Charge of the light brigade: Charting the rise of micro-ATM channel

The micro-ATM channel has held its own despite growth in digital payments and pricing not being raised

“We want to be the Blinkit of cash delivery,” says Suneel Aiyer, mentor and advisory board member at PocketATM. Its business model: Put idle cash in kiranas’ tills back into play. Assume you want Rs 2,000 in cash, you flash a QR code at the outlet; your account is debited and cash is handed over. A matching credit entry is made in the merchant’s account. The clever part here is not PocketATM’s idea but that it has cottoned on and seeks to breathe life into a long-forgotten circular issued by the National Payments Corporation of India (March 16, 2020): ‘Withdrawal of cash over UPI at merchant locations’. Aiyer, the former chief executive officer (CEO) of Writer Safeguard (a cash logistics firm since  being acquired by Hitachi Payments), wants to “hyper-localise cash-in-circulation (CiC) and up its velocity; and reduce logistics costs by doing away with the need to send cash to banks for sorting and bundling in the case of ATMs.”

This calls attention to micro-ATMs: Devices akin to point-of-sale (PoS) terminals used by banks’ business correspondents (BCs); think of these as miniaturised handheld ATMs. “The biggest advantage of micro-ATMs is they not only take care of the issue of low ATM penetration but CiC gets recycled faster. While we are not in this business, we indirectly facilitate in the case of retailers who happen to be BCs,” says Ketan Patel, CEO of Mswipe Technologies (the largest deployer of PoS units). It also happens to be a trade which is largely below the radar as it is not glamorous.

According to Dilip Modi, founder and CEO of Spice Money (one of the largest providers of assisted cash-out services in 244,000 villages and semi-urban areas, serving more than 100 million customers annually), the demand for cash-out services remains robust. As for awareness, it is there in the rural and semi-urban areas (due to the limited availability of ATMs and the high demand for cash). It is not so in urban areas because of widespread UPI acceptance, “and lack of merchants providing these specific services. Our focus remains on bridging the awareness gap and expanding our services to ensure greater financial inclusion,” says Modi.

Micro-ATM uses

Among the many kinds of transactions micro-ATMs put through, they largely enable account holders to both withdraw and deposit cash (through BCs) using Aadhaar and biometric authentication without visiting bank branches or ATMs. A matter of detail: In the case of withdrawals and deposits via micro-ATMs; the cash is handled by the BC (It does not pop out of the device). This is authorised in four ways: Through a different type of transaction-identifier on PoS terminals; Aadhaar-enabled payment system (AePS)-enabled PoS terminals via biometric authentication; micro-ATMs, or via UPI QR.

How large are the volumes? The latest data available from the Reserve Bank of India (RBI) tells you that Rs 22,804 crore was pulled out in May 2024 via 1.562 million micro-ATMs in 87.979 million transactions. That compares to the Rs 2,60,240 crore withdrawn through 2,60,000 ATMs (516.641 million transactions). Now, monthly cash pullouts via ATMs are nearly eleven times the volumes pushed through hand-held BC micro-ATMs, but remember the latter is capped at Rs 10,000 per transaction (higher amounts are decided by individual banks).

There’s also a technical aspect to pencil in here. The Rs 22,804 crore in micro-ATM withdrawals captures only “off-us” cash withdrawals. That is, say, you are a direct-benefit transfer (DBT) beneficiary with an account with State Bank of India (SBI) and were to withdraw Rs 2,000 through a micro-ATM from a BC on-boarded by another bank, such data is captured. But if it is through SBI’s BC (an “on-us” transaction), then it’s not so. Industry sources are of the view that were both “off-us” and “on-us” transactions to be included, the sums involved will be much higher; and more so, if cash deposited via micro-ATMs is considered (for which there’s no RBI data).

Micro-ATMs’ growth must be seen in the context of what’s happening in the legacy ATM market. You have 260,000 ATMs; and after a lull, requests-for-proposal floated by banks show an order book of 44,500 units. This number is significant: In November 2016 (at the time of demonetisation), we had around 225,000 ATMs; the numbers dialled for are more than what has been put up since.

While cash-out at micro-ATMs is not a 24x7 offering (it needs human interface), it has the potential to shape the ATM channel. The reason why the ATM order-book has perked up recently is that a hike in the interchange is in the offing: To Rs 20 from Rs 17. Amit Jain, chief operating officer of Fino Paytech, says the interchange for withdrawals at micro-ATMs has not been at par with the ATM industry, which rightfully went through a revision to Rs 17 from Rs 15, and currently, discussions are on to increase this further. “However, the average interchange for micro-ATM withdrawals is Rs 9-Rs 10, and this needs to go up for the business to be sustainable.”

Relook at pricing

Cash-in, cash-out (Cico) is the earning mainstay for BCs. It makes up for more than 60 per cent of their income, but there has been no revision in pricing for the last decade. “The government ought to consider a 50 basis point increase in transaction rates. A comprehensive costing exercise should be conducted to determine the optimal transaction fee that supports the sustainability of banking agents,” says Seema Prem, co-founder and CEO of FIA Global.

It is critical to relook at pricing to keep access to DBT beneficiaries humming. “The mandate to upgrade Aadhaar biometric devices involves substantial cost for the BC industry, almost Rs 600 crore if all 4 million Aadhaar biometric devices were to be replaced,” points out Anand Kumar Bajaj, founder-managing director and CEO of PayNearby. He adds: “This would put financial-inclusion initiatives and the industry under tremendous viability pressures.”

You ask Bajaj how he arrived at 4 million devices when RBI data refers to 1.562 million micro-ATMs, and he says: “The 1.562 million units are monthly active devices, but if you add those that are quarterly active, it is around 3.2 million. Add on the less active and it tops 4 million devices.”

The micro-ATM business is not to be taken lightly.