Home / Industry / Banking /  ATM penetration to rise as RBI increases interchange charges

Penetration of automated teller machines (ATMs) is expected to rise, following a decision by the Reserve Bank of India to hike the interchange fees.

Experts believe this will incentivize banks and white label ATM deployers to set up more cash dispensers, especially benefitting rural areas. The ATM interchange fee has remained at 15 for financial and 5 for non-financial transactions since 2012, despite several representations from the industry. On Thursday, RBI allowed this to be hiked to 17 for financial transactions and 6 for non-financial transactions.

The ATM interchange fee is paid by the bank that issues the card to the bank whose ATM is used to withdraw cash. The card-issuing bank is called the issuer, while the latter is called an acquirer. This charge is divided between the acquirer and the firm maintaining the ATM, which is why banks discourage customers from using ATMs of other banks.

There were 213,575 bank ATMs in March 2021, a modest increase of 1.3% from March 2020, showed data from RBI. That apart, the number of white label ATMs, which are set up, owned, and operated by non-banks, stood at 25,013. India’s rural areas account for 20% of all ATMs in India.

“I think as the interchange increases, private ATM deployers, as well as banks, will get a good boost and there will be significant penetration of ATM services in India’s unbanked regions," said Navroze Dastur, managing director at ATM-maker NCR India.

A lot of banks are not deploying ATMs in smaller towns and rural areas as it does not make commercial sense, Dastur said.

“After this decision, banks and white label ATM players will have an incentive for deployment. Obviously 18 per transaction would have been much better given the cost associated with adhering to all regulations on ATM and cash management services," he said.

India had 20.95 ATMs per 100,000 adults as of 2019, lower than several other nations, according to the World Bank.

“The demand for cash withdrawals among consumers has not gone away and one obvious support for that is the way cash in circulation has been growing. I believe there is enough demand for cash withdrawal as a service," said K. Srinivas, director, Confederation of ATM Industry (CATMi).

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