The ATM interchange conundrum

Stakeholders are pulling in different directions, and the ATM channel has to be reimagined to make it commercially viable. Are there any alternatives?

- RAGHU MOHAN

Eight months after the Reserve Bank of India (RBI) gave its nod to a hike in the ATM interchange by ₹2 to ₹19, the issue continues to fester, and the debate is on whether there are any alternatives.

The interchange is what a bank pays another bank when its debit card is used on the latter’s ATM.

The conundrum is as follows:

The withdrawal of the ₹2,000 denomination note, the RBI diktat that more banknotes of denominations under 500 be made available, and the deployment of ‘recyclers’ (ATM machines in which you can both withdraw and deposit cash) have led to costs of the channel going up.

The ₹2,000 banknote was introduced in November 2016 to meet currency requirements in an expeditious manner after the withdrawal of ₹500 and ₹1,000 banknotes in circulation at that time. The objective of introducing 2,000 banknotes was met once banknotes in other denominations became available in adequate numbers; therefore, printing of ₹2,000 banknotes was stopped in FY19.

According to the central bank’s press release of December 1, 2025, the total value of 2,000 banknotes in circulation has shrunk from ₹3.56 trillion at the close of business on May 19, 2023, when the withdrawal of 2,000 banknotes was announced, to ₹5,743 crore at the close of business on November 29, 2025. Thus, 98.39 per cent of the 2,000 notes in circulation as on May 19, 2023, have been returned.

It is argued that banks and white-label ATM deployers (non-banks) may stand to earn more by way of interchange as customers punch in more transactions. But with the 2,000 note in sunset mode and the diktat for making available smaller denominations under ₹500, cash costs will only go up. In any case, the average ticket-size of cash withdrawals is now about ₹4,500, and the largest single-swipe pullout at 10,000 is an outlier due to digital transactions.