Legendary Banker, J P Morgan said, “If you have to ask how much it costs, you can’t afford it.”
This is very relevant in the current times when CATMi said that nearly 50% of the ATMs would close down. RBI says, the ATMs and the providers must comply with certain level of technology and financial strength to protect consumer wealth better. ATM providers and the service providers moving cash across the supply chain need to invest substantially to comply with the new regulations. So, the association of the ATM providers, which broadly represents the supply chain partners, technology providers and ATM manufacturers is wondering how to deal with this regulatory requirement. They estimate, nearly half of the ATMs would close down because the costs of running them could be prohibitive. Is this reform short-sighted or bold?
Reforms are always faced with resistance from a range of interest groups. While consultations are required to hear the opinions of various stakeholders and experts on the subject, one cannot arrive at a consensus for the reform. No amount of discussions and debates can align everyone. We have seen many events such as Sarbanes-Oxley Act a few years ago and Brexit in the recent times.
The leader has made a bold move in promulgating the change. The regulator has the fundamental duty to strengthen the defence mechanisms to protect consumer wealth. So, all should welcome a regulation which can prevent non-serious players from entering into business. Further, the reform promises to make it harder for the hackers, fraudsters and thieves to dismantle the protective layers around the financial assets. Naturally, there are implications and they need to be dealt with. So, it’s a bold move!
Regulators often take a stance of compliance and overlook the ecosystem involved in the business. In this case, we have agencies involved in movement of cash, security of ATMs, maintenance of the machines, software and telecom services associated with the machines and the network. Many jobs are involved, organizations servicing this whole system. Moreover, there is a huge design behind making ATMs within accessibility of the consumers.
Jan Dhan Yojana was conceived to include a large segment of our citizens and micro-enterprises who could not access financial services such as loans, insurance, lockers, instruments of savings and investments. In the absence of ATMs, the massive initiative will decelerate and take a large segment of our people into channels of informality for jobs and finance.
Rigorous and sensitive execution calls for synergistic thinking and proactive steps to bring the stakeholders together so that they can plan the execution. Cost of compliance has to be borne by the system and hence, a fair process needs to be established to consider the costs. The players could evolve ways of funding the investment required, especially because one of the parties involved is the financial institution. Banks haven’t really been seen playing an active role in evolving solutions.
Apart from the funding issue, there could be challenges of implementation such as the time and bandwidth required to deploy the new systems. The regulators must understand this and make sure that the timeframe and charter of the reform are realistic.
This one is not as grand as GST or demonetisation, but has a high potential of disrupting our socio-economic situation. If this is implemented in a cold-blooded manner, going by the estimate of CATMi, 1.13 lakhs of ATMs would close down and hence, an estimated 4 lakh jobs could disappear, that we can ill-afford. So, we need mindful execution.
Save the base of the pyramid
For any reform to be successful in a democratic system, the interest of the majority has to be addressed first. The principle works for an organization as well as for a country. While the reform is aimed at the base of the pyramid, it is super-critical that the target audience understand this and the implementation is done properly.
In the name of improving security of our financial assets, we cannot afford to lose jobs, push people to unscrupulous money lenders and curb their needs and desires of buying goods and services. We need a strong will to reform and at the same time, we need robust execution that takes us forward.
Reforms are not about our ability to afford; they are required; there is a cost and they need to be carried out well.