Fault lines are deepening in ATM business as operational issues mount

Rising wage and logistics costs are exposing long-standing stress points in India's ATM ecosystem, prompting calls for a rethink of interchange fees

ATM cash replenishment must align with withdrawal patterns. Units with high footfall will continue to be serviced as needed, while low-velocity sites will move to an alternate-day or demand-led cycle. This is how it should have been all along but the trigger for doing so now is costs, according to the Currency Cycle Association (CCA), the self-regulatory organisation for the cash management industry. “We have taken up this [the cost issue] with the Indian Banks’ Association. What we now have is a force majeure situation,” says U S Paliwal, secretary-general, CCA. 

The way out: Link the ATM interchange to the wholesale price index even as a fresh hike is mulled to ₹21-22 from the current ₹19. But reimagining the interchange fee is just one part; what is sought to be weighed is also a first.

 

“It may be prudent to consider linking it (interchange fees) to the ticket size of withdrawals, as larger cash withdrawals involve higher cash replenishment, insurance, logistics and risk management costs,” says Navroze Dastur, managing director (India) and regional vice-president (Asia Pacific) at NCR Corporation, the world’s largest ATM manufacturer. His point: A differentiated interchange structure based on withdrawal value could create a fairer and more economically aligned model for the industry. 

And if you thought fuel was the variable that has brought matters to a head, think again. Fuel costs will ease when the West Asia conflict settles (whatever the horizon may be for this to happen). But as Anush Raghavan, chief business officer of CMS Info Systems (the biggest cash logistics firm in the country) put it, “Wages don’t. New Labour Codes plus the minimum wage hikes across several states have pushed up the cost of a large logistics network for good.” Minimum wage revisions in several states are adding to the sector’s costs. For instance, Haryana has upped minimum wages for unskilled workers by approximately 35 per cent to ₹15,220 per month and Uttar Pradesh by around 21 per cent to ₹13,690. This aspect was boiling under the surface and has come into the open now. 

Another reality brought out by the “Report on Trend and Progress of Banking (FY25)” is busting the branch versus digital binary: The 64,000 domestic branches represent an increase of 2.8 per cent over FY24. The report noted that India has complemented digitalisation with the expansion of the bank branch network and ATMs in furthering inclusion. “This contrasts with most other countries where digitalisation is leading to a decline in traditional channels of accessing financial services.” 

Newly opened bank branches in FY25 stood at 4,991, fewer than 5,379 in FY24 but more than 3,252 in FY22. Now add on the fact that ATM growth is expected to chase branch openings: The number of on-site ATMs in FY25 stood at 131,323 compared to 119,734 off-site. That is because it costs less to have them on site (at branches) as cash logistics and rental costs are way lower. 

And after years of lull, requests for proposals floated by banks indicate an order book for 17,000 new ATMs (both cash recycling machines, or CRMs, and cash-dispensing-only units). This renewed interest is the first since demonetisation in 2016, when the number of ATMs stood at 220,000 units. 

More CRMs in which you withdraw and deposit cash will help. “The current situation screams cost efficiency. The most efficient cash management is where cash moves without physically moving,” feels Rupinder Sandhu Anand, chief executive officer of OKI India (the Indian arm of the Japanese ATM manufacturer). CRMs significantly reduce the need for cash replenishment and removal, so banks prefer them. “Pure dispensers have pretty much lost relevance.” Nearly 30 per cent of the current installed ATMs of 265,000 and 80 per cent of fresh orders are recyclers. But CRMs also cost more at around ₹6 lakh per unit compared to ₹3.5 lakh for the merely cash-vending till-box. 

The other piece on the chess board which has to be watched is the interchange fee on the Aadhaar-Enabled Payment System. This has remained constant at 0.5 per cent of the ticket-size or ₹15, whichever is lower, for more than a decade. This route (used at business correspondent touch points) is a critical cash-out node for direct benefit transfers. Therefore, this charge will also have to be revisited. 

The bottom line: ATMs are still relevant. It is another matter that stakeholders have been dancing around the issues concerning the channel’s viability which they have to now take head-on.