Financial inclusion is one of the key policy goals for nations across the globe. This movement has gathered significant momentum across major developing economies, especially India, to ensure financial viability and access to financial services for unbanked and underserved citizens. In India, government initiatives, such as the Jan Dhan Yojna, the JAM (Jan Dhan+Aadhaar+Mobile) Trinity, and incubative policies for the mobile payments industry have streamlined financial inclusion.

Rural and remote areas across the country still function primarily on cash. ATMs and cash-out points are critical in areas where it acts as a last-point delivery of Direct Benefit Transfer (DBT) initiatives and are propellants of the rural economy in the status quo.

The cash withdrawal rates and the cash in circulation have been observed to be elevated in recent years, with cash withdrawals increasing by 235 per cent as last recorded in March 2023, signalling the prominence of cash. On-ground research in a few States in south India also reaffirms this pattern, where only 4-7 per cent of people transact through UPI despite the ever-increasing digital payment transactions recorded nationwide, showcasing an urban influence behind the rising digital payment numbers.

Below global average

India currently has an estimated 165 ATMs per million people, a relatively lower figure than other BRICS economies and significantly lower than the global average. According to a survey conducted by the Reserve Bank of India, it appears that, despite the growing adoption of digital payment methods in the country, a significant portion of the population continues to favour cash payments.

The central bank conducted interviews with 6,192 individuals across various cities in India to gain insights into the nation’s retail payment preferences. Approximately 54 per cent of the respondents preferred using cash when making payments. At present, there are only 2.5-2.6 lakh ATMs operational in India, catering largely to urban clusters owing to the business and operational viability of such locations.

A lack of ATMs in rural and remote areas significantly harms the economic potential of rural India, which contributes almost half of the overall Indian GDP and is home to nearly 70 per cent of our population.

Given the pivotal role of cash-in cash-out (CICO) networks in bringing financial inclusion to rural and remote areas, it is imperative for the government to create a nurturing and sustainable environment for these services to thrive. Perhaps the primary mode to achieve this could be done through incentivising CICO operators to scale in rural and remote areas.

At present, the cost per transaction for a CICO operator is around ₹23 while the interchange fee is in the range of ₹14-15 per transaction, compounding into significant losses for CICO operators that often have to scale back or, in multiple instances, shut down their operations entirely. White Label ATM Operators (WLA operators) are currently sitting on high cumulative losses and are disincentivised from scaling as the business viability in such operations stands negligible.

There is thus an urgent need for policy interventions from the regulator to create a conducive and incubative environment for CICO operators to scale their operations, aiding in the financial inclusion efforts of the state.

Digitisation has accelerated economic growth, yet it hasn’t replaced the need for cash-out points for the ordinary Indian citizen who mostly lives across rural communities. It must be realised that ATMs do not restrict digitisation aims; instead, they ensure that the most backward of communities are not financially excluded in this endeavour. ATMs as a platform can complement the goals of digital means by ensuring that more people are financially literate and included in our economic and banking infrastructure.

The writers are with The Dialogue

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