Is the RBI policy on ATM sharing a good one?

The issue is whether not charging customers for using other-bank ATMs, after 2009, alters the balance in favour of banks which don't set up their own networks.

Sanjay Sharma
Advisor-IT,
IDBI Ltd

"Several banks have consciously not built up their ATM networks. That doesn't mean they shouldn't pay those whose ATMs they use"

Definitely yes! In fact, it has come at the right time as there is a growing need for creating a National Shared Payment Infrastructure to support the exponential spurt of electronic transactions, especially card-based ones. Like in many other countries, there is a need to have our own switching and shared payment network. With growing transaction volumes, per transaction cost is constantly coming down which encourages banks to move their customers to alternate channels.

On the other hand, there are banks that have consciously decided not to set up large ATM networks. As the sharing of ATMs benefits all the banks in widening their customer base and reach, banks with smaller networks may compensate those with large numbers of ATMs for using their infrastructure.

All banks, irrespective of their branch network, issue debit/ATM cards to customers and encourage them to use alternate channels like ATMs. This helps banks in increasing their reach in spite of small branch networks, reducing per-transaction costs and finally getting more customers without making huge investments. Now the point is whether banks should charge high interchange fees to customers for using other bank's ATMs when they, as part of business strategy, decided not to build their own infrastructure. That however, doesn't mean that these banks should not pay to those whose infrastructure is being used.

Over a period of time, we have witnessed that ATM/card-based transaction charges have come down drastically due to reduction in technology costs and increasing transaction volumes. Based on the past trend, per-transaction costs will further come down. So, whether to create its own network or use another bank's network on a cost basis will depend on a bank's business strategy. The whole idea behind encouraging customers to use alternate channels is to reduce the per-transaction costs. Charging them heavily for using the same is contradictory. On the contrary, there are banks that charge customers for using the branch channel. Why have a dual policy then? In an ideal situation a customer should be able to access any ATM installed in the country free of charge through an cooperative initiative by banks.

Moreover, the cost of setting up an ATM has come down, while transaction volumes have increased manifold which has reduced the per-transaction cost. Banks need to learn from the telecom industry where, with matured technology and large customer base, per-transaction costs have come down. This has helped customers in getting the same services at much lower affordable costs and the telecom operator in increasing revenues with much larger customer base and transaction volumes. Today, the cost per transaction has come down considerably. It is the right time to pass on the benefit to customers as the cost of servicing through the branch channel is much higher than ATMs.

The views expressed are personal

Robin Roy
Associate Director
(Financial Services),
PwC Pvt Ltd, India

"The reason ATM sharing hasn't taken off is the lack of clarity on the settlement of transactions and inter-bank fee structure"

The new bank licences issued after 1991 had three major expectations: a "reasonable" level of capital, best practices in banking, and better service through greater use of technology. The new banks brought in "anywhere banking" and a thrust on alternate delivery channels, that gave freedom to conduct banking away from the branch. These banks used ATMs as a "value-added" service and as a strong "visibility" statement. ATMs thus became a strong "customer retention" tool as the usage of ATMs was exclusive to the bank's customers and ATM-"heavy" banks offered usage to other banks at a stiff fee. Today, the ATM in India has become commoditised with costs of transactions on ATM being comparably much lesser.

So, what does the customer look for? An ATM should be at a convenient location, with a familiar guiding screen and dispense cash or print account statements (these constitute more than 90 per cent of ATM transactions). All ATM cards today come bundled as debit cards, for use at merchant outlets. This requires settlement through an arrangement either with Master or VISA and payment of inter-change fees. While this provides interconnectivity among VISA and Master-tied banks, it is a business call for banks to absorb these fees, pass it onto the customers or share it with the merchant. Today, it is possible to have bank-to-bank direct settlement of transactions.

Initiatives in sharing ATM networks have not made much headway in India due to a lack of clarity of settlement of transactions (like security issues), the fee structure to be charged among banks and the possible dilution of individual banks' customer strategies. A number of PSBs have now manifested a collaborative approach to share ATM networks and offer their customers a larger network. Unlike credit cards, where a "proprietory card" can bring in a larger share of the customer's wallet, "proprietory ATMs" need not bring in additional fees, till they continue to be essentially a delivery/transaction channel for bank customers (low usage for fund transfer/third party payments).

Thus while "white labelling" ATMs should not necessarily inconvenience customers, there has to be an acceptable business model for banks owning ATMs, so that they amortise their investments quickly and explore avenues for additional fees, even as the cost of ATM machines keeps coming down. Globally, ATM fees and other card-related charges have been the subject of intense debate and at times class action (in the US). The thrust is more on transparency of all fees/charges being levied with proper justification. If ATMs here are to cater essentially to plain vanilla transactions like cash withdrawal and deposits, a "fully loaded" ATM may not be required. As consumers embrace more e-commerce, there would also be a shift to non-cash transactions! Amidst such an operating environment, the sharing of ATM networks and using "electronic-tellers" to enhance financial inclusion would be the most timely to consider.