Linking ATM interchange fee to ticket size a good idea: FSS' Vishal Maru

If you look at per-ATM daily transactions, rural areas have much higher numbers. That's why WLATMs focus on Tier-III and Tier-IV cities, says Maru

Financial Software and Systems (FSS) — a payments technology and a transaction processor — manages and operates 25,000-plus automated teller machines (ATMs). This straddles both the white- and brown-label segments. ATM interchange fee had become a cause for concern, with deployers holding the view that it does not cover costs. A hike has been effected to ₹19 from ₹17, but the ATM channel still has issues to deal with. Vishal Maru, global processing head at FSS, spoke with Raghu Mohan over the telephone. Edited excerpts:

 

Your views on the recent hike in the ATM interchange fee to ₹19

 

There are two large segments of operators: white-label ATMs (WLATMs) and brown-label or the managed service providers (MSPs).

 

The Confederation of ATM industry had been seeking a hike in the interchange and the expectation was it would be a little more than ₹19 (from ₹17). But nevertheless for WLATMs, it is welcome. The ₹2 hike means an increase of about 10-15 per cent in their revenue. The WLATM model has also changed over the last couple of years; it operates more on franchisees. And the higher interchange will help them support the increase in their fixed costs; the rest of the variable costs are managed by the franchisees.

 

Now, when it comes to the second segment — brown-label or MSPs — negotiations with the banks have started. The important part is how we can drive transactions on ATMs. That’s where revenue sharing between MSPs and the banks will play out. There’s also a hike in the fee that banks can charge customers — to ₹23 from ₹21 after five free transactions. But whether banks share it with us depends on the value we bring — how we improve uptime, drive footfalls, and ensure more transactions at ATMs.

 

And how can you help increase ATM revenues?

 

By installing ATMs at the right locations, ensuring high availability, and keeping them well-stocked with cash. Service-level improvements can increase per-day transactions by 2-3 per cent. The industry currently operates at 93-94 per cent uptime and even a small increase can impact usage significantly.

 

But a decade ago, brown-label players bid very aggressively on the rate-per-transaction (RPT), much lower than the then interchange of ₹15. Going forward, will RPT bids be at the interchange of ₹19 or lower?

 

I’ve noticed a shift — operators are now more cautious. Costs have gone up over the decade. Plus, WLATMs didn’t exist back then. So, if a brown-label model doesn’t give decent ebitda, I’d rather go the WLATM route. MSPs have more options now.

 

Why did brown-label players bid so low? Are cost structures very different for the brown-label and WLATM channel?

 

For brown-label operators, some costs are borne by the banks, like cash handling — a major cost. So, naturally, banks want their share of cost savings. With WLATMs, the full income comes in and they manage the costs, either directly or through the franchisees. Brown-label also has varying models — some where the banks buy the ATMs and we just manage it; somewhere they handle the rent and we manage the rest. That’s why brown-label pricing is often lower than the interchange.

 

Reserve Bank of India data has it that cash withdrawals have gone down, but ticket sizes have gone up even with Unified Payments Interface (UPI). What’s the profile of a person who uses ATMs these days?

 

If you look at per-ATM daily transactions, rural areas have much higher numbers. That’s why WLATMs focus on Tier-III and Tier-IV cities. In urban areas, we use UPI and have access to the latest tech. Again, while transactions are going down, the average ticket size is now at around ₹5,500 per withdrawal. And currency-in-circulation has been at a compounded annual growth rate of nearly 15 per cent over the past five years. We are now at ₹ 35 trillion, double of what it was during demonetisation. Cash withdrawals and ATMs will remain relevant for much longer than we think. Most of the growth will continue to come from Tier-III and Tier-IV cities where cash still dominates. Especially with government direct benefit transfers, those withdrawal points will only grow.

 

Is it time to rethink the interchange structure, like linking it to the ticket-size instead of keeping it flat at ₹19?

 

It’s an interesting idea. The biggest cost is managing cash: Sourcing and replenishment. Linking interchange to ticket size makes it pay-per-use for the consumer. If someone wants to withdraw more, then pay more. This model could help stabilise revenue while nudging people towards digital payments. When cash becomes more expensive, users will slowly transition to digital. There are other models. Automated cash recyclers (ACRs) — the model is shifting towards it from ATMs. Here the idea is to get more by way of interchange for accepting deposits, and maybe a bit less for withdrawals. The regulator is encouraging ACR usage, and we are seeing 2.5x more transactions on ACRs than on ATMs. We’ve been discussing this in industry forums — how to balance deposit and withdrawal interchange models.

 

ATMs have many functionalities, but only withdrawals, cash deposits and balance inquiries are used largely. Should third-party services be promoted on ATM screens?

 

That was the idea behind WLATMs: peripheral services. Everyone tried bill payments, recharges, insurance, and even loans. But in reality, people now have all those services on the mobile. Non-financial transactions haven’t picked up — they are just 11–15 per cent of the total volume of transactions. Maybe we need to rethink what will draw consumers in and boost usage, like UPI-enabled cash withdrawals, and cardless options.