ATMs Are Passé. Now It’s Time To Use ‘Any Time Mobile’

ATMs or Any Time Money in common parlance and Automated Teller Machines in the bankers’ patois have revolutionized the banking industry over the last 45 years; since the commissioning of the first ATM by Chemical Bank in Rockville Center, New York. By enabling banks to deliver customer convenience through operational efficiency and making them reap the benefits of employee cost reduction in return, ATMs have mechanized the process of account management, cash & cheque deposits as well as facilitated value added services such as: bill payments, mobile phone recharges, payment of insurance premiums, mutual fund scheme purchases besides inter-account money transfers without the intervention of human tellers.

With Reserve Bank of India (RBI) data revealing the presence of over 167,000 ATMs across India as on June 2014, ATM density has witnessed more than a two-fold increase from 25.4 in 2011 to stand at 54.7 ATMs per 1,000 sq kms at present. Even the number of ATMs accessed per 1 lakh people has increased from 8.9 in 2011 to 13.1 in 2014. However commendable these numbers may be, they pale into insignificance when compared to developing countries such as China (49.6), Brazil (119.6), South Africa (60) and Thailand (78), which have notched up better scores of on the ATM access front.

75% of India’s ATM infrastructure caters to only 45% of banking customers based in Tier-I and Tier-II cities. It is with an objective to proliferate ATMs as delivery channels for banks, did the RBI authorize non-banking entities to set up White Label ATMs (WLAs), mandating them to deploy 67% of their machines in rural and 33% in urban locations. Though seen as major tools for customer acquisition and servicing by sponsor banks, WLAs would indeed enable banks to save on ATM maintenance and servicing costs. However, skepticism prevails on how the non-banking entities operating the WLAs can handle due diligence and the reconciliation process in the event of problems faced by customers.

Despite there being close to 400 million debit cards, the year 2013 registered more than 6 billion cash withdrawal transactions from ATMs worth Rs 184 lakh million. The low penetration of Point of Sale (POS) terminals of 49.7 per 1 lakh population can be adduced as a reason, but largely being the preferred mode of payment, both for Peer to Peer (P2P) and Peer to Merchant (P2M) transactions, cash still rules the roost.

This is validated by the high Cash to GDP ratio of 13% as against the global norm of 2.5-8%. The year 2013 witnessed 20 billion bank notes issued in India out of the 154 billion issued globally. The fact that India withdraws more than 75% of notes in circulation every year proves our predilection to cash, which is largely accessed through teller counters at banks or via ATMs. Banks in India have taken cognizance of the strong cash culture prevailing in the country. And hence, ATM outlets have been growing at a steady rate of 25% year on year and are expected to have a presence of 2.3 lakhs by 2015 according to a AM Mindpower Solutions report.

However, more number of ATMs doesn’t necessarily translate to an increase in profitability for banks. From a feasibility perspective, an ATM machine would cost more than Rs 50,000 a month for a bank taking into account the costs of electricity, real estate, maintenance, technology upgradation and security costs. Since April 2009, increased ATM usage was encouraged by allowing ATM and Debit card holders to withdraw cash from any ATM irrespective of the banks in which they held their accounts. The resultant high cash withdrawal rates that ensued meant higher ATM servicing costs due to frequent cash replenishment requirements leading to the very premise of ATMs being cost saving tools to be brought to question. Add to it the inter-bank charges for withdrawals made by non-bank customers as well as the cost of manning the ATM with a security guard over 3 shifts, which increases the total costs by Rs 40,000 a month per ATM as per the Indian Banks Association’s estimates.

If we take Rs 10 per transaction as the landing cost per ATM usage, we can extrapolate a figure of 9,000 transactions per month per ATM as the threshold for breaking even. Given that average transactions number 150 per day per ATM according to National Payments Corporation of India (NPCI), 4,500 transactions per month per ATM would cover 50% of the total costs.

The writing is on the wall. The recent RBI guidelines of reducing free transactions in other bank ATMs to three per month in six metropolitan cities, along with banks being allowed to levy charges of maximum Rs 20 beyond five transactions (financial & non-financial) per month at own-bank ATMs are aimed at reining in these burgeoning costs. It also serves as an intelligent way of disincentivising the use of cash and promoting electronic payments – warming the cockles of the heart of non-cash payment services companies. A net banking transaction works out to be a fifth of the cost incurred on an ATM transaction, while transacting via the mobile banking channel would work out to be much lower.

Discouraging the usage of ATMs would prove beneficial even from a security perspective. Newspapers and online portals are awash with news stories everyday of how ATMs across India have become hubs of nefarious activities. Increasing incidents of larceny, assault, fraud and ingenious ways of siphoning money through data skimming of cards are making security a major risk factor for people visiting the ATMs to withdraw cash.

What next? Being a cost-conscious lot, Indians would now gradually gravitate towards non-cash payment modes. The limited penetration of Point-of-Sale (POS) terminals, with less than 11 lakh out of 150 lakh merchants across India owning one offers limitations for card payments. The ubiquitous mobile phone with Internet access enabled, offers itself as the most potent and user-friendly mode of making payments. For one, it is personal and it completely eliminates the security risks associated with cash withdrawals at ATMs. Most importantly, it serves as a more cost-effective tool for meeting RBI’s long-term goal of financial inclusion.

What remains to be seen however, is whether Indians have the confidence to dial M for Money!

Image: thinkstock

About the author: The article is written by Mr Kumar Karpe, CEO, TechProcess Payment Services Ltd.