Abstract:
To move away from cash, the payment system models should ideally incentivize use of debit card / pre-paid card / NEFT / IMPS and equivalents in day to day cashless payment transactions. The incentives for cashless use of debit card / pre-paid card have to be provided at both ends, i.e., the card-holder and the card-acceptor ends. Simultaneously, disincentives have to be built at both cash-in and cash-out ends. But before designing such a model, one needs to be completely thorough with existing infrastructure and customer comfort in using debit cards /pre-paid card for cashless transactions and the corresponding business model for existing cash based payment system.
As a pre-requisite for disincentivising cash in India and to bring in more incentivized business model for electronic payments, this note focuses on the ATM setup in the country and develops insights on (i) ATM usage, (ii) cost to run ATMs (iii) reverse-interchange discovery and (iv) fee structure for ATM use. While keeping in mind the electronic payment facilities available today and possible discomforts to transact (non-cash) through debit card / pre-paid card, the study focuses on means to discourage excessive cash-outs by savings bank account holders.
It is observed that over the past 3 years per ATM usage has only fallen leading to suboptimal use of existing ATMs. Any further reduction in cross ATM or own ATM usage would invariably reduce the number of overall usage per ATM leading to increase in inefficiency (underutilisation) and cost to banks to run ATMs even for their own customers. Also, customers of a bank would effectively have lesser number of ATMs for their free use. This note proposes measures in the ATM system not by bringing in behavioural changes in ATM usage through reducing cross ATM usage but by an effective reverse-interchange policy to the overall gain of banks and customers alike. The study is expected to show some direction for optimal, effective and balanced use of the ATM network leading to betterment of the payment system in India.
