Big Banks Plan 90% Cut in Fees for Micro ATMs
Move to cut interchange fees will make business unviable for institutions that have taken banking to villages thereby rendering a big blow to smaller banking units
Mumbai: Big banks are closing ranks to prevent loss of market share to nimbler and smaller rivals in the hinterland by proposing a drastic cut in interchange fees on transactions in micro ATMs, potentially thwarting the government’s efforts to push for digital and electronic payments in rural India, said two people familiar with the matter.
Indian Banks’ Association, the representative group for banks, has suggested a 90% reduction in interchange fees for transactions done on micro ATMs, making the business unviable for institutions which have taken banking to even remote villages with the help of technology rather than building brick-andmortar branches. Interchange is the fee paid by the bank whose customer is using the micro ATM of the one who has installed the machine. “The IBA has decided to reduce the interchange on transactions done through micro ATMs to 0.1% of the transaction amount from around 1% now,” said a se-
nior banker who was part of the deliberations, but did not wish to be identified as he was not authorized to talk to the media. “For transactions up to .₹ 1,000, it has been fixed at .₹ 1, for that up to .₹ 2,000, it is .₹ 2, and so on .₹ 10 for .₹ 10,000. ” This has caused considerable anguish among smaller banks, payments banks and small finance banks which are looking at Aadhaar-enabled payments as a major means of customer acquisition and business expansion in rural India where the big banks have failed to reach despite years of regulator and government prodding.
“Such a drastic slashing of fees will end up destroying the business model of micro ATMs which otherwise has the potential to take financial services to far flung areas and promote digital banking,” said the person quoted above. While an ATM only allows cash withdrawals, micro ATMs are not only used for withdrawing cash, but also allow bank customers to open accounts through Aadhaar verification, make payments and undertake a host of other activities. At present, micro ATMs have an interchange fee of 1% with a minimum of .₹ 5 and a maximum of .₹ 15, which is the flat rate charged for interchange on standard ATMs.
“If these rates get operational, interoperable transactions will end up causing loss to our business,” said a payments company executive who also deploys micro ATMs.
A senior IBA official, on the condition of anonymity, said that banks have taken this call to address issues around very small value transactions being done through the Aadhaar network at PDS (Public Distribution System) shops.