White-label automated teller machine (ATM) companies have asked National Payments Corporation of India (NPCI) to hike the interchange fee, at a time when these firms have seen a rise in their operating costs due to high interest rates.
A white-label ATM is owned and operated by a non-bank. A card-issuing bank pays an interchange fee to a white-label ATM operator each time a transaction is carried out at the operator’s machine.
By way of representation from the Confederation of ATM Industry, these companies have asked the NPCI to hike the fee to around Rs 23 for a financial transaction and to Rs 8 for a non-financial transaction, people familiar with the matter said.
NPCI spokespersons have declined to comment on the matter.
In 2021, the RBI hiked the interchange fee for cash transaction to Rs 17 from Rs 15 earlier. It simultaneously hiked the interchange fee for a non-cash transaction to Rs 6 from Rs 5.
This revision came when various white-label ATM operators had been running in loss due to high costs and large infrastructure that they had to deploy in tier III and smaller towns. Many of them were hit further by the Covid-19 restrictions.
But in recent months, the cost to run an ATM has risen by 15% as bank loans have become costlier than before. This has brought a need to relook at the interchange fee, say senior executives.
“While we have put up a lot of ATMs since the previous interchange hike, the costs have gone a little haywire in the current financial year. As you are familiar, the interest rates have gone up by around 2.25%. As white label ATM operators, the cash that we put into the ATMs is a working capital cost for us. With interest rates having gone up, that equation has gone awry,” said K Srinivas, managing director and chief executive officer of India1 Payments.
“The second thing that has gone up is fuel price. So, the cost of loading cash that we pay to the likes of CMS Info Systems has gone up quite a bit. The third cost is general inflation and wage inflation. While the interchange increase accorded by the RBI in August 2021 was enough at that time, the current set of increases in cost have again started to make the revenue per transaction lower than the cost per transaction,” he added.
The number of ATMs deployed in India is expected to hit 296,000 by March 2026, according to CRISIL Research. It stood at 239,000 as on March 31, 2021. In the last year, nearly 13,500 ATMs have been installed in India, 50% of which have been put up by white-label operators.
Typically, it costs Rs 5,00,000 to install an ATM and around Rs 50,000 per month to operate it.
In addition to the rise in interest rates, white-label operators have been dented by the fact that rural demand has been slow to pick up since Covid-led disruptions were lifted. This has dented ATM transactions, say senior executives.
While most companies are able pass on input cost hikes to consumers, white-label ATM companies are hamstrung in this regard as the interchange fee is fixed by regulators.
“Very simply put, the business is no longer viable post-Covid and the emergence of UPI. So, unless the interchange fee is increased, it is unlikely that the industry will survive,” a chief executive officer of a leading white-label ATM company said.