Is it ever possible for cash/ATMs to become redundant?
The digital wave has caused quite a stir in the BFSI (banking, financial services and insurance) industry in the aftermath of the pandemic outbreak. Leading analysts and reports predict that digital banking, neo-banks and use of open APIs will bring a digital revolution in the country. A survey by McKinsey & Company suggests that 30 percent fintech players achieved pre-Covid volumes in digital payments by July 2020 itself.
According to a report published by the Reserve Bank of India in July 2020, the total number of digital transactions in India is expected to reach a daily average of 1.5 billion in the next 5 years. Reports also suggest that the pandemic has accelerated the push for technologies that enable contactless services.
The million-dollar question that arises is, does this push for digital entails a push back for cash and thereby ATMs? While ATMs remained down owing to safety concerns during the early phases of the virus outbreak and lockdown restrictions, is it ever possible for cash/ATMs to become redundant?
UPI – A COVID-19 sensation?
The star of digital transactions has certainly been UPI. UPI got its first booster shot in 2016 through demonetisation. Covid has provided the second booster shot to UPI and put it into a higher orbit, of becoming an internationally acclaimed payment model. In June 2020, UPI clocked 1.49 billion transactions worth Rs 2.9 trillion. In the whole of FY20, it clocked 5.39 billion transactions. It has seen a staggering 490 percent growth in volume and 700 percent growth in value over the last four years.
While UPI is zooming ahead in numbers, there are a few glaring concerns that need to be looked into.
Complaint redressal and reconciliation of transactions: Industry sources put the failure rate of UPI transactions at almost 30 percent. UPI lacks a complaint redressal process. RBI recently issued a notification to payment system operators to set up an Online Dispute Resolution system for digital transactions by January 2021. Banks and payment service providers are sitting on a pile of unreconciled entries. Instances of incorrect debits or reversals back to underlying account after the credit have become common. Once consumers lose faith, UPI might take a drastic hit on transaction volumes.
Cashbacks and discounts: Large players in this space offer cashbacks and discount coupons for transactions. The offers can perhaps be sustained by these companies to some extent since they can monetise the data they get from transactions on customer’s shopping patterns, payment patterns etc. However, it cannot be a sustainable method to retain customers.
· Limited revenue: What is the revenue stream for the payment service provider (PSP)? With the government quashing the charges for P2M transactions through UPI to zero, there is hardly any revenue coming from UPI business alone. Unless charges are streamlined in such a way that banks and PSPs get a decent revenue, it will be hard for them to sustain the business on an independent basis.
While UPI currently looks promising, in the long run, the above concerns need to be addressed or else these might affect its growth.
Cash remains king
In the past few years, industry bodies and veterans have been predicting the fast decline of cash in the economy and consequently, the decline in the number of ATMs in the country. The increase in compliance requirements for running ATMs has increased operating costs thus affecting the viability of this industry.
But nothing works quite like cash in an environment where basic infrastructure poses a challenge. Even countries such as UK and USA witnessed an increase in cash withdrawals from ATM during the pandemic contrary to popular belief. People in the two countries believed it was safer to have money at home and prepare for an eventuality of network failure thus making digital payments impossible.
Infrastructural challenges have always been a roadblock for India with a huge population spread across the urban and rural landscape. Most Indians continue to use cash to pay for domestic expenses and even prefer keeping cash at home for a rainy day. In this scenario, it is quite unlikely for cash to be completely overtaken by digital.
ATM: Slow but steady growth
Recently SBI had come out with a large tender of 10000 ATM deployments. Other banks are also adding and refreshing their ATM portfolio. It indicates that banks continue to depend on the ATM channel to satiate the demand for cash by its customers. The steady increase in ATM transactions across the country, over the last few months, is an indication that ATMs are still very relevant to the common man.
ATM as a channel cannot be written off. Cash will continue to be the king and drive the economy. While digital transactions through UPI continue to grow by leaps and bounds, the ATM industry has weathered the storm of demonetisation, compliance costs and Covid and has emerged resilient. Banks have already begun looking at different ways by which they can transform their ATM facilities to deliver cash and other value-added services to their customers.
Author Radha Rama Dorai is Senior Vice President, ATM Business, FSS.