The Future of ATMs and POS Devices: Any Guesses?

Unified Payments Interface (UPI) is consistently making headlines every month, and for good reasons. The volumes of transaction each consecutive month breach the previous records. In January 2021, UPI clocked 2.3 billion transactions with a value of ₹4.3 trillion. Arguably, UPI has been the single biggest influencer of behavior change amongst the masses leading to digitization of payments. An analysis of UPI transaction figures was done in an earlier blog.

This blog discusses something interesting that is happening simultaneously, which perhaps gets ignored in the excitement created by ever-increasing UPI transactions.

Over the last two years, transactions at automated teller machines (ATMs) and point-of-sale (POS) devices have reduced. Well, that sounds obvious. If UPI transactions have increased, it implies that people would be using less cash, and perhaps fewer card-based transactions are happening on POS devices. That is straight forward. Wait… Devil is in the details. So, I delved deeper into the figures, and found something interesting.

Let us start with the basics. Until September 2019, transactions at ATMs, POS devices, and on UPI were almost stable, with minor variations month on month. During this period, ATM transactions were highest amongst the three, though UPI had already overtaken the number of transactions on POS devices. October 2019 onward, UPI transactions started increasing with a concurrent dip in ATM transactions; POS transactions remained almost stable. For the period of January 2020 until April 2020, all three graphs synchronously show reduced usage. However, as if the UPI ball is made of a special elastic material, the rebound for UPI transactions post-lockdown has been phenomenal. Whereas ATM and POS transactions are still struggling to reach pre-lockdown levels, UPI is creating new records each passing month. It may not be wrong to conclude that lockdown has proved to be a blessing in disguise for UPI to some extent.

Looking at the same figures from another perspective, the proportion of ATM transactions has squeezed to the maximum extent. POS transactions have also declined; however, the extent of reduction is lesser than that for ATM transactions. To make the analysis simple, I am not taking into account other modes of payments such as check, NEFT etc., which may also have contributed to the change in number of transactions through these three channels; hypothesis being that these three are more fungible compared to fungibility with other channels/modes of payment.

Going more granular, one can observe the difference in number of transactions and value of transactions through the three channels. But before that it may be pertinent to take a look at the transactions taking place at ATMs. Interestingly, though the number of transactions has decreased, value per transaction (comprised majorly of withdrawals) has increased from ₹3,000 approximately to more than ₹5,000. Apparently, people are withdrawing cash less frequently (or fewer people are withdrawing cash) but the amount that they withdraw is higher than previously withdrawn amount.

POS terminals show a similar trend. The number of transactions per POS device per month have drastically reduced. In April 2020, there were just 56 transactions per POS device. Although, these have started increasing from the lockdown levels, however, they are nowhere near the previous levels during 2019. Interestingly, similar to the case of ATMs, per value transaction at POS terminals has also increased from about ₹2,000 to ₹2,300 approximately.

To conclude my analysis, here is a final graph showing the amounts transacted through the three channels over the last two years. Clearly, cash was the king in the pre-lockdown era (again, the assumption here is that most people use ATMs for cash withdrawal and deposit, and also that other channels/mode of payments are independent of these three channels). As is evident from the graph below, digital is the new Queen and has replaced King Cash. UPI has overtaken ATM and POS transactions not only on the number of transactions; but the amounts transacted through UPI are also much higher compared to the other two

Undoubtedly, UPI has performed phenomenally well because of a strong value-proposition that it offers to users. A decade ago, researchers would often compare cash with digital on certain parameters, of which ubiquity, acceptance, cost of transaction were the most frequently used parameters. To a great extent, ubiquity and acceptance are offered by UPI by virtue of 207 participating banks, and multitude of digital wallets and applications that seamlessly work with bank’s APIs. Cost of transaction still remains a concern, however, for the retail user and small merchants, policy has taken care of it, at least for the time being. Additionally, the security of transactions due to virtual address, thereby not disclosing the account number or other sensitive details to the users, makes UPI more attractive than many other channels. Push and pull features are useful for people who forget to make payments after getting goods against credit (so human, isn’t it?)

There does not seem to be any correlation between the increasing number of devices and the number of transactions. Consider the following figures. The number of POS devices has increased from 3.65 million to 5.42 million between January 2019 and November 2020. The number of ATMs has marginally increased from 203,458 to 209,282 during the same period. The number of credit cards increased from 45.17 million to 60.1 million, but the number of debit cards decreased from 923.4 million in January 2019 to 892.7 million in November 2020. A large number of debit cards were deactivated and removed from the system in 2019 when magstripe cards were replaced with Europay Master Visa (EMV) chip and Personal Identification Number (PIN) cards. Against these, the number of wireless phone subscribers actually reduced from 1181.97 million in January 2019 to 1155.20 million in November 2020, corresponding to a decrease in tele density from 90.15 percent to 85.08 percent. One can argue that smartphone penetration may have increased leading to increase in UPI transactions. However, the counter argument is that buying a smartphone does not automatically lead to increased awareness, registration and usage of UPI. There must be some additional factors leading to the exponential growth in UPI transactions, versus reduction in ATM and POS transactions. Growth of e-commerce, digital acceptance of utility bill payments, higher proportion of younger members of households having access to smartphone, ease of use, convenience, perceived higher security, and other factors mentioned earlier appear to be contributing to the growth in UPI transactions. Last but not least, there is no upfront cost of infrastructure deployment to the financial institutions and service providers.

Overall, UPI appears to be winning the race leading to digital payments percolating deep in the financial ecosystem. Whether it can retain this lead even after MDR waiver is removed remains to be seen. Also, card companies are coming up with innovative ideas; will any of those be more attractive for the users? Policy decisions will also play an important role in changing the existing equations.

Evolution of digital payments in India is an interesting matter to follow. Stay tuned.

Leave a Reply

%d bloggers like this: