1. Financial inclusion needs convenient customer access to accounts:
The World Bank has an ambitious goal for Universal Financial Access by 2020. According to reports published by them, the unbanked population in the world shrunk by 20% between 2012 and 2014 to 2 billion. During the same period the unbanked population in India shrank by 25% (around 180 million) thanks to the aggressive PMJDY (Pradhan Mantri Jan Dhan Yojana) scheme which pushed banks in India to open zero balance accounts of the hitherto unbanked and issue debit cards against these accounts. Till June 2015, though the accounts had garnered deposits worth Rs.187 billion, more than 50% of these remained zero balance accounts. The Government of India is pushing the funding of these accounts by introducing Direct Benefit Transfers (DBT) wherein the subsidies given to the citizens for gas, kerosene etc., will get directly credited to the accounts so opened.
While more and more accounts of the hitherto unbanked population are being opened, the challenge remains that of enabling convenient access to these accounts by the account holders, who are predominantly located in remote areas which lack adequate infrastructure. Banks have been following a multi-pronged strategy of deploying branches, ATMs, Business Correspondents (BCs) and micro-ATMs (through BCs) to reach these account holders. But this is not enough, given the vastness of the country. According to a report published by NABARD (National Bank for Agriculture and Rural Development), it would take at least two decades to cover the entire 1.2 billion population with branches.
2. Cash continues to be dominant:
In a recent paper released on the need for proliferation of card acceptance infrastructure, especially in tier III to VI cities, the Reserve Bank of India has acknowledged that cash continues to be a dominant channel of transactions and to cater to this, the ATM infrastructure may be necessary in the short and medium term. Another paper released by NABARD states that while e-commerce transaction numbers are increasing exponentially, 60% of these transactions are paid via ‘Cash on Delivery’ method of payment. Also, there are approximately 16 million retail outlets in the country out of which only 0.6 million outlets have POS terminals. Though efforts are on to reduce the dependence on cash, the interplay of various socio-economic issues in the country will tend to make cash a predominant means of exchange even in the foreseeable future. And the cheapest channel to deliver cash and that too on a self-service mode, are the ATMs.
3. ATMs can enable financial inclusion:
Cash being a dominant means of transacting in India, ATMs installed in remote locations can ensure that the holders of the PMJDY accounts can withdraw the subsidies credited into their accounts, through the ATMs. Banks can also enable video-teller services on the ATMs for financial education or solving customer queries. From the banks’ perspective, in the short and middle term, though the ATM channel is an effective channel to service the customers coming under financial inclusion, setting up and running ATMs doesn’t come cheap and is not hassle free. Power deficiency, bad roads, poor network connectivity, lack of adequate supply of ATM fit currency notes, law and order problems etc. makes it very difficult for banks to run their ATM channel optimally. Outsourcing of these activities by banks to ATM Managed Service Providers (MSPs), such as FIS, who are now managing a large number of ATMs in India, has reduced the operational hassles and cost for banks and helped in the expansion of ATMs in the remote corners of the country. However, the infrastructure and operational issues enumerated above, continue to be a cause of concern for the MSPs.
4. In conclusion:
While transactions through the mobile and internet have the potential and have already started making small contributions to the ‘less cash economy‘ objectives of the Government and the RBI, the importance of ATMs cannot be de-emphasized, even in the medium term. ATMs can in fact, make available the fuel for accelerating the financial inclusion process. This needs encouragement from the policy makers in the Government and RBI in terms of additional funding being made available for ATM deployments, clear regulations on interoperability of deposits and cash processing, improvement in the power, road and network infrastructure etc. The Committee on Medium Term Path for Financial Inclusion set up by RBI has recommended the use of the Rs.2000 crore Financial Inclusion Fund managed by NABARD, for deploying ATMs in the semi-urban and rural areas. If implemented, it would surely give a major boost to financial inclusion. The Government should also steadily move all payments of subsidies and grants directly to the accounts of the beneficiaries. This will incentivize banks to deploy more ATMs. But if the above does not happen in the near short term, complete financial inclusion by 2020 may be a distant dream.
Author- Radha Rama Dorai, Business Head ATM and Allied Services, FIS India
(This article first appeared in Banking Frontiers Magazine, April 2016 issue)
Radha Rama Dorai joined FIS India in 2011, as Business Head for ATMs & Allied Services and has worked on increasing FIS’ market share in India in the ATM managed services space. She started her career with a nationalized bank and subsequently moved to the Reserve Bank of India (RBI). She then had a long stint of 17years at ICICI Bank where her primarily responsibility was setting up and growing the ATM network of ICICI Bank. She was also responsible for setting up the fraud prevention and control framework within ICICI Bank.
Radha has been closely associated with ATMs and allied services for development initiatives in the country. She served on various committees and is a regular public speaker and panelist at different forums.
Radha is an MBA from XLRI Jamshedpur and is also a silver medalist in MCom from the Mumbai University.