The ATM interchange fee needs to go up to Rs 18 at least from the current Rs 15, said Sanjeev Patel, Chief Executive Officer, Tata Communications Payment Solutions (TCPS), the leading player in the white label ATM industry. White label ATMs are set up, owned and operated by non-bank entities on behalf of banks.
RBI allowed about half-a-dozen players to set up white label ATMs in order to encourage the spread of ATM services to rural and semi-urban areas and improve customer service. Currently, about 14,500 ATMs are operated in the white label category, while banks directly own about 2.09 lakh ATMs.
The interchange fee, which has been a bone of contention, is the fee paid by one bank (say Bank A) to another (Bank B) for the use of Bank B's ATMs by Bank A's customers. The fee was earlier Rs 18, but had come down to Rs 15. Given rising costs, this fee needs to be revised upwards once more, Patel said. The same point has been made by other players in the industry during the past couple of months.
The year gone by has been a difficult one for the ATM industry in the aftermath of the demonetisation exercise in November 2016. Cash supply was a constraint not only because of the drive towards digitalisation, but also because of the erratic supply of notes in different pockets across the country. The problem has been particularly acute for white label players such as TCPS, because they had to source cash from banks, who had to first feed their own branches and then their own ATMs.
Patel points out that rural and semi-urban areas have been hit harder because of the crunch in cash supply, which he says is about 60 per cent of the pre-demonetisation levels. About 5,500 of the 8,500 ATMs that TCPS operates are in such areas. Although rural and semi-urban locations enjoy the advantage of lower rentals and relatively lower competition, on the flip side, there are issues such as poor network connectivity, erratic power supply, inadequate security and higher cost of transport and refilling, which tend to lengthen break-even periods.
To tackle the slowdown in the ATM industry as well in the segment they operate in, Patel said the company is pursuing more co-branding opportunities with banks. For a branding fee, TCPS will convert its white label machine into a branded machine (with the appropriate signage of the participating bank). For the bank, the advantages are that it can build its brand and its customers need not pay any interchange fee on their transactions in that particular ATM. About 500 ATMs that TCPS operates have come under co-branding arrangements with different banks, Patel said. He expects this number to rise further as a number of cooperative banks as well as new payment banks and small finance banks, who are looking to ramp up their presence, are negotiating for more branded ATMs.
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