UPI-based ATMs will not replace conventional ATMs; both will co-exist

An ATM solely dedicated to UPI-based cash withdrawals simplifies the machine's hardware components

India’s automated teller machine (ATM) network may soon see an upgrade as it introduces a new feature to existing ATMs, allowing them to dispense cash through Unified Payments Interface (UPI)-based quick response (QR) codes.

In September, National Payments Corporation of India (NPCI) unveiled UPI-based ATMs. These machines enable customers to withdraw cash without requiring a physical card. Users simply scan a QR code displayed on the ATM screen, enter the desired amount, and input their UPI personal identification number (PIN) on their phone to withdraw money.

An ATM exclusively dedicated to UPI-based cash withdrawals streamlines the machine’s hardware components, eliminating the need for a card reader, an encrypting PIN pad, a biometric scanner, and a receipt printer. Instead, it focuses on essential elements like a display screen and a cash dispenser.

Industry experts suggest that, instead of introducing UPI-specific ATMs, it makes more sense to incorporate UPI-enabled cash withdrawal features into existing machines.

“Currently, there are 115,000 National Capital Region (NCR) ATMs deployed across the country, and all of them have the capability to offer UPI functionality without any hardware modifications. Only a software update for the QR code is required,” said Navroze Dastur, managing director at NCR India, an ATM manufacturer.

Dastur explains that the transition to UPI-based ATMs will be gradual, and consumers will not immediately switch to using standalone UPI ATMs overnight.

“Ideally, we do not want a situation where a customer comes to an ATM with a card to withdraw cash but discovers that the ATM can only dispense via UPI. The top priority is to enable all existing machines with UPI functionality, requiring the participation of banks, acquiring banks, and issuing banks to offer UPI services through their ATM channels,” Dastur added.

K Srinivas, managing director and chief executive officer of India1 Payments, a white-label ATM operator, adds that out of the 300 million UPI users in a population of nearly 1.4 billion, approximately 100 million use the system regularly. Most of these users reside in Tier-I and Tier-II cities. Therefore, it will take some time for UPI-based cash withdrawals to become prevalent in Tier-IV, -V, and -VI towns, where India1 Payments operates.

According to data from the Reserve Bank of India, the total number of ATMs in the country stood at 259,000 at the end of March.

Thus, Srinivas explains that establishing UPI-only ATMs would be a wasteful use of capital.

“It would be impractical to replace all existing ATMs with UPI ATMs or position UPI ATMs alongside conventional machines. Some customers will continue to use the QR method and the conventional method to withdraw cash, necessitating the coexistence of both systems,” Srinivas added.

Additionally, completely replacing existing systems would be a waste of capital.

Srinivas notes that multiple costs are involved, including the cost of the ATM itself, rentals, cash loading costs, interest costs related to cash, and infrastructure costs, such as electricity and labour. While the initial price of existing ATMs is around Rs 2.8 lakh, the monthly cost of operating an ATM ranges from Rs 60,000 to Rs 85,000.

“Since there is only a nominal upgrade cost on the software side to enable QR-based withdrawals, the investments made by banks in their existing ATM channels are secure,” noted Dastur.

The elimination of physical cards at UPI ATMs will also enhance security. Card-related frauds, such as skimming and card cloning, which result in cash extraction, will significantly decrease in a cardless transaction ecosystem.

On that note, Srinivas adds that the Aadhaar Enabled Payment System (AEPS) could pave the way for a cardless cash withdrawal system.

“AEPS is not yet enabled on ATMs, but we have been urging the NPCI to facilitate this mechanism. Most ATMs today are biometric-enabled, so all that is required is an Aadhaar card and a one-time password on a phone. People in rural areas may have Aadhaar but not necessarily UPI on their phone, making this another cardless feature for cashless withdrawals," he added.