Debit cards double in five years while ATMs increase sluggishly

While the number of debit cards has increased, the cost-sharing issues have led to a deadlock in the investments made in ATMs. A deeper look at the problems facing the ATM industry.

Debit card and ATMs show contradictory growth

Ever since the Jan Dhan Yojana (JDY) came into existence, the growth of debit cards has been remarkable. From 42 crores in August 2014, the number of debit card issued stands at 94 crores, as of February 2019. However, during this period the growth in the number of ATMs has been only a mere 20%, from 1.7 lakh to 2.02 lakh. When we look at the last year alone, the ATM network has actually shrunk from 2.06 lakh to 2.02 lakh, although the cash in circulation has reached 21.36 lakh crore now.

The tussle among banks, ATM companies and cash logistics firms on sharing of costs is seen as the reason holding back the growth in numbers of ATMs. At the heart of this cost-sharing confusion is the RBI’s new security guidelines for ATMs. With increased importance on secured cash loading into ATMs and cash vans, the costs are bound to increase while a consensus on the cost-sharing is awaited. This hold-off has even delayed the procurement of new ATMs planned by a major public sector bank. 

It is observed that the increased cost is not reflected in the present cost of the interchange (fee paid by the ATM using a bank to the ATM deploying bank). So as banks, particularly the newer banks, are more willing to pay the low interchange charge rather than bear the cost of setting up and operating their own ATM network. The interchange charge presently stands at Rs. 15 per transaction.

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What are RBI guidelines on ATM security?

One of the key changes suggested by the RBI is the manner of cash refill. From the present open cash loading system, the RBI suggests a cash cassette system wherein loaded cassettes will be inserted in the ATMs after pulling out the empty cassettes. This will ensure that ATMs can be replenished without the fear of cash being pilfered. This is expected to be completed by April 2021.

Besides, the RBI has asked for GPS and CCTV-enabled cash vans, which are mandatory to have armed guards. On the machine part, upgrading the operating system of the ATMs and implementation of the anti-skimming and whitelisting solution is to be required.

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What are the cost-sharing issues in relation to ATMs?

The increasing costs have made the ATM business an unviable option. This is reflected in the lack of growth in the number of ATMs. One major cost is the interchange cost which is paid by the ATM using the bank to the ATM providing bank. This charge is expected to increase from Rs. 15 to Rs. 18 after a scheduled meeting between the RBI and the National Payments Corporation of India. The costs of ATM management service providers have also increased but the banks are not willing to budge to any hike. Because of the new security guidelines, the cash logistics companies are asking for an additional Rs. 4,900 per month. 

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How has JDY affected the number of debit cards?

The number of debit card and the JDY are closely linked, as is evident from the fact that the percentage of adults having bank accounts has increased from 53% to 80% in the four years between 2014 and 2018. The deposits in JDY accounts were set to cross Rs. 90,000 crore early this calendar year. Similarly, the average balance in JDY accounts saw an increase of 24%, as observed in February this year. Look at these 7 other government schemes you can benefit from.

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