The basic value proposition of an Automatic Teller Machine (ATM), in addition to 24x7 customer service, was its lower operational cost for the bank - servicing through an ATM is almost 3 times cheaper compared to a branch. Courtesy the recent RBI rule of making 3rd party cash transactions free of charge, the dynamics of banking economics have chaged drastically. Here, I present a few perspectives on the impact of this new rule. Consumers: Benefit. Consumers of smaller banks benefit much more owing to free access to wider ATM networks of larger banks.
Large Banks: Net Benefit. Consumers of smaller banks tend to withdraw more and more from the more accessible ATMs owned by larger banks. Though the consumer is no more charged, the small banks will have to pay the larger banks a fee for such transactions. Thus, a new profit centre is born. Better Cash Inventory Forecasting practices will need to be developed.
Small Banks: Net Loss. They invariable end up making net payments to the larger banks. In turn the smaller banks would be forced to charge customers indirectly viz. higher minimum balance, higher maintanance charges etc. Alternately, they would need to ramp up networks quickly. Though this may not directly lead to consolidation in the banking sector, this step will definitely step up pressure in that direction.
Consumer behavior: With greater access to ATMs, consumers may tend to withdraw cash in much smaller quanta than before. The volume of transactions will go up causing longer queues at ATMs. This may prompt banks to review their Cash Inventory/ denomination policies. The use of plastic money will however continue to grow.
Banking Industry: Improved ATM penetration - Spur growth of ATM networks with the change in economics of ATM netwroks. Accentuated need for consolidation as described above.
At a tactical level, banks are likely to target making their ATM networks as a profit centre. Eventually, ATM networks will no more be strategic differentiators for the banks. The move could take banking as an industry to a higher level of differntiation in service. The customer remains the KING!
