Thursday, May 8, 2014

Why Banks should charge transaction fee for use of ATM cards?

Why Banks should charge transaction fee for use of ATM cards?

Indian Banks Association is learnt to have requested RBI to allow banks to charge customers in the metros to pay for accessing ATMs of other banks but continue with the current cap of five free transactions a month for rural customers. The IBA also says that banks are loosing Rs. 400 crore a month because of the excess security requirement at 1.4 lak ATMs.

IBA also need to consider following factors before they request the regulator RBI for allowing them to charge fee from the customers.

1. Use of ATMs have definitely reduced the burden on the banks as it has also resulted into reduction in manhours for dispensing cash from its cash counters. Indirectly it has facilitated for diversion of resources and increased business avenues and efficiency.  In fact some banks are charging annual card fee which also need to be withdrawn as the cost of operation has not increased. The technology always reduces the cost of operation.

2. Most of the ATMs are without any security guards.

3. Most of the ATMs are housed annexed with the branch itself so there is no additional expenditure towards provisioning of security requirement.

4. As far as transaction fee for other bank ATMs is concerned, it gets neutrailised as those banks also charge fee. If the customers are using card at other bank ATMs, it is due to the inadequate infrastructure of banks for not either having sufficient ATMs in the desired localities or not having cash in the  machine. Both factors are attributable to the bank's efficiency or in-efficiency.

5. As far as inadequate availability of ATM in a locality is concerned, the banks are saving on the infrastructure cost. In fact this point highlights the strong need of resource pooling and in fact all the transactions done in other ATMs should be free as the cost of infrastructure gets shared among banks.

6. Say a customer of PNB goes and transact at SBI, the PNB is required to pay a fee of Rs. 15/- to SBI. But the similar situation would also arise if a customer of SBI is transacting at ATM of PNB then SBI would also be paying fee of Rs. 15/- to PNB. So in the end there would be more or less no flow of fee from one bank to other banks unless and until there is a huge difference in the number of ATMs of a Bank or a huge difference in number of transactions. In that scenario, it is the inefficiency of the bank for not having sufficient number of ATMs or machines remain without cash due to inefficient replenishment of cash by the agencies. A basic question arises as to why any customer should pay fee for inefficiency of the Bank?

In view of foregoing views, solution lies in sharing of the resources to reduce cost of providing services instead of asking the customer to pay for its in-efficiency.

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