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More ATMs are downing shutters; is the concept still relevant in the age of online banking?


More ATMs are downing shutters; is the concept still relevant in the age of online banking?

India has never felt the need of ATMs more than on the 8th of November, 2016, when the five hundred and thousand rupee currency notes were pulled off from the economy. It will be a while before hundreds and thousands of Indians will be able to get over the picture of standing in front of lines before the ATMs.

Apart from a crackdown on black money, it was also projected that India would slowly move towards a cashless economy and more and more stress was laid on online wallets and banking apps. However, it would difficult for a country likes India, with such a huge population, and with so much of cash circulation to go completely cashless and the dependence on cash can hardly be reduced.

How are ATMs affected by costs?

There will always be a dependence on small businesses and daily wage earners and it is only possible to get their services in exchange of cash. Hence, even if these factors continue to stay, finding an ATM in the country slowly gets tougher. The reason is simple- there have been tighter regulations and that is making the ATMs costlier to run.

Automated teller machines have shrunk considerably in numbers in the past couple of years and yet there has been quite an increase in the transactions, figures from Reserve Bank of India revealed. Moreover, according to another report by International Monetary Fund, it has been revealed that India already has fewest numbers of ATMs per every 100,000 people among the BRICS nation.  For a country with such a huge population as well, this does not really present a very good picture.

Unfortunately, this reduction in the number of ATMs may continue as more and more banks and ATM operators will struggle to keep up with the cost of software maintenance and upgrades according to central bank norms. These upgrades are important to prevent net banking fraud and to ensure the security of the thousands of customers who have accounts and want to access their money with ease. Coming back to the topic of demonetization of 2016, this greatly undermines the PM Modi’s campaign that was stressing financial inclusion, in a country where hundreds and thousands still consider cash to be king even after three years of pulling out the big currencies from the economy.

Hence, the reducing number of ATMs will seriously be impact a large segment of the population, especially those who are placed at the bottom of the socio- economic ladder. According to the industry experts, especially those who are the maker of these machines, penetration of ATMs is still quite low in the rural sectors and the further dwindling of the numbers can be a source of concern for people who rely on them for most of their transactions or for getting easy access to cash.

ATM operators are also feeling pressurized as the security costs are also increasing considerably. The fees that they rely on for the revenue still remain low and the approval of the industry committee is also important, without which they cannot operate. ATM operators are not just the banks alone, there are also a number of other third parties involved, and there is a charge known as the Interchange Fee of Rs 15 to the lender whose debit card or credit card had been used for cash withdrawals.

What is Interchange Fees?

According to the industry experts, Interchange Fees is one of the biggest factors that are behind the abysmally slow growth of ATMs in the country. There is much need to be practical and to consider the needs of the nation. In fact, banks are finding it more profitable to pay the interchange fees to the other banks rather than maintaining and operating their own ATMs, which can prove to be much more expensive.

The idea that increasing the fees would be a viable solution, is thankfully, not shared by all. In case they are raised, banks are likely to pass the more expensive charges on to the customer, and this could prove to be more expensive for them. As the topic comes back to that of demonetization, it has become all the more necessary that the people of access to the ATMs because after that occurrence, 355 million people were added to the banking system.

There were hundreds and thousands who opened bank accounts for their first time in their lives after 86% of the notes were made illegal. This has also led to the growth of direct transfers of many kind of welfare benefits to many people’s account and this has already increased the dependency on ATMs.

In some public sectors, the branch realization by some lenders is another factor while ATMs are dropping in numbers. A bank like State Bank of India has cut 1000 outlets in the first six months along of the fiscal year of 2018 and in turn had acquired five associate banks and a local lender.

Banks will also continue to depend less on branches in the future as the attempt to digitalize the sector is being undertaken. Only a couple of ATMs would be located in the bank branches. The reduction in their numbers will also give rise to increased mobile banking and that has already grown rapid as India now has the largest number of millennial and Generation Z population.

Nevertheless, it is still quite early to say that ATMs will die an early death. But it is true that if the required investment does not come into it, they might soon be a thing of the past in the future, near or distant.



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