ago) to the fact that rentals and power at kiosks, and cash loading costs have gone up. Even when it came to matters of security, it took time for the industry to get moving — such as banks’ tardy response to a confidential RBI advisory of March 2017 directing them to put in place suitable controls at ATMs (among other concerns).

Delays in implementing this saw the central bank issue a circular in June 2018 instructing banks to upgrade their ATMs to the Windows 10 interface from Windows XP. And it took nearly three years before this was complied with.

Cash at the heart

In recent years, many banks have refused to hike the charges they have to pay cash-in-transit (CIT) firms like CMS, SIS-Prosegur, Secure Value, and Brinks Arya — the big four, which cart almost 70 per cent of the daily average of Rs 15,000 crore in cash moved. CIT firms, in turn, had claimed that their costs had gone up in complying with the Ministry of Home Affairs’ enhanced security drill when moving cash. This, and the fact that more Rs 500 notes are in circulation than Rs 2,000 notes, means more trips by cash vans to replenish ATMs with the lower denomination currency.

And that’s why nearly 95 per cent of the replacement orders for ATMs in the country are now for new-age cash recyclers that not only dispense cash, but also allow customers to deposit it. It has set the stage for the ATM to morph into a “virtual branch network”, and emerge as a remittance channel in its own right.

Of the tad over 250,000 ATMs in India, nearly 35,000, or 14.58 per cent, are recyclers. And the share of recyclers, at nearly 95 per cent of the annual replacement orders for 12,000-odd ATMs, is despite the fact that they cost around Rs 550,000 per unit, compared to Rs 300,000 for the ubiquitous but ordinary cash-vending till-box. However, these investments take time to offer returns, and at this stage there are only costs.

And if costs have gone up across the ATM chain, how will cash-out at ATMs via UPI at once be a positive for the industry? If anything, the number of times cash has to be fed into ATMs will only go up if withdrawals were to increase.

Is the tide changing?

“The bet is that traffic at ATMs will go up by at least 10 per cent, given that more customers are using UPI than ATMs on a regular basis now,” notes Ritesh Raj Saxena, head of direct banking at IndusInd Bank. “Directionally, this will lead to a reduction in plastic-related costs, and frauds as well for both customers and banks.”

Will this bet actually pay off? Interoperability is not new to the ATM industry. A big change-agent was the RBI’s and the National Payments Corporation of India’s move to allow interoperability among banks’ ATMs, and white-label players opting to put up cash recyclers. It was used as a teller-replacement tool, or for self-service.

Simply put, interoperability of recyclers meant customers could deposit cash in any such machine, like they would withdraw it at an ATM. But here too, the fact that costs were high could be gleaned from the fact that it was priced at Rs 50 for every Rs 10,000 customers deposited — nearly three times the Rs 17 (it was Rs 15 less than a year ago) they pay as inter-change when they withdraw the same amount.

Raghavan at CMS argues that these aspects should not serve to distract: “On-the-ground data shows a strong uptick in ATM deployment in the past year and a robust pipeline (ATM order-book) over the next six to 12 months by large state-run banks. This, more than anything, demonstrates the viability and criticality of the ATM channel, which will continue to play a key role in financial inclusion.” 

ATMs vs cash-out at PoS units

Cash-out at ATMs with UPI may be in the headlines now, but what has gone below the radar is that this mechanism has been at play at point-of-sale (PoS) terminals. A customer credits the shop-keeper’s account and the person behind the counter hands over cash (from his petty cash account). Looked at in another way, this is also cash-recycling: The customer gets cash that is with the shop-keeper, even as the latter gets it credited to his bank account, while the customer makes a matching transaction via UPI.

Will cash-out at PoS terminals via UPI hit transactions at ATMs?

“Cash-out at PoS terminals is chargeable for every transaction whereas ATMs allow for five free transactions for each account holder. It would be interesting to see this data separately and understand user patterns on cash needs at merchant outlets,” points out Anand Kumar Bajaj, founder, managing director and chief executive officer of PayNearby, even as he concedes that “ideally, it’s only as a matter of convenience that a user may seek cash-out at PoS units and many users may not even be aware of this option.”

Adds Mandar Agashe, founder, managing director and vice-chairman of Sarvatra Technologies: “Cash-out at PoS has its own issues, especially on the security front. In the US, the cashier in places where this is allowed sits in a sanitised area behind a screen.” He is possibly hinting that, like at ATMs, security protocols may have to be tightened for cash-out at PoS units. He believes that ATMs at branches of banks and credit societies will remain and thrive, “especially in the semi-urban and rural areas.”
 

Clearly, the till-box story is at an inflection point.