However, even outside of UPI, India’s financial landscape has seen significant changes in the past year. Data from the Reserve Bank of India shows cash withdrawals from ATMs have fallen, credit cards are overtaking debit cards, worrying the regulator, and companies are pushing prepaid cards, despite their low returns.
1. Going without money
Indians visit fewer ATMs now than they did last year, and withdraw smaller amounts. The number of cash withdrawals at ATMs fell by 6% in September 2023, compared to September 2022, and the total value of transactions fell by 1.8%, according to the latest numbers available from the Reserve Bank of of India (RBI). This is also reflected in the total currency in circulation, which is almost down ₹70,000 crore so far this fiscal. Part of the reason is the government’s decision to withdraw ₹2,000 notes from circulation in May this year.
Meanwhile, the total number of ATMs increased by around 3,000, or around 1.2%, during this period. The growth was driven by banks setting up more ATMs on-site (within their bank branches), even as they closed 3.5% of their off-site ATMs. The number of ATMs owned by non-banking entities (or, white label ATMs), once considered a promising business, has remained stagnant.
2. Comprehensive ATMs
White label ATMs were expected to address India’s low ATM penetration rates in rural areas, which is around 15 ATMs per 100,000 adults. However, they are constrained by high capital and operating costs. Micro-ATMs—portable machines operated by banking correspondents at a fraction of the cost—are helping to fill the gap. Their numbers doubled between September 2021 and September 2022, and increased by a further 20% over the next 12 months. They are currently around six standard ATM hours.
Like standard ATMs, however, cash withdrawals from microATMs also declined year-over-year in September—1.3% by transaction and 2.4% by value. Their use is expected to increase, driven by new payment banks. Four of the top five deployers of micro-ATMs – promoted by NSDL, Fino, India Post and Airtel – are payments banks. In the past year alone, NSDL, Fino and Airtel have together installed 479,000 micro-ATMs—about 85% of the standard ATMs in operation.
3. Credit boom
Amid the UPI boom, Indians are also getting better at credit cards. The number of credit cards increased by almost 20% between September 2022 and September 2023. And unlike micro-ATMs, they are being used. Credit card payments over point-of-sale (PoS) terminals, typically used by retailers, grew by 9% and 20%, and online and other transactions by 20%. This is in contrast to debit cards. Although there are 10 debit cards for every credit card, the delay in usage that was there before, has faded further during this period. Debit card payments fell by 20% on PoS terminals and 30% on e-commerce and other platforms.
The growth of credit cards is being driven by a number of factors, including marketing pressure and behavioral changes. However, such growth has worried the RBI. On November 16, he increased the capital banks and NBFCs must set aside for credit card loans, which is expected to dampen its growth.
4. Prepaid economics
The number of prepaid cards increased by 19% to 328 million in the 12 months to September 2023. This followed 20% growth in the previous 12 months. However, the total value of transactions dropped by about 40% between September 2022 and September 2023. The average ticket size of transactions also dropped, and is still less than the average ticket size of prepaid wallets. All of these make prepaid cards uneconomical, compared to prepaid wallets.
However, growth in the number of prepaid cards reflects the industry’s new customer acquisition strategy. Although the ratio of wallet to card is 4:1, a significant number of users are more comfortable with cards. Prepaid instruments are seen by policymakers as a key driver for moving to a cashless economy. That is likely to be driven by prepaid wallets, as smartphone penetration increases. While the number of wallets increased by 4% over the past year, their total transaction value gained 18%.
5. Thicker borders
While UPI has become the most popular way to transfer money in India, there are at least two other systems that are used to transfer ₹5 trillion per month: NEFT (Electronic Funds Transfer), operated by RBI, and IMPS (Immediate Payment Service), which, like UPI, is operated by the National Payments Corporation of India. NEFT is the largest by transaction value, which moved almost twice as much as UPI in September 2023.
At 17%, NEFT also saw the largest drop in average ticket size during the 12-month period to September 2023. For UPI, it was 9%, after an 8% drop in the previous 12 months. indicating its increased user base. New adopters tend to use it for smaller transactions. Meanwhile, IMPS ticket volume increased by 9% and 16% during these two periods, reflecting the growing demand for larger transactions.
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