Cash recyclers to tango with bank branches: How does this help?

The ATM will emerge as a remittances channels, enabling cash drops by customers and cash-outs by recipients of direct benefit transfers

Almost 20 per cent of India’s installed automated teller machine (ATM) base of 250,000 is now accounted for by recyclers — devices which not only dispense cash, but also allow you to make deposits. 

In anticipation of demand, Diebold Nixdorf is to set up a facility to manufacture 18,000 machines (dispensers and recyclers) a year in Bengaluru. It has set the stage for ATMs to morph into “virtual branch networks”, and emerge as a remittances channel in its own right.
 

The game-changer was the Reserve Bank of India’s (RBI’s) and the National Payment Corporation of India’s (NPCI’s) move to allow interoperability among banks, and permit white-label deployers to put up recyclers. Until then, recyclers were used largely as a teller-replacement tool, or for self-service by banks — you deposited cash in it with no human interface. But with interoperability, recyclers will be set up off-site as well.
 

The bulk of the 50,000 operational recyclers are deployed within the precincts of branches. Why so? “There’s a good business case for deploying recyclers in branches because you can move cash from the teller to self-service technology, and you can offer it 24x7,” says Navroze Dastur, regional vice-president (Asia Pacific) and managing director (India) of NCR Corporation — the world’s largest manufacturer of ATMs.
 

As Dastur sees it, “in offsite locations, the business case doesn’t stack up. The interoperability of these 50,000 recyclers is not operational yet. So, there are some challenges currently, and we have not seen the numbers really going up.” That said, the demand for recyclers is set to inch up despite the fact that they cost around Rs 5.5 lakh per unit, compared with Rs 3 lakh for the ubiquitous cash-vending ATMs.
 

A big multiplier effect with recyclers is that small business owners can deposit the surplus in their daily cash balances in them, and it is credited to their account immediately — without their ever visiting a bank branch. It will also lead to the emergence of the ATM channel as a remittances channel, by enabling cash drops by customers and cash-outs by recipients of direct benefit transfers across geographies.
 

Of course, this service at recyclers comes at a price — Rs 50 for every Rs 10,000 deposited, which is three times the Rs 17 you pay as inter-change if you were to withdraw the same amount — after five free transactions. This higher transaction fee for depositing cash at recyclers has more to do with the fact that the ATM business has not been in a position to absorb operational costs.
 

It explains the near-deadlock, with banks reluctant to hike the charges they have to pay to cash-in-transit (CIT) firms, which have to spend more to comply with the home ministry’s enhanced security drill when moving cash. This, and the fact that more 500-rupee notes are in circulation compared with 2,000-rupee notes, means more trips by CIT firms’ cash vans to replenish ATMs.
 

Request-for-proposals floated by banks show an order-book for 17,000 ATMs. The order-book includes recyclers and dispensing-only ATMs. Orders for new ATMs work out to 6.53 per cent of the current installed ATM base; and more demand is seen flowing in over the next few months.
 

It is surmised that the renewed interest in ATMs in general — the first since demonetisation, when the installed base stood at 220,000 recyclers, will help direct benefit transfers (DBTs) with that many more cash-out points. What is not clear is the impact of micro-ATMs — point-of-sale (PoS) units which also dispense cash. While cash-out at PoS, unlike ATMs, is not a 24x7 offering, it has the potential to affect the business of the ATM channel.
 

That’s because the Confederation of ATM Industry (Catmi) has written to the RBI, arguing that micro-ATM players need to be better regulated. Its case was that there is ambiguity as to who besides banks can deploy micro-ATMs, as a vast majority of them are run by retailers who dispense cash to customers via the Aadhaar-enabled Payment System.
 

Catmi’s position is that micro-ATMs are deployed by fintech firms acting as business correspondents of banks, and therefore, the level of diligence before appointing a merchant may lack the required rigour. Also, many retailers charge customers a fee of up to one per cent of the amount withdrawn, and micro-ATM players also do not allow the permitted five free transactions.
 

Catmi’s short point appears to be: There has to be a level playing field between ATM deployers and micro-ATMs. Or, looked at another way, while cash-out at PoS can facilitate DBTs, it has the potential to create the very middlemen it attempts to eliminate.