The rise of micro-ATMs in semi-urban and rural areas: How do they work?

These easy to deploy, cost-effective devices that are akin to a point-of-sale terminal have mushroomed in India's semi-urban and rural areas

The number of micro-ATMs increased to 15.59 million in February this year, up by 83.19 per cent from a year ago, with the value of transactions at Rs 25,483 crore, up by 2.3 per cent — underscoring that cash is still a much-preferred medium of exchange.
 

Micro-ATMs are devices that are akin to point-of-sale terminals, and are used by business correspondents (BCs) of banks to authenticate customers’ transactions.  The basic transaction types are deposits, withdrawals, fund transfers, balance enquiries and mini-statements. 
 

How do they work? Assume you want Rs 2,000 in cash from a BC (a kirana store, or any merchant outlet can be a BC). You simply swipe your debit card and the amount is handed to you from the store’s cash till. Simultaneously, while the cash is now with you, an equal amount would be credited to the store’s bank account. And if this happens to be a savings account, it starts to earn interest rather than being idle at the store. It’s win-win for you and the dispensing agent.
 

According to Mandar Agashe, founder and managing director of Sarvatra Technologies, “rural India has fewer bank branches, making it difficult for residents to access ATM services that are primarily available at faraway bank branches. The use of micro-ATMs has grown in the semi-urban and rural areas as they are easily deployable and cost-effective”.
 

This has led to a significant uptick in micro-ATMs backed by the Aadhaar Enabled Payment System (AePS). This quick and easy digital payment system allows bank-account holders to make transactions using their Aadhaar number and biometric authentication without physically visiting a bank branch for ATM services. Micro-ATMs play a vital role in a journey toward digitisation. It is also cost-effective for banks to deploy micro-ATMs at multiple places in a shorter circumference area that serves a wider audience at the cost of one ATM.
 

Cash is much in vogue. Cash-in-circulation in FY23 was Rs 33.5 trillion (2.26 per cent of GDP); in FY24, this is projected to be Rs 35.5 trillion and 11.1 per cent, respectively. This is despite the successive record highs seen in UPI transactions — in April 2023, UPI processed 8.9 billion transactions valued at a record Rs 14.07 trillion.
 

“While in urban areas, cash transactions have slowed down as payments due to UPI lead, Bharat is still largely cash-driven,” says Anand Kumar Bajaj, founder, managing director and chief executive officer of PayNearby. “Because of the limited penetration of a formal financial infrastructure in the hinterlands, micro-ATMs act as a veritable lifeline for the unbanked and under-banked population, to access this cash”.
 

Micro-ATMs are also a critical cog in direct benefit transfers, as beneficiaries need both cash-out points and assistance. “Unlike legacy ATM machines, micro-ATMs offer more personalised service, as there are agents available to assist with transactions. This is beneficial for customers who may struggle with digital technology, or who prefer face-to-face interactions,” says Sanjeev Kumar, co-founder, executive director and CEO of Spice Money.
 

The BC model has gained traction in solving the last-mile problem and reaching the grassroots at a faster rate and lower cost than traditional brick-and-mortar branches. BC outlets constituted 97.5 per cent of total banking outlets in villages in 2021-22, even as the number of branches have declined. According to the Reserve Bank of India’s (RBI’s) Report on trend and Progress of Banking 2021-22 (T&P FY22), of the 3,232 new branches opened during this period, Teir-I cities accounted for 47.1 per cent, with the rest shared by Tier-II to Tier-VI cities.
 

The growth in micro-ATMs must also be compared with what’s happening in the ATM market. As on date, there are 257,000 ATMs; and after a lull of many years, request-for-proposals floated by banks show an order-book for 17,000 ATMs. The order-book includes recyclers and dispensing-only (cash) ATMs. It is surmised that the renewed interest in ATMs in general — the first since demonetisation, when the installed base stood at 220,000 units, will help direct benefit transfers with that many more cash-out points.
 

That said, as the RBI’s T&P FY22 noted, “although India has the second largest number of ATMs deployed, the per capita availability remains low. Facilities such as PoS terminals and micro-ATMs using AePS help in bridging the gap”. What is not clear is the impact of micro-ATMs on ATMs.