Number of ATMs dips, PoS centres see rise in digital payments push

As the Reserve Bank of India (RBI)’s Vision 2021 report aims to achieve ‘highly digital’ and ‘cash lite’ society in line with the government’s push for Digital India, the payments infrastructure is also undergoing a transformation.

The deployment of point of sales (PoS) terminals picked up during financial year 2019 whereas the total number of automated teller machines (ATM) in the country decreased.  ATM penetration in the country is already one of the lowest in the world in terms of total population. During the past year, ATMs fell marginally by 554 units to 2.22 lakh units whereas the number of PoS terminals in the country rose by over 6.4 lakh and stood at 37.22 lakh units at the end of March 2019.

While digital payments are seeing exponential growth, cash shows no signs of slowing. Cash withdrawn from ATMs grew at 14 per cent during the past year and cash in circulation is higher than pre-demonetisation levels. The RBI believes that enhanced availability of PoS infrastructure will reduce the demand for cash.

“It is recognised that cash entails a significant cost to the whole economic system, including consumers. Migration to digital modes of making a payment can obviate some of these costs and give customers a friction-free and enjoyable experience,” said the RBI in its report.

Banks also want to move towards digital payments and have either closed down ATMs or slowed down deployment. Private lender Axis Bank closed down over 2,000 ATMs in the past year while both State Bank of India and Bank of India closed down over 1,000 ATMs. 

Out of a total 49 banks, over 30 banks closed ATMs in the past year, showed RBI data. However, industry experts say that the shutdown of ATMs is premature and the reason is plain economics.

“ATMs are costly, requiring substantial capital and operational expenses with high maintenance cost of hardware and software. 

All these factors have made the task of deploying and operating ATMs an expensive and a loss-making affair for banks while also increasing the cost per transaction,” said Mandar Agashe, founder and vice-chairman, Sarvatra Technologies. 

While the cost of running an ATM has grown, interchange fee, which is the amount charged by ATM operators for every transaction, has remained stagnant. The ATM industry has been lobbying for a rise in interchange, in the face of rising costs due to new regulations. However, there has been no consensus on the issue since it would raise cost burden for banks.

The Confederation of ATM Industry (CATMI), the industry body for ATM operators, is dismayed at the omission of the stagnation of ATM deployment in RBI’s report. “The RBI is of the view that it is digital payments against cash and has not acknowledged that the lack of ATM infrastructure will reduce financial access for rural areas, thus hampering financial inclusion,” said a CATMI spokesperson. 

He added that additional ATMs are needed to address needs of the people brought into the financial fold through Jan Dhan accounts.

The RBI, however, keenly believes that digital payments can drive financial inclusion and plans to upscale the PoS infrastructure to 5 million active PoS by end 2021. 

“The PoS terminal is financially, infrastructurally, and operationally far more affordable and far less demanding than an ATM, making the PoS terminal the most viable acquiring infrastructure for banks, business-wise. 

Being a portable device with a tiny footprint, it can be placed anywhere and everywhere in order to give convenience to end customers beyond the reach of banks. This makes the PoS terminal the ideal candidate for extensive deployment by banks, which is why banks are shifting their focus from ATM deployment to PoS terminal deployment,” said Agashe.

The move to PoS transactions is supported by increasing use of debit cards at PoS terminals, which is 30 per cent vis-à-vis ATM in terms of volume against 10.4 per cent in 2014-15. The usage of debit cards at PoS terminals is expected to be at least 44 per cent of total debit card transactions by 2021. In value terms, it was 15.2 per cent in 2018-19 (5.2 per cent in 2014-15). This is expected to be 22 per cent by the end of 2021. said the RBI.

The government also subsidised transaction fee (MDR) payable by the merchant for digital transactions for debit cards and United Payment Interface(UPI)  in order to drive POS transactions. Sunil Rongala, Vice President – Strategy, Innovation & Analytics, Worldline India said that government entities are planning on subsidizing the rollout of POS terminals as well as incentives on Goods and Services Tax concessions for transactions accepted digitally.   He added that MDR waiver and reduction has been a key driver of digital transactions especially at the lower end of the merchant spectrum where the margins are thin.