Despite the government’s push for of a cashless economy, Automatic teller machines (ATMs) remain a significant part of India’s drive for financial inclusion and as such need the Reserve Bank of India’s support to stay relevant, the Economic Times said citing a report from the consultancy firm PricewaterhouseCoopers (PwC) said. According to the report, digital payments haven’t kept pace with the requirement for financial services in remote areas.  Consequently, if there is a shortage of ATMs in the said areas, it could have a profound impact on the economy, Vivek Iyer, partner for financial services at PwC, told ET.

Iyer said that if there is an absence of both, digital payment networks and ATMs, especially in rural areas, there is probability that people may prefer to hoard hard cash instead. “The ATM industry requires strong support from the (Reserve Bank of India) so that innovation can help bring the (operating) cost down and encourage banks to keep deploying ATMs,” Iyer said. According to Iyer, the cost of setting up and running ATM infrastructure is around 50% higher than the cost running a digital infrastructure. As such, banks will prefer to move towards the digital ecosystems, he said. To maintain a balance between the Digital and ATMs, there is a need to open up regulatory sandboxes for ATMs to allow manufacturers to collaborate with financial-technology startups, he added.

Transactions at ATMs have dropped 0.76% month-on-month since demonetisation in November 2016, and the amount of cash withdrawn has fallen 3.3% per month since then, PwC said in its report. Before demonetisation, ATM transactions were increasing at 1.16% month-on-month and the amount of cash withdrawn at 1.04%, it said. Demonetisation pulled out over 85% of the cash in circulation, forcing people to embrace digital payments. Since then, cash in circulation has reverted to its pre-demonetisation days but digital payments have also remained almost on par. Post demonetisation, the number of credit and debit card payments at merchant outlets had increased by 5.5%, and the amount paid through these cards by 4%, indicating faster adoption of digital payments against ATM usage.

However, a lack of financial as well as digital literacy amongst the rural population has seen to it that this large section of the Indian population remains out of the digital banking system. As of December 2017, India had 481 million Internet users, of which 181 million of them were from rural areas, a report by Livemint said. In that, only 16% of rural users access the Internet for financial transactions, a study by Internet and Mobile Association of India (IAMAI) and market research firm Kantar IMRB said. The report went onto say that rural users are not continuously online in real time because of lack of electricity to charge devices, poor network quality and affordability of Internet service packs.

Need to renovate the ATM industry

Although India added about 25,000 bank branches and 45,000 ATMs in the four years to March 2018, according to a report by Business Standard, growth has not kept up with a surge in new customers. A report by the World bank said that the Indian government’s financial inclusion scheme, the Jan Dhan Yojana added about 31 crore Indians to the banking system by 2018. “In rural areas, we have found a serious and debilitating shortage of banking infrastructure,” said associate professor Reetika Khera of the Indian Institute of Management in Ahmedabad, Gujarat, who has conducted research in India’s villages, the Business Standard report added.

According to Iyer, for the ATM industry to stay relevant, it needs to re-invent itself using blockchain for reconciliation of ATM transactions, automating cash logistics processes, and using machine-learning and artificial intelligence to more efficiently predict cash requirements at terminals.

“Further, RBI has proposed interoperability among digital wallets… this poses a major threat to the ATM industry,” Iyer wrote in the report. A few initiatives have been adopted so far to keep ATMs relevant, such as introducing biometrics-enabled cash terminals, allowing remittances through ATMs, and installing solar-powered ATMs in the country’s remotest corners, the PwC report added.

In a related development, the central bank recently announced new guidelines which would not only increase the cost for banks to replenish their ATMs, but also could force 60 companies to close their operations, according to Central Association of Private Security Industry (CAPSI), the ET reported.