In recent developments, ATM operators in India have pushed for a hike in the interchange fee on cash withdrawals, citing the need for more funding to sustain their operations and innovations. To gain support, an appeal has been made to the Reserve Bank of India (RBI) and the National Payments Corporation of India (NPCI), as reported by The Economic Times.
To gather more funding for the business, the Confederation of ATM Industry (CATMO) is upholding a maximum increase of Rs 23 per transaction in the interchange fee.
Against this backdrop, let's take a look at how India's interchange fee structure compares with global practices and what lessons can be learned from other countries.
At present, RBI and NPCI are regulating India's interchange fee structure for ATM transactions. Currently, the interchange fee is fixed at a maximum of Rs 15 per transaction. This fee is paid by the bank that operates the ATM (acquiring bank) to the bank whose cardholder uses the ATM (issuing bank).
ATM operators in India are represented by the CATMI. They have put forward the proposition that the current interchange fee is not sufficiently covering the expenditure of maintaining and upscaling the ATMs. With technological advancements and increasing operational costs, ATM operators are finding it challenging to sustain their business model under the current fee structure.
In comparison, other countries have varying interchange fee structures that often reflect the cost of ATM operations and aim to balance the needs of consumers with the profitability of ATM operators:
In the United States, interchange fees for ATM transactions are typically higher than in India, often ranging from $2 to $3 per transaction. This higher fee structure allows ATM operators to cover operational costs and invest in technology upgrades while providing convenient access to cash for consumers.
In the European Union, interchange fees are regulated under the Payment Services Directive (PSD2). The directive aims to create a level playing field for payment services across Europe, including ATM transactions. Interchange fees vary but are generally lower than in the United States, with a focus on maintaining affordability for consumers and promoting competition among ATM operators.
Australia implemented reforms to reduce interchange fees, aiming to lower costs for consumers and increase competition among ATM operators. The reforms have resulted in lower interchange fees per transaction, with the intention of balancing the cost of ATM operations with consumer convenience.
From these global practices, India can draw several lessons regarding the management of interchange fees and the balance between ATM operational costs and consumer convenience:
1. Flexible Fee Structures: Countries like the United States demonstrate that a flexible interchange fee structure can accommodate the varying costs of ATM operations across different regions.
2. Regulatory Oversight: The European Union's regulatory framework provides a model for balancing the interests of consumers and ATM operators while promoting fair competition.
3. Promoting Innovation: Lower interchange fees, as seen in Australia, can encourage ATM operators to innovate and invest in technology that improves service delivery and enhances consumer experience.
As India considers the proposal to increase interchange fees, it is of significant importance that we examine global practices to ensure that any changes to the fee structure support the sustainability of ATM operations while maintaining affordable access to cash for consumers. Learning from countries like the United States, the European Union, and Australia can provide valuable insights into how to strike the right balance between operational costs and consumer convenience.
