RBI-Appointed Panel Recommends Population-Based ATM Charges

A Reserve Bank of India panel, set up in June last year, recommended a population-based approach for fixing ATM interchange fees and customer charges.

The report, however, was not made public and there is no indication if the regulator intends to accept the suggestions. BloombergQuint reviewed a copy of the report sourced through a Right To Information request by Cashless Consumer, a consumer collective focused on digital payments.

Pointing to low ATM penetration in India, the committee, which included industry participants, suggested a change in the approach to ATM charges.

Key Recommendations

While the cost of operating ATMs has gone up in recent years, the interchange fees and the cap on customer ATM usage charges has not been reviewed since 2012 and 2008, respectively, the report said. The committee’s suggestions are aimed at improving the economic viability of operating ATMs and increasing deployment, especially in semi-urban and rural centres, it said.

Interchange Fee

• For ATM transactions in all centres with a population of over 1 million, the interchange fee would be increased to Rs 17 from Rs 15, for every financial transaction, and to Rs 7 from Rs 5, for every non-financial transaction.
• For ATM transactions in all centres with a population of below 1 million, the fee would be increased to Rs 18 from Rs 15, for every financial transaction, and to Rs 8 from Rs 5, for every non-financial transaction.

Withdrawal Charges

• Only cash withdrawals up to Rs 5,000 should be considered as free transactions, while banks can levy a charge on the customer for every transaction above Rs 5,000. Between April and June 2019, around 66 percent of ATM transactions were below Rs 5,000.
• Increase the cap for charging customers for financial transactions, over and above the free transaction limit, by 20% to Rs 24 per transaction from Rs 20 per transaction, not including taxes.

Free Transactions

• For centres where the population is less than 1 million, the number of free ATM transactions should be increased from five, at present, to six per month.
• Continue with the existing three free ATM transactions per month in metros and satellite cities/towns. The same would apply to all centres with a population of over 1 million and above.
• Banks can decide on the number of free transactions on their ATMs for their customers.

A person aware of the recommendations said the broad intent of the committee is to ensure that there is an increase in ATM deployment in smaller towns, semi-urban and rural areas.

While there are over 600,000 villages in the country, ATM penetration is very low because the density of the population is low and the current incentives do not allow operators to recover costs, the person told BloombergQuint on the condition of anonymity. To increase ATM penetration and to ensure that operators are compensated for the logistical and travel costs of servicing ATMs in these areas, margins needed to improve, the person added.

Srikanth L, coordinator of Cashless Consumer, however, told BloombergQuint the lack of engagement with consumers as a stakeholder by the committee has led to recommendations based solely through the lens of industry participants. “There needs to be a public call for inputs before determining pricing and charges for ATM transactions.”

As of March 2020, there were over 2.1 lakh ATMs deployed across the country, according to RBI data. According to the report, state-owned banks have a 61% market share of deployed ATMs, private banks have 30% and white-label operators have a market share of 9%.

Cost of Operating ATMs

The report found the average monthly cost of operating an ATM, based on an assessment of operating costs for the various stakeholders, is between Rs 75,000 and Rs 80,000 per machine.

• If there were an average of 120 transactions on every ATM a day, the blended cost per financial transaction would be in the range or Rs 15.60 to Rs 16.70, the committee said.
• At present, the blended interchange fee stands at Rs 12.50, including a Rs 15 interchange fee for financial transactions and Rs 5 for non-financial transactions, it said.

Most state-run banks did not recommend a change in the ATM interchange fee, while private sector banks suggested that the interchange fee be brought on a par with the cost they incurred, the report said.

Both white- and brown-label ATM operators recommended an increase in the interchange fee to Rs 30 for financial transactions and Rs 10 for non-financial transactions. These recommendations, however, don’t take into account the cost of cassette swap for currency notes in an ATM, which could add another 15% in additional costs.

If the various regulatory compliance costs regarding ATM security, cassette swaps, ATM replenishment and cash management were to be taken into account, the average cost per transaction for each operator would be higher, the committee said.

Other Suggestions

• Optimize cash cost for each ATMs based on historical transaction data.
• Real-time monitoring of service and cash availability at ATMs.
• White-label operators should have access to working-capital credit lines at the repo rate, which would reduce the cost of replenishing cash in an ATM and thereby reduce the overall cost of operating an ATM.
• Switch from VSAT technology (satellite) to 4G modems or CDMA (telecommunications spectrum).
• Physical security guards can be replaced with e-surveillance systems, wherever not mandatory.
• Monitor ATM-wise customer complaints, transaction failures and suspect transactions. Failed transactions should be pro-actively reversed to customers without waiting for customer complains.
• Revision on the interchange fee and the customer ATM usage charges should be simultaneously implemented so that impact is uniform.