BENGALURU: Automatic teller machines (ATMs) remain a mainstay of India’s financial inclusion drive and need the central bank’s support to stay relevant amid the government’s push for digital payments, consultancy firm PwC said in a report.
Digital payments haven’t kept pace with the requirement for financial services in far-flung areas and a lack of ATMs there could prove disastrous for the economy, Vivek Iyer, partner for financial services at PwC, told ET.
“India cannot suddenly become like Estonia, where all payments are digital,” said Iyer, who authored the PwC report titled ‘ATM Industry: Changing Landscape and Emerging Trends.’ There is still strong demand for cash and if banks do not invest in the ATM infrastructure, especially in rural areas, people might opt to hoard cash instead, he said.
“The ATM industry requires strong support from the (Reserve Bank of India) so that innovation can help bring the (operating) cost down and encourage banks to keep deploying ATMs,” Iyer said. “The cost of running an ATM infrastructure is around 50% more than the cost of running a digital infrastructure. Hence, banks will tend to move towards digital.”
To maintain a balance between the two modes of payment, there is a need to open up regulatory sandboxes for ATMs to allow manufacturers to collaborate with financial-technology startups, he said. Transactions at ATMs have dropped 0.76% month-on-month since demonetisation in November 2016, and the amount of cash withdrawn has fallen 3.3% per month, PwC said in its report. Before demonetisation, ATM transactions were increasing at 1.16% month-on-month and the amount of cash withdrawn at 1.04%, it said.
Demonetisation pulled out over 85% of the cash in circulation, forcing people to embrace digital payments. Since then, cash in circulation has reverted to its pre-demonetisation days but digital payments have come to stay.
PwC also said in its report that postdemonetisation, the number of credit and debit card payments at merchant outlets had increased by 5.5%, and the amount paid through these cards by 4%, indicating faster adoption of digital payments against ATM usage.
Iyer said the ATM industry needs to innovative by using blockchain for reconciliation of ATM transactions, automating cash logistics processes, and using machine-learning and artificial intelligence to more efficiently predict cash requirements at terminals.
Blockchain is a collaborative digital ledger that powers crypto-currencies and is increasingly being adopted by various industries for its robust and transparent book-keeping.
PwC highlighted factors like mobile wallets and cryptocurrency as the two major threats to the ATM industry.
“Further, RBI has proposed interoperability among digital wallets… this poses a major threat to the ATM industry,” Iyer wrote in the report. A few initiatives have been adopted so far to keep ATMs relevant, such as introducing biometrics-enabled cash terminals, allowing remittances through ATMs, and installing solar-powered ATMs in the country’s remotest corners.