The village of Jamburi Hapsi, located a few hours off the road to the Indore airport, has no bank branch in a 7-8 km radius. According to Pravin Bansal, general manager for transaction banking at Union Bank of India, that makes it a perfect candidate to try out the latest tool for financial inclusion.
The public sector lender has set up a point-of-sale (PoS) terminal at a local store where customers can swipe their debit cards and collect up to Rs 1,000 from proprietor Sardar Singh. They will be charged Rs 10 for each withdrawal. While Sardar Singh will get a portion of the transaction fee, the rest will be shared by Union Bank and its third-party service provider, Atom Technologies.
“We have started this facility on a pilot basis and we will roll it out at more locations once all the glitches are ironed out,” said Bansal.
In July last year, the Reserve Bank of India (RBI) had issued a circular permitting cash withdrawals of up to Rs 1,000 per day from PoS terminals at merchant establishments. Union Bank of India is the first bank to offer this facility, albeit on a pilot basis. Other banks are likely to follow suit.
“We are keen on offering this facility. But, there are some settlement process mechanisms still to be worked out. The important thing is to get the right set of merchants who keep enough cash to service customers. Rather than target a particular geography or demography, we will look at acquiring the right set of merchants,” said B Amrish Rau, vice-president and country manager, First Data (India), which runs ICICI Bank’s network of 150,000 PoS terminals through a joint venture.
According to bankers, PoS terminals with a cash withdrawal facility are not meant to compete with automated teller machines (ATMs), but to complement them.
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“The cost of setting up and running an ATM is many times that of setting up a PoS terminal. Banks can thus set up PoS terminals at locations where it is too expensive to put up ATMs,” said Dewang Neralla, director, Atom Technologies.
According to industry estimates, the cost of setting up an ATM is anywhere between Rs 8-10 lakh and banks have to fork out an additional Rs 70,000-100,000 per month to run them. On the other hand, a PoS terminal can be set up for Rs 5,000-25,000, depending on the make, and the only infrastructure required is a telephone line.
The charges are lower than those for third-party ATM withdrawals, since the cost for the banks will also be lower. At present, most banks offer five free third-party ATM withdrawals a month to savings account customers. Thereafter they charge Rs 18-20 per transaction. Banks mainly save on cash replenishment charges, since the cash is present with the merchant.
A public sector bank executive said this also served as a current account/ savings account (CASA) acquisition strategy, since every merchant offering this facility will necessarily have to open a current account with the acquiring bank.
Public sector banks have been relatively late entrants into the merchant acquiring business, which is dominated by private sector lenders such as ICICI Bank, HDFC Bank and Axis Bank. However, they are trying to make up for the lost time by unveiling ambitious plans to acquire PoS terminals.
Union Bank was looking at having 25,000 PoS terminals by March-end. Corporation Bank has entered into a deal with Prizm Payments for the setting up of 100,000 PoS terminals in the next two to three years.
The country’s largest lender, State Bank of India, aims to have as many terminals as market leader ICICI Bank by the end of the current financial year.
“We are still working on the proposal. However, it may take some time for us to roll out the cash withdrawal facility,” said a senior executive of State Bank of India.