ATMs Decline As India’s Digital Payments Surge Amid Cash Boom

India is witnessing an unusual trend despite a record surge in cash circulation, which has reached an all-time high of Rs 34.7 lakh crore since the 2016 demonetisation, banks are reducing their automatic teller machines (ATMs) and cash recycler machines. This shift reflects an increasing focus on digital transactions and the preference for the Unified Payments Interface (UPI) as a go-to method for routine payments.

As of September 2024, the Reserve Bank of India (RBI) reported that the total number of ATMs had fallen to 215,000 from 219,000 in the previous year. Most of this decline occurred in off-site ATMs, those situated away from bank branches, whose number dropped to 87,638 as of September 2024 from a peak of 97,072 in September 2022.

Kunal Verma, Co-founder and CEO, Freo, attributes this shift to the rapid adoption of digital payments. “The massive growth in UPI, from Rs 1 lakh crore in FY17-18 to Rs 139 lakh crore in FY22-23, demonstrates a clear preference for digital transactions over cash. This has naturally reduced the demand for ATMs across the country,” said Verma.

Challenges In ATM Viability
Operating ATMs has become financially burdensome for banks due to high site rentals, maintenance costs, and security requirements. For example, in premium urban locations, the monthly rental for a 7x5-foot ATM space can be as high as Rs 40,000, with total operational expenses reaching Rs 1 lakh per month. Alongside these expenses, banks face caps on free ATM transactions and slow growth in interchange fees, factors that make ATM operations less profitable. This financial strain has led to a reduction in ATMs, particularly in high-cost urban areas.

Additionally, regulatory measures introduced in recent years have added challenges. The 'Make in India' policy implemented in FY20 required ATM vendors to establish local production facilities, resulting in supply shortages and delays. Banks have also struggled with procurement through the government e-marketplace (GeM) portal, which has further impacted ATM availability and slowed expansion efforts.

Shikhar Agarwal, chairman, BLS E-Services, explained, “Maintaining ATMs is a significant cost undertaking for banks. However, interchange fees have not kept up with these costs, leading to viability challenges, especially for third-party ATM operators. The rising operational costs and a shift towards digital payments are accelerating this decline.”

Urban-rural Divide In ATM Distribution
While urban areas have seen significant growth in digital payments, rural regions still rely heavily on cash. The RBI's 2022 report highlighted a striking urban-rural disparity in ATM distribution: only about 15 ATMs serve every 100,000 people in India, and 80 per cent of ATMs are located in urban regions. Meanwhile, 67 per cent of India’s population resides in rural areas, underscoring a gap in access to cash, especially in areas where digital infrastructure remains underdeveloped.

Agarwal added, “While cash transactions remain at around 89 per cent as of FY22, we see more decline in off-site ATMs, where operational costs are high, and digital payments are widely adopted in urban centres. Yet, rural areas, where cash remains a primary mode of transaction, need a more balanced distribution.”

Evolving Role Of ATMs In The Financial Ecosystem
The function of ATMs is evolving to meet new consumer demands. Instead of expanding conventional ATMs, banks are deploying Cash Recycling Machines (CRMs), which support both cash deposits and withdrawals, allowing banks to serve customers more efficiently with fewer physical branches. The RBI reported an 18 per cent growth in micro-ATMs, which surged from 1.24 million in September 2022 to nearly 146 million in 2024. Micro-ATMs, which provide basic transaction services, offer a cost-effective solution that aligns with India’s digital growth trajectory.

Even as the number of ATMs declines, they are expected to remain essential in underserved and rural areas. In these regions, digital payments may take longer to penetrate, making physical cash access points vital. ATMs are also gradually integrating with advanced technology, such as biometric authentication, which enhances security and expands their utility beyond cash withdrawals.

The Future Of ATMs In Digital India
Although ATMs are less critical in urban centres, they are unlikely to disappear entirely. Banks are refining their ATM networks, concentrating machines in high-demand areas, and adopting models that complement digital channels. Some financial experts anticipate a transition to "ATM-as-a-service," in which banks outsource ATM management to specialised service providers, allowing banks to reduce operational costs and focus on core banking activities.

Verma summed up the transition, saying, “ATMs, especially in rural and semi-urban areas, will continue to play an important role in providing cash access. Their presence is essential in regions where digital payments may take time to establish a foothold. But their future is in adapting to meet consumer needs with new technologies and a redefined role in the digital ecosystem.”

While the growth of digital payments, spearheaded by UPI, is reshaping India’s banking landscape, ATMs continue to serve a pivotal role. Their numbers may be declining, but their relevance persists in areas where digital solutions are not yet feasible. With technology-driven improvements, ATMs will continue to coexist with digital infrastructure, particularly catering to regions where cash remains indispensable.