For Whom the ATM Tolls? On Paying to Withdraw Our Money

The regulator has raised the ATM user charges. Once again. It follows a 2019 report of a Committee constituted by the Reserve Bank of India. The CEO of the Indian Banks Association (IBA) chaired the Committee and prepared the report. It had members from banking and industry stakeholders. Neither the regulator nor any depositor association was a member. Are these charges justified?

History of ATMs

After its first deployment in London in 1967, ATMs became popular fast. Labour unions supported them. The ATMs facilitated five day weeks, shorter working hours, and shed drudgery and risk. Bank management also preferred the cheaper machines. They worked 24×7, did not gossip, absent, or go on strike. They decongested branches. Customers welcomed the convenience of 24×7 withdrawal from anywhere.

ATM User Charges

ATM usage charges started only in the late 1980s when some Las Vegas operators started surcharging non-customers. These became user charges, foreign fees, convenience fees, and interchange fees, with add-ons such as rejection fees. Banks raised these charges whenever interest income was low. Like the salami technique, skimming small amounts go unnoticed. But it brings in huge revenue when applied to millions of transactions. Increasing rates tested the limits of resistance. Litigations followed.

International practice

International practice is mixed. An Australian opposition leader called the charge a “rort” and threatened a banking commission. Thereafter, leading Australian banks dropped the practice in 2017. European Union permits ATM user charges, but individual country practices vary. The Netherlands and other jurisdictions have made ATM use free for domestic cards, limiting other cards to once daily. In Japan, Hong Kong and Indonesia, usage is free for own customers. Many countries mandate that the user be warned of exact charges before dispensing cash with an option to cancel.

Globally, the regulators have kept away. The market practice has evolved towards larger banks not charging except for card issued abroad and beyond multiple withdrawals. There are charges on credit card withdrawals as for loans. Only small banks might charge non-customers. Interbank agreements determine charges for another bank’s card.

ATM Charges in India

Regulation of ATM charges in India started only in 2008, when banks charged up to Rs 20 per transaction. This prompted the Reserve Bank under Governor Reddy to issue an approach paper in 2007. It stated that “the approach is to establish a fair and transparent framework for levy of service charges for ATMs such that it would encourage greater financial inclusion and promote enhanced access to ATMs.” In 2008, the Bank freed withdrawals from own and other bank ATMs from usage charges. The March 2008 circular stated that “The ideal situation is that a customer should be able to access any ATM installed in the country free of charge through an equitable cooperative initiative by banks.”

In August 2009, with apparent regulatory consent, IBA capped other bank transactions to five per month and Rs 10,000 per transaction. A major change came in August 2014, under Governor Rajan, the Chicago economist. The Bank accepted IBA request and capped free monthly own bank transactions at five. It also capped other bank transactions in metros at three. The circular also redefined free transactions to include non-financial transactions such as balance inquiry, cheque book request, change of PIN, and mini statement.

IBA Committee

The IBA Committee found the cost of a White Label ATM at Rs. 60,842 per month, inclusive of compliance with new regulations. For Brown Label operators, this was Rs. 83,732. For State Bank of India, the cost ranged from 65850 to 88850, and for other public sector banks from 83700 to 95027. For private sector banks, the cost is Rs. 1,27,200. At these costs, the daily average transactions are 78 for a White Label ATM, 110 for private banks, and 130 for Brown Label ATMs and public sector banks.

The Committee does not view the ATM as part of an ecosystem where costs and benefits are integrated. The ATM, therefore, is a profit centre whose costs need to be defrayed by the customer. Some data seem to be based on thumb rules. They are not comparable across service provider groups. One combines power and cleaning charges. When 54% of ATMs are onsite, values imputed for electricity, housekeeping, and security, shared with rest of the branch, need revalidation.

The Committee excludes benefits from an ATM channel, such as advertising and cross-selling, and savings elsewhere, as in closed teller counters, from its calculations. The data focuses on number of transactions, to the exclusion of amount transacted. Assuming an average transaction size of Rs 5,000, 130 transactions per day, and cost of Rs 75,000 per ATM, this is 0.38% of amount transacted.

ATM vs Teller

Even at these rather unreliable numbers, the cost is less than that of a bank teller on CTC basis. And the machines are more productive and cost-efficient. The Committee admits that the “cost of serving the customer at branch especially for cash transactions is substantially high as compared to per transaction cost at the ATM.” If so, why should a customer pay more when a bank replaced a human teller with a machine? Even for asking your account balance or a cheque book?


In a landmark report of the late 1990s, Booz Allen & Hamilton estimated that if the cost of a brick-and-mortar bank transaction were one dollar, an ATM transaction would cost ten cents, and an internet transaction one cent. It was intended to startle traditional banks into facing the challenges of internet. The numbers might not still hold good. But the trend does. They underline the point that a customer is entitled to cheaper services with the adoption of better technology, and not the other way round.

Ability to withdraw on demand, by cheque or otherwise, is implicit when a deposit is made. Adding a cost to it, hidden or otherwise, deflates the promised rate of interest. It constitutes a breach of trust, and violates banking ethics. Faced with competition from other payment channels, income from these charges are decreasing globally. ATM usage charges would accelerate the move away from ATMs.

What should banks do

Banks should view ATMs as a pool of resources. It enables them to provide cash where it is unable to through their branch or own ATM. This is key to serving semi-urban and rural areas. It also eliminates duplication. Banks should therefore reimburse other banks and White Label operators through which their cards are used, and absorb the interbank charges as a cost of doing business, in lieu of their teller, at a much lesser cost.

Banks should factor in such charges based on user behaviour, and see it positively as an opportunity to serve at least cost at a remote location where they don’t have presence. Card issuing bank and ATM owners should negotiate these interchange fees. The regulator should not arbitrarily fix them on a one-size-fits-all basis. Such regulatory intervention to defray all bank expenses on ATMs eliminates incentive for effective negotiation with service providers.

Way Ahead

India’s ATMs at 20.95 per 1 lakh adult is below global average of 42.78 (IMF, May 2021). Even after adding over 4 lakh micro-ATMs, there is scope for growth. Growth in ATMs is best left to the markets to decide. Getting the customer to pay for it could be counterproductive, as there are other free banking channels. Banks could earn extra revenue through targeted advertising, non-coercive cross-selling, and other fee income.

From branch to ATM, to internet and mobile, to platforms facilitating person to person payment, payments are becoming instant and banks invisible. It will be embedded in things around us and powered by IP layer, data, application interfaces and AI. In the context, keeping ATMs artificially viable at the cost of customers would not be a wise long term strategy.

In this ongoing battle among legacy banks, creative disruptors, neo-banks, and other competing channels, the pandemic has further muddied the waters by changing preferences towards electronic payments. Moreover, the regulator should not prop up a losing channel or stifle competition by imposing a cost matrix favouring legacy non-performers at the cost of more efficient channels.

A wise regulator would let the markets and technology decide, restore the 2008 position, and not give in to pressures from banks. Another Chicago don, George Stigler, the 1982 Economics Nobel Laureate, called it ‘regulatory capture’.

(An edited and shorter version of this post was published by The Economic Times on 6 July 2021 at

© G. Sreekumar 2021.

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