White label ATM Operators (WLAOs) could attract fresh investments for rolling out ATMs in rural areas as the Reserve Bank of India (RBI) has hiked the interchange fee, according to K Srinivas, MD & CEO, BTI Payments.
In an interaction with BusinessLine, Srinivas, who is also a Director of the Confederation of ATM Industry (CATMi), observed that the Reserve Bank of India’s move to up the interchange fee from ₹15 to ₹17 per financial transaction and from ₹5 to ₹6 per non-financial transaction is opportune as it comes at a time when India needs at least 1 lakh more ATMs.
As at March-end 2021, there were 2.39 lakh ATMs (2.35 lakh as at March-end 2020).
The Committee to Review the ATM Interchange Fee Structure recommended a hike in interchange fee of about 13 per cent in centres with population of 10 lakh and above and 20 per cent in centres with population of less than 10 lakh. But the RBI has upped the fee uniformly from ₹15 to ₹17. Are you happy with this decision?
This is a very positive development for industry (Banks and WLAOs). Like any other business we will have to operate with great amount of efficiency and build scale. This is something which is definitely possible.
Will the increase in interchange fee encourage you to expand ATM network?
Our company has already been rolling out ATMs quiet aggressively in rural areas. We are now the largest WLAO (non-bank entities providing ATM facilities to the customers of banks), with almost 90 per cent presence in tier-III, IV, V and VI centres. We will continue to grow more aggressively.
We have close to about 8,500 ATMs. Last financial year, I think, we added about 1,700 ATMs. We slowed down a little bit in the last two months due to access problems as a result of lockdowns in various States. Otherwise, we were almost touching 250-275 ATMs every month. In fact, between January and March, we started expanding our network at this pace. Then the second wave came. So, hopefully, once the lockdown is lifted, we will go back to 250 to 275 a month addition in the rural areas.
What opportunities do you see for growing your network?
Most of the bank ATMs are in tier-I, II and III centres whereas our focus is on tier-III, IV, V and VI. Where we operate, there are hardly any ATMs. So, there is plenty of opportunity there. And, in my own judgement, I think India needs another 1 lakh ATMs, especially in tier-III, IV, V and VI locations. In these locations, the digital infrastructure is practically absent. The cash in circulation is growing. There is a lot of money going into the accounts of customers via Direct Benefit Transfer, other welfare schemes and subsidies. So, people do need some avenue for withdrawing cash.
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But there are alternative channels. Will this not address supply-side issues?
While there is the micro-ATM and the Business Correspondent (BC) network, which also play a role, ATMs play a much larger role. ATMs serve the customers from the point of privacy. They also serve a much larger set of customers. BCs don’t have enough cash with them. That is the biggest problem. ATMs are stocked with enough cash. Philosophically, I think, it makes sense for WLAOs to be rolling out ATMs rather than banks.
Why should each bank go and roll out ATMs of its own? What purpose does it serve?
Banks’ job is to borrow money, lend money, etc., and not necessarily run ATMs. We (WLAOs) can run ATMs far more efficiently than a bank can ever hope to. Therefore, I think structurally, it is right. The need for ATMs is there big time in semi-urban and rural (SURU) areas. The only reason why it was not happening all these days is because of the interchange economics. Now with this correction, I am absolutely sure that the entire industry will move forward. We (BTI Payments) would be in excess of 10,000 ATMs before the end of the year.
Will the upward revision in the interchange fee attract fresh investments in the sector?
It is important to get the economics right and run the ATM network with some efficiency. And we do believe that the raw material (the cash in circulation) is not going to go away in SURU areas despite the growth in digital banking. I think, cash will continue to be very relevant in India for decades to come and there are not enough ATMs. Therefore, on the demand side, there is enough demand for cash. On the supply side, there is not enough supply (of ATMs). The only reason why people were not putting enough supply in place (setting up ATMs) is because of the interchange dynamics. Now that, this is corrected to some degree, I am sure, people will look at it very positively. This should bring in fresh investment into the sector for people to go out and roll out ATMs in the rural areas.
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