UPI is fine, but we want ATMs too!

The Digital Dawn:

I have been attending several virtual conferences  on banking and payments ever since the lockdown was imposed in India in March 2020. Most of the panellists, have been discussing how ATMs are passé, how digital banking, neo-banks and their use of open APIs (Application Programming Interface) , Artificial Intelligence(AI) , Machine Learning(ML), Robotic Process Automation (RPA), will bring in a digital revolution in the country.

Even the Government talks about having one billion digital transactions a day by 2025, as against a 100 million digital transactions per day today. RBI is also encouraging digital transactions by setting up a Rs.500 crore PIDF (Payment Infrastructure Development Fund), for which it has contributed Rs.250 crores and expects the remaining Rs.250 to come from industry players and government entities. This will help  in the expansion of point of sale (POS) infrastructure across the length, breadth and depth of the country.

RBI has recently announced draft guidelines for authorisation of  pan-India umbrella entity for retail payments. This will be basically an alternative to NPCI which will provide payment and settlement services to banks and other entities, while also introducing innovative digital payment methods.

ATMs remaining down due to lockdown restrictions, hesitation of people to handle cash for fear of  getting infected with Corona Virus and the above measures taken by the authorities, has given a great boost to the use of digital transactions.

Decline of cash?

Having been a major participant in the ATM industry over a substantial part of my career, I have been watching how the  so called ‘Think Tank’ deride ATMs and predicts its fast decline. The Government and RBI also have been discouraging use of cash and increasing the compliance requirements around the ATM channel. This has affected the  ATM industry as a whole.

I read an article recently on how in the UK and USA, there has been an increase in cash withdrawals from ATMs ever since the pandemic struck. People were withdrawing from ATMs and keeping the cash at home, to be prepared for an eventuality when the networks or power fails and digital transactions are not possible. This strengthens my  belief that nothing works like cash  in an environment where basic infrastructure like power or network connectivity is a challenge.  

And this is very true of India, where power and connectivity, education and awareness are challenges. Even the digitally savvy Indian consumer is unsure whether his digital transactions will work in an emergency  situation and whether the counterparty will be willing to accept payments in digital form. So most of us still use cash to pay to the vendor selling vegetables on a handcart, to the small kirana shopkeeper, to the person ironing clothes in a small makeshift shop etc. We also keep a decent amount of cash at home,  as a fallback in emergency situations. Can use of currency really be minimised in India? I don’t think so. Ceteris paribus, not in the foreseeable future.

Whither ATMs?

And so, while everyone has been talking about less-cash and more digital transactions during the pandemic, the ATMs in India have been efficiently churning out cash to the card holders and not making much noise about it.  True, the transaction levels have not come up to the extent it was in the first two months of this year. But it is slowly and steadily inching up. It remains to be seen whether with the approaching months of festivals, the transaction levels will come up to the levels achieved in the previous year or not. I would wager it will. But UPI is indeed providing  tough competition.

In the pre-Covid era, whenever people from the industry or media used to ask me whether ATM transactions will come down, given competitors like UPI, I used to say that digital transactions will indeed grow rapidly to overtake the number of ATM transactions, but in terms of value of the transactions, the ATM channel will still be the leader. Well, Covid has proven me wrong. UPI transactions, in value and numbers, have overtaken the number and value of ATM transactions .

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, mainly contributed by Google Pay,  Amazon Pay, Phone Pe and Paytm. The star of digital transactions is indeed UPI! It has seen a whopping 490% growth in volume and 700% growth in value over the last four years!

In the table below, I have compared the volume and value of transactions done through the ATM and UPI channel, over the last nine months.  

ATM

UPI

Data  Source:  NPCI	No. of transactions In millions	Value Rs.billion	No. of transactions In millions	Value Rs.billion
Jun-20	481.53	2459.42	1336.93	2618.35
May-20	415.01	2071.71	1234.5	2183.92
Apr-20	299.69	1355.41	999.57	1511.41
Mar-20	555.61	2676.91	1246.84	2064.62
Feb-20	633.04	3075.47	1325.69	2225.17
Jan-20	667.71	3196.99	1305.02	2162.43
Dec-19	662.05	3135.09	1308.4	2025.21
Nov-19	639.66	3041.96	1218.77	1892.29
Oct-19	859.04	3156.31	1148.36	1913.6
Sep-19	794.02	2737.86	955.02	1614.57

While in September 2019, the number of UPI transactions had started overtaking the ATM channel, Covid has made UPI transactions  overtake ATM transactions in value as well! In March 2020, when the lockdown was announced, transactions fell across both the channels in volume and value.  But the real inflection point was in April, when the value of transactions done over the UPI channel overtook the ATM channel. The highlighted numbers in the table show how the UPI transactions have overtaken the ATM transactions in value as well

This happened because a lot of ATMs remained down due to the inability of the ATM cash logistics agencies and the service engineers to reach the ATMs to service them. With the gradual opening of the economy form May onwards, the ATM channel has got its mojo back.

UPI Superstar!

I was recently watching a rerun of the movie ‘Mission Mangal’ on TV. In the movie, they have shown a real life story of a team of ISRO scientists indigenously developing and launching a vehicle to orbit Mars. After blast off, when the vehicle used to complete one revolution across the circumference of the earth in its orbital path, at that critical point, boosters would be fired to take the vehicle to the next orbital path outwards, in its mission towards Mars.  While writing this blog, I was struck by the similarity between the accelerated growth in UPI transactions and the acceleration  ‘Mangalyaan’, the vehicle sent to Mars, used to get after every orbit by the firing of the boosters.  

The first booster for UPI was given in 2016 in the form of demonetisation. Covid has provided the second booster to the vehicle called UPI and shot it into a higher orbit, towards becoming an international payment system!. There has been a lot of international interest in emulating the UPI model. NPCI has already set up a subsidiary called NPCI International Payments Ltd., for the international foray of UPI and Rupay.

UPI players beware!

While UPI is zooming ahead in its numbers and visibility, the players in the UPI space need to get their act together on the following, if they have to sustain this pace of growth.

• Complaint redressal and reconciliation of transactions: There have been several instances of incorrect debits of UPI transactions or reversals back to the underlying account after the credit has been posted in the beneficiary’s bank account. Banks and payment service providers are sitting on a pile of unreconciled entries. There is a lack of a clear complaint redressal process today. If customers lose faith in the system, they will stop using the channel. RBI has recently issued a notification to payment system operators to set up an Online Dispute Resolution system for digital transactions by January 2021. 
• Cashbacks and discounts: The growth in UPI transactions is fuelled by large players like Amazon Pay, Google Pay, Phone Pe and Paytm. They offer cashbacks and discount coupons for transactions done through their app.  The offers can perhaps be sustained by these companies to some extent since they get precious data from their UPI transactions in terms of customer’s shopping patterns, payment patterns etc., which they can monetise. But for how long can they offer such incentives? Will the transactions start declining once the discounts are taken out?
• Show me the money : 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 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.

ATM numbers: Slow but steady growth

Coming back to ATMs, what is the way forward for banks and ATM service providers?  Will they deploy more ATMs? SBI has come out with a large tender of 10000 new ATM deployments. Other banks are also adding and refreshing their ATM portfolio. It indicates that banks continue to depend on the  ATM channel for their customer servicing needs. There is still a huge requirement for ATMs in the hinterland and for renewing the existing ATM portfolio. The chart below showing the number of ATMs deployed in the country month on month, indicates that the growth is slow but steady.

In conclusion:

ATM as a channel cannot be derided and written off.  The channel is and will continue to remain important in the foreseeable future. That said, it is a given that the players in the ATM industry will have to face up to the competition provided by UPI and other digital brethren. It is their agility and innovativeness that will make them and the entire industry, resilient enough. Most of them are already looking at options that would revive the footfall at ATM centres. The fight is not over! As the popular Hindi film dialogue goes “Picture abhi baaki hai mere dost!”

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