 "The ATM interchange conundrum")
Eight months after the Reserve Bank of India (RBI) gave its nod to a hike in the ATM interchange by ₹2 to ₹19, the issue continues to fester, and the debate is on whether there are any alternatives.
The interchange is what a bank pays another bank when its debit card is used on the latter’s ATM.
The conundrum is as follows:
The withdrawal of the ₹2,000 denomination note, the RBI diktat that more banknotes of denominations under ₹500 be made available, and the deployment of ‘recyclers’ (ATM machines in which you can both withdraw and deposit cash) have led to costs of the channel going up.
The ₹2,000 banknote was introduced in November 2016 to meet currency requirements in an expeditious manner after the withdrawal of ₹500 and ₹1,000 banknotes in circulation at that time. The objective of introducing ₹2,000 banknotes was met once banknotes in other denominations became available in adequate numbers; therefore, printing of ₹2,000 banknotes was stopped in FY19.
According to the central bank’s press release of December 1, 2025, the total value of ₹2,000 banknotes in circulation has shrunk from ₹3.56 trillion at the close of business on May 19, 2023, when the withdrawal of ₹2,000 banknotes was announced, to ₹5,743 crore at the close of business on November 29, 2025. Thus, 98.39 per cent of the ₹2,000 notes in circulation as on May 19, 2023, have been returned.
It is argued that banks and white-label ATM deployers (non-banks) may stand to earn more by way of interchange as customers punch in more transactions. But with the ₹2,000 note in sunset mode and the diktat for making available smaller denominations under ₹500, cash costs will only go up. In any case, the average ticket-size of cash withdrawals is now about ₹4,500, and the largest single-swipe pull-out at ₹10,000 is an outlier due to digital transactions.
Industry sources said off the record that, if anything, the cost of loading these ATMs will go up as more cash in denominations less than ₹500 has to be put in, which means cash-laden vans having to make more trips.
The latest RBI data (November bulletin) shows that the number of cash withdrawals at ATMs fell to 439 million in September this year from 466 million in August; and the value of withdrawals in this period was at ₹2.30 trillion and ₹2.51 trillion, respectively.
It was felt that with cash recyclers, cash logistic costs will come down as it would mean fewer refills (as people can also deposit cash into recyclers). But there is a catch here too.
As Rupinder Sandhu Anand, chief executive officer of OKI India (the Indian arm of the Japanese Oki Electric Industry Co, which is into recyclers) put it, the growing preference for cash recyclers clearly reflects banks’ intent to optimise cash-handling costs — both at branches and at offsite locations.
“However, recyclers do carry a higher upfront price, and when rentals or OPEX models are added, the operating cost can rise further.”
A recycler costs around ₹6 lakh, while a legacy ATM comes for around ₹3.5 lakh. As she sees it, “There is a strong case for aligning interchange more closely with transaction ticket-size to ensure balanced and sustainable economics for all stakeholders.”
At present, the total number of ATMs deployed in India is around 260,000, including recyclers (around 20 per cent of the deployed base).
And after years of lull, request-for-proposals floated by banks indicate an order book for 17,000 new ATMs (both recyclers and dispensing-only units).
It is believed that this renewed interest — the first since demonetisation, when the number of ATMs stood at 220,000 units — will aid direct benefit transfers.
According to Vishal Maru, global processing head at Financial Software and Systems, the biggest cost is managing cash — its sourcing and replenishment. “Linking the interchange to the ticket-size makes it pay-per-use for the consumer. If someone wants to withdraw more, then (they have to) pay more.”
The report of the committee to review ATM interchange fee structure, set up in 2019 and headed by former Indian Banks’ Association chief executive officer V G Kannan, is in the spotlight. It was for a review of the interchange and ATM usage charges at stipulated intervals to be decided by Mint Road.
The block in the ATM channel as things stand is that costs have gone up because of other operational factors too: Higher lease rentals, power charges, and adhering to the security protocols.
K Srinivas, executive vice chairman, India1 Payments, said, “Costs are never static as effecting a change in ATM interchange to reflect costs takes time. A logical way out is to index the interchange to inflation and reset it on a periodic basis. As costs move up, so will the interchange.” An alternative mechanism, he feels, is to allow the operators to charge a customer surcharge (or a convenience fee) “as is the practice in the rest of the world”.
The ATM interchange hike, effective May 1 this year, came on the back of another hike to ₹17 from August 1, 2021, from ₹15, which had been held for nearly a decade. The argument against a hike is that banks are saving a lot on costs when they push business to digital modes and the ATM channel from branches. The flip side is digital modes are not cheap and you have to account for investments in technology. For ATMs, it is higher lease rentals, power charges, and cash-loading costs.
A related fallout of all this in India — a move to introduce the global practice of lockable ATM cassette-swaps — is yet to be fully implemented despite repeated deadline extensions (the last being for end-Match 2025). This was to do away with the practice of open-cash replenishment into ATMs — that is, instead of cash being handled at the ATM site, lockable pre-filled cash cassettes are loaded into the ATM.
The four-phase plan framed by the industry at the prodding of the RBI was to cover 30 cities and the network of ATMs in the country by FY24. The idea of cassette-swaps at ATMs was set in motion six years ago (April 2018) and the first deadline was FY21.
The deadlines had to be extended because banks, and cash-in-transit companies failed to arrive at a consensus on execution, and absorption of costs in the ecosystem. Cassettes cost between ₹12,000 and ₹15,000 apiece and their procurement in huge quantities was seen as a burden.
What all of this brings into focus is that stakeholders are pulling in different directions. The committee to review ATM interchange fee structure had touched upon this aspect, and made an important observation: If the increase in ATMs is not commensurate with the increase in the number of debit cards (now a tad over a billion) to fulfil the basic banking needs of the customers, banks may have high footfalls at the branches. And that the cost of serving the customer at the branch, especially for cash transactions, is substantially higher than the per transaction cost at the ATM.
Banks should consider the cost saved on branch transactions and also the cost of setting up branches, if usage of ATMs and other alternative channels is not increased.
It also called attention to how the industry weighs issues. Due to the convenience of using ATMs, the number of withdrawals at ATMs per customer is higher than that at the branch. Hence, the comparison of the cost of single ATM transactions with single branch transactions may not be appropriate.
Clearly, the ATM plot is going off script.
The story so far
- The issue: The cost of withdrawing cash using a debit card issued by one bank at an ATM run by another bank has increased. This is what banks say to buttress their demand for a hike in charges for such transactions.
- Alternatives: Index the interchange to inflation and reset it on a periodic basis, or link it to the value of withdrawals.
- The data: RBI’s November bulletin shows that the number of cash withdrawals at ATMs fell to 439 million in September this year from 466 million in August. The value of withdrawals in this period was ₹2.51 trillion.
