Is it reasonable to charge the customers to withdraw their own money?

Is it reasonable to charge the customers to withdraw their own money?

You will be charged Rs 20 for more than five transactions from your own bank ATM and three transactions in non-home ATMs in six metro cities.

Is it reasonable to charge the customer to withdraw their own money?

Introduction

The Reserve Bank of India is imposing a limit on free transactions an individual can perform on Automatic Teller Machines (ATMs), which means in six metro’s i.e. Delhi, Mumbai, Chennai, Kolkatta, Hydrabad and Bangaluru; an individual will be charged by banks up to Rs 20 per transacation for more than 5 transactions in home network (own bank’s) and for more than 3 transactions from other banks ATMs. Earlier, there was no limit on free transactions on own bank ATMs but use of other banks ATMs attracted charges.

Yes

- Banks have to spend money on maintaining ATM network; it is not just the space & machine but the infrastructure, security, management and maintenance too. Therefore it is fair that frequent users bear a higher cost for this service.

- The use of ATM does save time for the customers by not having to visit the branch, stand in line, fill in cash/pay in slips, use a cheque/withdrawal slip; thus should be willing to pay for this convenience when used frequently whilst sufficient free transactions are allowed which would suffice the need for most customers who only need to withdraw the money once in a month and able to plan their expenses.

- This charge may discourage users to misuse the service provided and more often plan the amount of cash required and withdraw it within the permitted free transactions.

- This charge will also encourage people to use online payment facilities, which not only increases convenience but also reduce the possibility of money laundering.

- Where the number of frequent users are high, the charges collected for usage above free transactions may fund further improvement to ATM network of that bank.

- As charges in own bank ATM would not apply to small/no frills/basic savings bank deposit account holders, it is unlikely to impact on low earners but those of medium to high net worth and who have the affordability to meet these charges in case they use the facilities beyond free usage.

- Even in the new system, the customers are allowed 8 free withdrawal opportunities i.e. 2 in a week, which is quite a sufficient number to manage your money for a month.

No

- It is understandable that one may need to bear charges where facility is used from other banks, but one should not be charged for withdrawing money from own bank ATMs especially where the bank requires you to maintain a higher minimum balance for having a debit/ATM card as compared to an account without debit / ATM card.

- If any individual wants to withdraw money on more than few times a month, and does not want to bear these charges then he/she can just walk in to a branch and withdraw money or transact using the traditional method (cheque book & pass book). The purpose of this ATM charge is because of the increased bank expenditure in introducing & maintaining ATMS but would the alternative cost not be more as this will use human resources in the branch. The traditional method of visiting a branch may not be as convenient as visiting a ATM but one who has time can do that.

- This new limitation may induce people to withdraw more money, thus unnecessary taking out money from bank and keeping it as cash in hand. This will have a slight impact on the amount of money held by banks which is then used to lend to borrowers or is invested in the economy elsewhere.

- In continuation to the above point, where excess cash is retained in hand this lead to higher risk of exchanging hands without getting caught in tax net.

- In continuation to point above, this may also lead to unnecessary expenses as discipline is required to not spend when you have cash in hand

Conclusion

In essence when the bank makes any investment into its infrastructure it is to be funded, now where does the banks get funds from? Of course from the difference in what interest they pay to their depositors and what interest they earn from their lending. If additional funds are required to meet the expenses of running more ATMs there are two ways to raise this one is to increase the rate of interest charged on lending (but this means loans would become more expensive), or charge your depositor’s for using the facility (which means if a depositor uses ATM facility more than free usage) then he pay some charges which essentials can be seen as getting less from the bank than earlier. But given that there are 5 free transactions in home network ATMs (at least) and 3 free transactions from other banks, this is only fair to charge those who more these facilities more to fund the cost for this facility.