ATM USE: BANKS WANT CUT IN SWITCHING FEE

With customers making the most of the convenience of five free transactions a month at other bank ATMs, banks are feeling the heat of rising costs. To lessen the burden on this count, they want the National Payments Corporation of India, which operates the National Financial Switch, to cut the switching fee.

Free transactions

The free transactions facility at other bank ATMs and the addition of 8,957 ATMs in the first nine months of the calendar year 2010 has led to a spurt in ATM transactions.

The volume of ATM transactions routed through the NFS has nearly doubled to 11.16 crore in September as against 5.68 crore in January.

While the surge in ATM usage indicates that customer awareness about five free transactions, introduced from October 15, 2009, at other bank ATMs has increased substantially and they are taking advantage of this facility, providing this convenience is pinching banks.

The cost pressures being faced by banks can be gauged from the fact that each time a customer of ABC Bank withdraws cash at the ATM of XYZ Bank, ABC has to pay XYZ a transaction fee of Rs 20 (includes service tax of 10.3 per cent). Further, ABC has to pay NPCI a switching fee of Rs 0.50.

Similarly, each time a customer of ABC Bank makes a balance enquiry at the ATM of XYZ Bank, ABC has to pay XYZ a transaction fee of Rs 5 plus service tax. Further, ABC has to pay NPCI a switching fee of Rs 0.50.

While appreciating the fact that NPCI has halved the switching fee (the fee charged by the Corporation for routing ATM transactions by providing inter-connectivity between banks' Switches via NFS, thereby enabling customers to utilise any ATM of a connected bank) to Rs 0.50 per transaction in early August, bankers feel there is scope for the fee to go down further in view of the surging volumes.

In September, banks collectively paid NPCI a switching fee of Rs 5.58 crore.

NPCI, insiders say, will review the switching fee only if there is a quantum jump in transaction volumes.

Even as banks' have made a pitch for the ATM switching fee to be brought down to Rs 0.30-0.40 per transaction, banks' with vast ATM network do not want the transaction fee lowered as it will impact their ‘other income'.

Cheaper option

As of September-end, 62,863 ATMs of 47 banks were linked to the NFS as compared with 53,906 ATMs of 37 banks. The average size of withdrawals rose to Rs 3,062 in September as against Rs 2,971 in August.

Incorporated in December 2008 as a Section 25 company under Companies Act, NPCI was established to create infrastructure that operates on high volumes so that payment services can be provided cheaply. The other objective is to facilitate an affordable payment mechanism to benefit the common man and help financial inclusion.

It has 10 core promoter banks (State Bank of India, Punjab National Bank, Canara Bank, Bank of Baroda, Union bank of India, Bank of India, ICICI Bank, HDFC Bank, Citibank and HSBC).

Between April 1, 2009 and October 15, 2009, the RBI had allowed free transactions (without any cap on the number of transactions) at other bank ATMs. However, this led to rampant use of ATMs for balance enquiries and withdrawal of small sums of money, resulting in sharp jump in transaction costs for banks. Hence, the RBI introduced a cap of five free transactions at other bank ATMs in October 2009.

SOURCE: http://www.thehindubusinessline.com/2010/10/28/stories/2010102852520600.htm