ATM Transaction Not Free for Banks

.
ATM transactions may have become free for customers, but banks now have to pay Re 1 for every ATM transaction that is routed through the National Financial Switch — the backbone of ATM networks in the country. The charge has been introduced after RBI transferred ownership of NFS from its technology arm IDRBT to the newly-formed National Payments Corporation.


National Payment Corporation of India (NPCI), which recently took over ATM-switching service from the Institute of Development and Research in Banking Technology (IDRBT), has re-imposed on member banks a switching fee of Re 1 on every ATM transaction routed through the NFS. Incidentally, the switching charge, which was Rs 2 per transaction until 2007, was completely waived in December 2007 to bring down ATM interchange charges.


Speaking at a seminar organised by Banknet, NPCI CEO AP Hota said NPCI has began charging banks Re 1 from January 1. “However, we are looking at lowering the cost below Re 1. Secondly, we are looking at adding more members from 37 to 78 banks.” The 37 members have 49,467 ATMs and the daily average volume is around 1.6 million with a peak volume of 2.6 million so far. IDRBT is a subsidiary of RBI, while NPCI is owned by six commercial banks, including State Bank of India. A senior banker said banks have urged NPCI to reduce the fee levied on ATM transaction.”

Speaking at the seminar, Mr Hota said NPCI’s objective is to shift all retail payment services through NPCL. As of now, 70% of the payments are paper based (cheques payment), while only 30% of the payment is done through the electronic mode. The idea is to switch this ratio to 30% as paper based and 70% through electronic mode in three years’ time. He also pointed out that due to the high usage of paper-based transaction, the payment system is the cost centre of banks unlike in many developed countries, where the payment system is the revenue centre.

For this, banks will have to market and educate customers to use the electronic payment mode, which will help them bring down the cost. Further, Mr Hota said: “As the impact of RTGS is visible on trade and commerce, there is a need to develop a similar service for retail sector as well.”


At the same seminar, RBI general manager R Sivaraman said the central bank’s cheque truncation has been successfully implemented in Delhi, and RBI has decided to replicate this exercise in Chennai also. “We have totally discontinued MICR from Delhi and we are hopeful that by December 2010, we will discontinue MICR from Chennai as well. However, we have not decided any timeline for other cities.”


It may be recalled that the Board for Regulation and Supervision of Payment and Settlement systems (BPSS), a body of RBI, at its meeting held on September 24, 2009, has approved in principle to issue authorisation to NPCI for operating various retail payment systems in the country. Subsequently, on October 15, 2009, RBI granted green signal to NPCI to take over the operations of National Financial Switch (NFS) from IDRBT on an ‘as is where is basis’.
.