Over the past few years, a few private and state-owned banks invested heavily on their ATM networks and were able to differentiate themselves by providing their customers with wider access to their money. Even when they started permitting customers from other banks to make cash withdrawals from their ATMs, they levied a charge for this facility. Nominal as it was, this charge still posed adequate friction to let their differentiator remain largely intact. But the recent directive from India’s central bank and financial industry regulator Reserve Bank of India seems to quash this differentiator by preventing banks from levying any charge for such “cross-bank” transactions.
With greater volumes from such “cross-bank” transactions, ATM-owning banks will likely face increased costs in two areas, one stemming from the need to increase the frequency of cash replenishments at their ATMs and two, higher maintenance arising from greater wear-and-tear of their ATMs. Now, from 1 April, since they cannot charge for these transactions, they are left with no compensating revenues. It would be interesting to see how ATM-owning banks will respond to this directive going forward.
Before we make a few guesses about what ATM-owning banks might do, let’s consider the argument advanced in some quarters that RBI’s new directive will only lead to re-distribution of present ATM traffic, so there will be no net increase in costs faced by any single bank or group of ATM-owning banks. According to them, for every customer of Bank A who uses the ATM of Bank B, there will be a customer of Bank B who uses the ATM of Bank A. On the face of it, this argument sounds logical. However, if you scratch beneath the surface, it is evident that this argument will hold only if all banks have established comparable sizes of their own ATM networks — which we know is not the case by simply looking around in our neighborhoods and noticing vastly different ATM densities even among large banks. Besides, a few banks have announced in the last couple of days that they are abandoning plans to install new ATMs of their own (presumably because, in the wake of RBI’s regulation, neither they nor their customers have to shell out any money for the facility of withdrawing cash from ATMs of other banks).
So, it’s clear that the few banks that own larger number of ATMs will face increased costs.
Will these banks shrug off these increased costs and continue to deliver present service levels related to cash availability and equipment upkeep in their respective ATM centers? Or, will they protest the new regulation and insist upon reinstatement of charges for cash withdrawals by customers of other banks?
While these banks decide how to cope with RBI’s new regulation, I hope not all their customers will start encountering the problems experienced by some of them recently (including me yesterday) when their ATM cards were declined for no obvious reason by ATMs of other banks where they tried to withdraw cash.