The Reserve Bank of India (RBI) on Thursday said banks will be able to charge a higher interchange fee on automated teller machine (ATM) transactions, increasing it to ₹17 per financial transaction.
ATM interchange is the charge paid by the bank that issues the card to the bank where it is used to withdraw cash. While the card-issuing bank is called the issuer, the latter is called an acquirer. This charge is divided between the acquirer and the company maintaining the ATM, which is why banks discourage customers from using other banks’ ATMs. This fee has been a bone of contention between banks and ATM deployment companies, with the latter seeking a hike in the fees to ₹18 per transaction from ₹15 earlier.
The interchange for non-financial transaction has been increased to ₹6, from ₹5 earlier, with effect from 1 August.
In June 2019, RBI had constituted a committee under the chairmanship of VG Kannan, the then chief executive of the Indian Banks’ Association (IBA), to review the entire gamut of ATM charges. The recommendations of the committee were made public in July 2020.
The committee had recommended using population as a metric for calculating ATM charges. For instance, it had suggested the increase in free transactions at ATMs in all centres with population of less than 1 million (as per census 2011 and to be reviewed from time to time) to six per month, from five at present. For centres with more population, it had recommended retaining the free transaction limit at three.
It had also suggested that for ATMs in all centres with population of 1 million and above the interchange should be increased by increased by ₹2, to ₹17 for financial transactions and to ₹7 for non-financial transactions. For locations with population of less than 1 million, the charges are recommended to be hiked by ₹3 in both kinds of transactions to increase greater penetration of ATMs.
“The recommendations of the committee have been comprehensively examined. It is also observed that the last change in interchange fee structure for ATM transactions was in August 2012, while the charges payable by customers were last revised in August 2014," RBI said on Thursday.
RBI also said that customers are eligible for five free transactions, inclusive of financial and non-financial transactions, every month from their own bank ATMs. They are also eligible for free transactions from other bank ATMs which include three transactions in metros and five in non-metros.
Beyond the free transactions, the ceiling on customer charges is ₹20 per transaction at present, which will be hiked to ₹21 from 1 January 2022. This, RBI said, will compensate banks for the higher interchange fee and the general escalation in costs.
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RBI allows increase in ATM interchange fee to ₹17 per transaction - Mint
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