On April 1, India entered a new era in ATM banking. The Reserve Bank of India, central banking authority of India, brought about a proposal to allow the bank customers to withdraw money from ATMs of any other bank in India free of charge. Earlier, a fixed charge was levied on the customer by the banks for any cash withdrawals from their ATMs. The transaction fee was reduced to a maximum of Rs. 20 (around 50 cents) on March 31, 2008 and further made free of charge with effect from April 1, 2009. India has now joined countries like UK and France which doesn’t charge any usage fees on bank customers.
While this is a boon for customers, the banks will have to rethink their business strategies. Although the usage fees are not charged to the customer, the bank would extract the fees from the bank which maintains the account of the customer. This inter-change fee is not fixed and will be decided by mutual bilateral agreement between the banks. Thus, the strategies of banks would now revolve around these inter-change fee rates.
The strategy would vary depending on the size of the bank
- The banks that would gain from this move are those with a large number of ATMs. As of December 31, 2008, State Bank group had the highest number of ATMs with 11,250 ATMs around the country, followed by ICICI bank at 4,600 ATMs and Axis Bank at 3,570 ATMs. According to initial reports, these banks are expecting a rise of 10-15% in inter-change transactions.
- The banks with small number of ATMs will be rethinking their ATM expansion strategies. Setting up an ATM in India would cost about Rs. 6 lakhs and a maintenance cost of about Rs. 50,000 – Rs. 60000 per month. Hence, the smaller banks might be better off paying the inter-change fees than setting up and maintaining an ATM. However, initial reports suggest that there is no slowdown in the ATM expansion plans, as many banks expect an increased usage of ATMs and would want to capitalize on the trend.
Also, in addition to the banks making their moves, white-label ATMs are also being planned to be launched in India. The ATM market will be going through an interesting phase and it is worth a watch over the next few quarters.
- Connectivity. Without proper broadband penetration, banks will have trouble setting up ATMs in remote villages.
- Energy. With many villages receiving less than eight hours of electricity per day, uninterrupted power is something that the banks need to think about
- Maintenance. Remote villages will lack technical expertise to handle ATMs.
- Security. Both the network security and the physical security of the ATM booths need to be handled.