Levying of fee on ATM transactions appears imminent, thanks to the need to provide security at ATMs. The issue, which has been a burning topic since the unfortunate attack on a customer at an ATM in Bangalore a couple of months back, has important ramifications for both customers and banks.

As on November last year, there were 1.37 lakh ATMs in the country.

Apart from adding to the customer convenience by facilitating withdrawals round the clock, the speedy expansion of ATMs in the last one decade has business implications for banks as well.

Currently, bankers say transaction at a branch costs about Rs 40 as against Rs 20 through an ATM. So, these automated teller machines are a win-win for banks and customers.

But with the spread of online banking and debit cards, ATM transaction costs now fall between branch-based ones and online banking. The cost of an online transaction is estimated at Rs 4-6 for small banks. According to a senior official of a leading private bank, IT systems would soon help banks to completely waive transaction costs for online banking.

So, loss/profit of ATMs should be judged in relation to the other channels and not independently.

The recent statement of State Bank of India chairperson that some ATMs were incurring losses has to be viewed in the context of the cost SBI would have incurred if all the customers go to branches to transact.

Banks, however, have a different view. According to the chairman of a mid-size bank, the bank is losing heavily on maintaining pensioners’ accounts.

“We have noted many cases where a customer who gets Rs 1,000 a month withdraws almost five times in a month. We are losing Rs 100 on this alone. There are 52-lakh accounts which have below Rs 1,000 balance. How do I handle this?” he asks

WAY OUT

Under these circumstances, providing security at ATMs would mean an additional cost of about Rs 70,000 per month on each ATM, which is truly prohibitive for banks.

A solution suggested for this is levying a fee after a couple of free transactions every month.

According to reliable sources, imposition of a fee of Rs 20 beyond five free transactions is being examined. As of now, five transactions at non-bank ATMs are being offered free and there is no charge for transactions at ATMs of the parent bank.

This also is likely to burden banks, though in a different way. Some customers may now prefer to keep money in savings account, which would earn them 4 per cent interest. Increased footfalls in branches will nullify the gain banks might make by the proposed ATM fee.

Assuming that people withdraw more than what they need, it might impact the low-cost current and savings account (CASA) balances.

ALTERNATIVES

If there has to be a charge, it could be customised based on the nature of accounts or withdrawal patterns. The fee could progressively decrease from a lower amount to a higher figure. Imposition of a blanket fee is detrimental to low-income customers such as farmers or self-help groups.

It should be borne in mind that under the slogan of financial inclusion, banks have been rolling out many free services.

They cannot now suddenly start charging for as basic a service as customers withdrawing money. There has to be a differentiated approach.

More point of sales (PoS) terminals, incentives on debit-card usage and further reduction in online banking charges might help. More importantly, banks should stop going in for branch expansion mindlessly as this increases the overall cost of operations.

As for security, there could be other measures too. For instance, Andhra Bank has been working on locking the ATM shutter at the top so that nobody can pull it down and attack the customer as had happened in Bangalore.

Sharing of ATM network or increased use of while-label ATMs can also be examined.

The cost of providing security should not burden customers, especially the low-income ones. This has to be kept in mind while deciding on levying ATM fee.

naga.gunturi@thehindu.co.in

(This article was published on January 19, 2014)
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