ATMs should be stand-alone

Multi-user ATMs will become a common resource

The freedom that bank customers have been enjoying since April, in using any bank’s automatic teller machine, to withdraw cash without incurring any charge is about to end. Banks will now be free to levy a charge for withdrawals beyond five per month and also impose a ceiling of Rs 10,000 on individual withdrawals. Banks are, however, free to continue with the current regime and at least one bank has decided to do so, seeing a competitive business advantage in making the offer. So long as the reimposed restrictions are not excessive, they will not be irksome and may even be considered as useful in imposing some discipline among customers. The new rules are in response to banks’ complaint that customers were using the free third-party facility excessively (too many withdrawals in small amounts), thus imposing a not insignificant cost on banks.

 

It is of course true that the free regime was a boon to customers and allowed them to reap the full benefit of using ATMs as and when necessary. Also, an ATM facility is of limited use if it is not available at arm’s length — and not every bank can afford to set up a nationwide network. Looked at from this standpoint, the free withdrawal facility neutralised the ground between large, established banks and newcomers who do not have comparable ATM networks. The former could complain, with reason, that the newcomers were getting a free ride. Indeed, this could arguably lead to a situation in which no bank sees it as worthwhile to extend its own ATM network, since each would wait for the others to make the investment. The solution to this genuine issue of incentive is somewhat obvious, and has been tried out in other countries as also by some telecom companies which have hived off their tower networks into separate businesses and then offered a tower service to others. Similarly, banks could hive off their ATM networks into stand-alone businesses, and any bank’s customer would then be free to use any ATM. The banks themselves would pay for the ATM use enjoyed by their customers, or (which would be the same thing) hold shares in the ATM company which would then become an industry-wide resource.

The main point is that, beyond a threshold level of transactions, ATMs are the economical alternative to a branch network. They are also of enormous utility to bank customers. The creation and extension of such networks should therefore be a matter of priority for the industry as a whole, and the banking regulator should set up rules that facilitate the achievement of this objective in a way that makes sense for both customers and banks.