What would happen if ATMs suddenly started disappearing from the streets? This question isn’t the premise for an (admittedly dull) sci-fi thriller, but the basis of an experiment that The Reserve Bank of India (RBI) has inadvertently been conducting over the past few years. India’s central bank recently surveyed the state of 4000 of its ATMs, and discovered that a third of them don’t work.
The fact that so many ATMs are out of commission in a country with over a billion people certainly reflects badly on the RBI. However, this situation could also be an opportunity for mobile payment services to fill the gaping payment space these defunct ATMs have left behind. Mobile internet statistics indicate that India is primed to adopt mobile payment methods: IAMIA and KPMG projections for Indian mobile use are 236 million mobile internet users by 2016, and 314 million by 2017.
Moreover, banks in India have complained about the high cost of maintaining ATMs, and have even raised annual fees for debit or ATM cards to counter this expense. Again, banks could, on their own or with startups, develop mobile payment services that would slowly replace ATMs and which could potentially cut costs for the banks and for consumers.
The numbers tell a different story
Mobile payment services already have a foothold in India - MasterCard’s 2015 Mobile Shopping Survey found that 76.4% of respondents from India have made a purchase via smartphone. However, the mobile user numbers that seem so promising aren’t substantial enough for the Indian market, in which in 2016, there will be still be over 1 billion people who don’t have access to smartphones.
In fact, it would seem that expecting widespread mobile payment services in India would be really premature, since, according to the PRICE Cash Survey 2014, even “card users in the most affluent part of India’s megapolis transact 73% of their expenditure in cash and only 17% by card”. PRICE also found that smaller retailers in India often don’t have card machines, while the ones that do will offer a lower price if you pay in cash without a receipt - in order to avoid sales tax.
For the majority of people in India, then, access to ATMs will remain critical for the foreseeable future.
Fintech in India is stalled
In order to enact a mobile payment revolution, India would need Indian startups and banks to work closely with consumers to develop products that would fit the culture and needs of each of India’s 29 states and 7 union territories. However, while fintech investment in neighboring China was extraordinary in the first quarter of 2016, investment in India startups was much more modest: $73 million.
Archit Gupta, founder and chief executive officer of ClearTax, admitted to Business Insider that the rate of investment in India was slower for fintech than for other sectors. Gupta is optimistic, though, about the future of fintech in India: "I prefer it this way. It is better than sharp exuberance and then a sudden deflation.”
However, what’s clear is that the Indian fintech sector is in no way capable of quickly transforming the country’s payment space at this time.
Backlash against mobile pay
Mobile pay has a lot going for it: it’s fast, it’s convenient, it’s personalized. Nevertheless, not everyone is adopting it: Accenture’s 2015 Mobile Payments Survey found that 52% of adults in the US are ‘extremely aware’ of mobile payments, but only 18% use them on a regular basis. In fact, 67% of respondents reported that they most frequently used cash. In Sweden, the Rilksbank, Sweden’s central bank, has recommended that the government improve access to deposit and withdrawal of cash, even after the country had begun to shift towards a cashless economy.
Maybe Tomorrow
A cashless economy is simply not feasible, let alone recommended, for India at this point in time, no matter what the state of its ATMs. Even so, it’s very possible that as more people in India acquire smartphones, mobile pay services will be able to help banks simplify payment services, become more efficient, and cut costs, all of which will benefit the Indian consumer.
In the meantime, they should really fix those ATMs. However, it's worth noting that the average bank teller in India makes somewhere between $800 a month (at Citibank) to around half that sum. With ATM upkeep in India priced at $741 a month, it's possible that the RBI will simply choose to hire more human tellers, rather than spend time and money fixing cash machines.
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