Why are ATMs everywhere in the United States and extremely scarce in India?
In a word, surcharges.
There are other factors, of course. ATMs have been in use in the United States far longer, for one thing. But surcharges help explain why there are just 40,000 ATMs in India (a country of 1.15 billion people), while America’s 305 million people have access to 395,000 ATMs.
That’s the conclusion of a recent article in India’s Economic Times.
In India, government regulations mostly prevent banks from imposing surcharges on non-customers, and the surcharges they do allow are tiny: about 10 cents per transaction. Indian transaction networks do pay ATM owners a small usage fee on each transaction, but it’s not a significant money-maker.
That means there’s no financial incentive for banks to greatly expand their networks, and absolutely no opening for non-bank ATMs — the kind you find in convenience stores, gas stations and restaurants.
The early history of ATMs in the United States was similar.
In the U.S., ATMs were first deployed in proprietary networks by banks, usable only by that bank’s customers. As in India, the banks eventually developed regional and nationwide transaction networks to expand the number of machines their customers could use. As in India, the network paid each bank a small usage fee each time someone used that bank’s ATMs.
In India the government bans surcharges. In the United States, there was no government regulation. Instead it was the processing networks that banned surcharges, because they made money based on the number of transactions, and they feared surcharges would cut ATM usage. So ATMs remained limited in number, generally attached to bank branches.
But by the 1990s, two forces were leading a campaign in favor of surcharges: Banks with large numbers of ATMs (who were essentially subsidizing smaller banks by providing free access to their machines), and independent operators that wanted to put ATMs in non-bank locations. They carried the day, and the processing networks dropped their prohibitions against surcharging.
The decision caused a certain amount of uproar, and led to proposals in Congress to ban surcharges. But they went nowhere. The only thing regulators require is that surcharges be prominently displayed, and users given the option of canceling a transaction rather than pay a surcharge.
And good thing. Because over the next 10 years, the number of ATMs in the United States soared from 150,000 to 395,000. An entire industry of non-bank ATMs — smaller and cheaper than their expensive bank cousins — has sprung up, adding competition and innovation to the mix. Further, proprietary networks are a thing of the past: nearly all ATMs accept all cards, regardless of issuer. The result is unparalleled convenience for consumers, where banking is something you can do any time, anywhere. People recognize that the surcharge is a convenience fee, and are willing to pay it when convenience is important to them.
So take a moment to appreciate the lowly surcharge, the fee that built an industry and changed the face of American banking.
[...] the false scarcity of ATMs in India, this story is a strong argument in favor of non-bank ATMs. The reason the bank ATMs ran [...]