The financial services sector in India has been undergoing something of a revolution of late, largely due to efforts by the government to encourage inclusion in the formal financial system and promote the use of digital payments – with aims to reduce the shadow economy and raise tax revenue among the driving forces.
One result of this has been debate over the future makeup of the country’s economy, with some suggesting that cash will start to be sidelined as more alternative payments solutions come into play.
Indeed, it has recently been predicted that, after a period of strong growth for the ATM industry in the nation, the importance of these devices will fall away sharply as consumer preferences change and digital payments become more common.
But is this really the case? I think it’s unlikely, as despite the obvious efforts being made by the country’s government to promote digital payments, it will take a lot of time and effort to turn around the attitudes of over a billion citizens in what has until recently been an almost entirely cash-dependent economy.
ATM importance on the decline?
Questions over the future of cash and ATMs were raised in a recent article in the country’s Economic Times, which claimed that ATMs are quickly being relegated to the margins of the Indian banking industry.
According to the publication, growth in the number of ATMs being deployed across the country has slowed in recent months, after nearly doubling between 2012 and 2015, while the number of transactions has also dropped. But do these figures tell the whole story?
The fact is that while digital payments and the rise of smartphones – and their associated mobile banking offerings – have changed the landscape somewhat in India, cash is still the primary payment method for many people. And where you have cash, ATMs will be a necessity, especially as efforts to formalize the financial system and reduce the number of unbanked citizens gain pace.
Cash remains king
For instance, consider the landscape since restrictions on cash withdrawals were lifted earlier this year, following the disruption caused by the demonetization of old 500 and 1,000 rupee notes in 2016.
Bloomberg notes that in May, average withdrawals from cash machines were 20 percent higher than before the switch, while the value of digital transactions slumped 27 percent in April compared with the previous month, when restrictions were still in place.
Navroze Dastur, NCR’s managing director for India and South Asia, told the publication that customers are withdrawing larger sums in order to ensure they don’t face cash shortages if similar disruption occurs in future – which indicates how many people consider cash to be their most important option ahead of digital alternatives.
A large part of this is that cash is still seen as the most reliable way of making payments. Rethish Varma, a researcher at MarketSmith India, said: “There’s a huge trust deficit toward these mobile phone apps and cards, which most of India doesn’t understand. People are choosing to line up at ATMs regularly rather than whipping out their phones to pay.”
It’s clear then, that despite recent uncertainty, the ATM market in India still shows promise for the coming years – and with the introduction of new technology such as cash recycling machines and ‘branch-in-a-box technology to help bring formal banking services to parts of the country that were previously poorly-served by the banking industry, suggestions that ATMs are losing their importance are wide of the mark.