In King Cash's castle: Businesses in disarray, RBI to take a closer look

Last week, the Reserve Bank of India (RBI) held a stock-taking meeting with the Cash Logistics Association (CLA). A key issue that figured in the discussions was ATM cassette-swaps — lockable trays for cash replenishment, as opposed to loose loading. Introduced on April 18, 2018, they were to be added, the RBI had made clear, in a phased manner to cover “at least one-third of ATMs” every year. The process was to be completed by FY21.
 

Two extensions (the latest will lapse by the end of FY23), and four years after the first diktat, it appears the deadline may again be missed. And the RBI, Business Standard has learnt, would have preferred a better ground report. The CLA has submitted a “confidential update” to the banking regulator, which has also set up an internal committee to monitor developments.
 

The larger context in which the meeting between the RBI and CLA took place is the doubling of cash in circulation (CIC) to more than Rs 31 trillion in FY22, or 13.13 per cent of GDP (and projected at Rs 33 trillion for FY23, or 13.04 per cent of GDP), from Rs 16 trillion and 11.6 per cent of GDP at the time of demonetisation. Ideally, a much higher CIC should have been a bonanza for cash-in-transit firms, ATM deployers, and cash-out enablers at points of sale (micro ATMs). These inter-linked businesses are, however, pulling in different directions.
 

“A mechanism has to be worked out so that every entity in the ecosystem can absorb inflationary costs. I think this is the crux of the matter,” says Ravi B Goyal, chairman and managing director, AGS Transact Technologies. It’s easier said than done.

Depending on whom you reach out to, everyone has a pain-point to cite: the RBI’s and Ministry of Home Affairs’ norms on moving cash securely (cash vans have to be bullet-proofed and accompanied by armed guards), cassette swaps, a low interchange of Rs 17 on ATM transactions, and the pricing of vendor agreements. In effect, what should have been a time of plenty (with CIC at a record high) is seeing much heartburn.
 

“The RBI came out with progressive standards for cash logistics after extensive consultations. Four years on, it is banks and MSPs (managed service providers) which have issues with it because they don’t want to compensate us for the costs involved,” explains Rituraj Sinha, group managing director at SIS Group Enterprises. Sinha and Suneel Aiyer — chief executive officer (CEO) at Writer Corporation — were instrumental in setting up the CLA, which has advocated stringent standards in what was until a decade ago a chaotic business without hygiene protocols.
 

The exponential burst in CIC has to be looked at through another lens as well.
 

The latest data from the National Payments Corporation of India shows that the Unified Payment Interface platform recorded 6.8 billion transactions in September, amounting to Rs 11.17 trillion. It’s up 3.05 per cent and 4.06 per cent in volume and value terms respectively, on a month-on-month basis. On a year-on-year basis, the volume and value of transactions were up 85.55 per cent and 70.61 per cent, respectively. But despite this, and the much lower spending at physical outlets after the advent of the Covid-19 pandemic, the cash ecosystem has only got larger.
 

That is why Navroze Dastur, regional vice-president (Asia Pacific) and managing director (India) of NCR Corporation, says, “We are seeing more ATM deployments happening in Tier-III, Tier-IV, and Tier-V cities; it will not grow in the metros,s where we have reached a sizable number.”

The peeve with micro ATMs
 

On June 2 this year, the Confederation of India ATM Industry (Catmi) wrote to the RBI’s Department of Payment and Settlement Systems, as well as its Department of Currency Management, arguing that micro-ATM players have to be better regulated. There is ambiguity as to who besides banks can deploy micro-ATMs, as a vast majority of micro-ATMs are run by retailers who dispense their cash in the till to customers via the Aadhaar Enabled Payment System.
 

Catmi’s position was that since micro-ATMs are deployed by fintech firms acting as business correspondents (BCs) of banks, the level of due diligence before appointing a merchant could lack the required rigor. And this could lead to the risk of fraudulent elements posing as authorised operators.
 

Also, it is “generally alleged that many retailers charge the customers a fee of up to one per cent of the amount withdrawn,” and micro-ATMs players also don’t allow the permitted five free transactions. “Considering that around Rs 900 crore a day gets withdrawn from the micro ATMs, the financially excluded may be paying around Rs 200-300 crore a month to withdraw their own cash,” Catmi said.
 

The flip-side is that micro-ATM players were a pivot for cash-out of direct benefit transfers by the government. Anand Kumar Bajaj, founder and CEO of PayNearby Technologies, contests Catmi’s stance: “Having served citizens during tough times, BCs have gained credibility.” He takes Catmi head on when he makes a case for the interchange for micro-ATMs to be aligned with the Rs 17 for legacy ATMs transactions.
 

“That is, a reset from the 50 basis points of the amount withdrawn or Rs 15, whichever is lower. As the retailer also borrows from banks to enable cash-out, and this costs more than the free stock of cash at ATMs,” Bajaj says. The nuance here is that while banks incur cash-loading costs for ATMs, the cash itself is not “borrowed” — there is no interest cost.

 

The mess around cash logistics, say in the specific case of cassette swaps (a major initiative of the RBI) is the fallout of banks assuming that digital is the way ahead, and that cash dependency will go down. A more charitable view could be that it called for substantial capital investment. Sinha disagrees: “The point of ATM cassettes not being available, or that they are Chinese-made, is a bogey. It is cash logistics firms which have to source this anyway. Why are banks and MSPs worried about its availability?”
 

The huge spike in digital transactions is in no way going to lead to a fall in the importance of players in the cash-ecosystem.

Take the ATM channel, one of the biggest guzzlers of cash. Its importance is set to go up, which may appear to be counter-intuitive. For every new bank branch is to house at least one on-site ATM and a cash recycler (a device that allows both cash withdrawals and deposits). The cost of cash transaction at a branch is at about Rs 60. With recyclers, this cost can be cut in a big way, thereby ensuring economies of scale for the acquiring banks.
 

Modern ATMs can also be used to purchase food coupons, book metro tickets, or even to sell gift certificates. The channel is also intersecting with cutting-edge digital technology, given that bank e-lobbies are meant to enhance customer service and convenience by offering access to all kinds of banking services via ATMs, even as they are being integrated with banking apps, thanks to interoperability.
 

In short, while “King Cash” remains firmly seated on the throne, many of his subjects are uneasy. A problem of plenty (of cash), is now a cause of plenty of problems.