Mumbai: On 30 June, customers trying to withdraw money from their bank accounts through ATMs (automated teller machines) of other banks discovered that they couldn’t do so for some time.
The reason: a switch that enables such transactions crashed because it couldn’t handle the volumes, an example of technology not being able to keep pace with usage and policy.
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The technology backbone that operates the ATM network in the country was unprepared for the rise in usage: the national financial switch (NFS), the router that handles interbank ATM transactions, faced some problems a couple of times in April and May and on 30 June, crashed entirely, rendering interbank transactions at about 40,000 ATMs across India non-functional for about half an hour. Same bank transactions, however, were unaffected.
At the time, the switch— which is the router that reads a card and routes the request to the respective bank’s servers— had a capacity of two million transactions a day. On 30 June that number spiked to 2.7 million—way beyond the average of 1.6 million transactions a day—crashing the system.
Before RBI’s waiver, the switch handled an average of 400,000 transactions a day, said B. Sambamurthy, director of NFS. He said the system had been upgraded in March to handle two million transactions daily in view of the RBI waiver of transaction fees.
NFS, based in Hyderabad and developed by the Institute for Development and Research in Banking Technology that was established by RBI, waived its fee of Rs2 per transaction in December 2007 as part of a central bank initiative to increase ATM usage in the country.
Since then, along with the surge in the number of transactions, the average cash withdrawal has less than halved from Rs5,000 to about Rs2,000, a likely indication that consumers no longer feel the need to access large sums of money in a single transaction as they can now access any bank’s ATM.
“Now, we are in the process of building a system which can handle one billion transactions per year and this will be one of the largest globally,” Sambamurthy said in an emailed response. “This new system is being tested and should be operational in about six-eight weeks.”
On a daily basis, however, the new system, will be able to handle 2.74 million transactions, just a shade more than what brought the system down on 30 June.
“NFS is fully prepared to handle two million transactions per day even now. It is handling the daily traffic of over one million (transactions) successfully,” Sambamurthy added.
Each bank has its own switch in addition to the NFS one, which is why on 30 June consumers were able to perform transactions at their own banks’ machines. “When a card from the same bank is used, the bank’s own switch takes care of the entire transaction and it does not reach NFS,” said Sanjay Sharma, managing director and chief executive of IDBI Intech Ltd, the technology arm of IDBI Bank Ltd.
Switch matters: Soon a new system can be in place with a capacity of one billion transactions per year. Rajkumar / Mint
According to Sunil Udupa, country head of AGS Infotech Pvt. Ltd, an ATM vendor, the maximum daily transactions on an ATM can go up to 800, while the current average is about 200-300. “Technically, there is no limit as to how much (many times) an ATM communicates with the switch,” he said. “The ATM hits (transactions) are limited by the cash available (in the machine).”
There are a total of four switches in the country—NFS, MasterCard, Visa and Cashnet. About 40 banks, including all public sector ones, are connected through the NFS network. Overall, at least 38,000 ATMs are connected through NFS, according to bankers and ATM vendors. Banks typically subscribe to more than one switch provider for customer convenience. However, networks other than NFS charge the banks for their services.
Although the NFS switch is free, other operational issues remain and the transactions are not entirely free of cost. According to banking sources, the per-transaction cost to a bank when another bank’s ATM is used is around Rs10-18. These charges are, however, not levied on the customers.
Bankers are not too worried by NFS’ crash.
“So far, we haven’t faced a major problem from NFS glitches,” said R.P. Sinha, deputy managing director for information technology at State Bank of India, which has the largest ATM network of 12,000 and plans to add another 10,000 over the next year. “There were some incidents in April and May, but that was sorted out quickly. We are in total coordination with NFS when these glitches happen.”
ATM vendors also said there hasn’t been any slowdown in demand from banks. While some banks want to piggy-back on other banks’ ATM network, others are aggressively expanding to tap into the fee income that can be generated by offering their networks to other banks.
“Earlier, banks used to give orders of about 500 ATMs, now they are ordering about 1,000 per order,” said Udupa of AGS Infotech. “After the ATM transaction fee has been waived, banks have really become very aggressive on their ATM expansion plan.”