Cardless cash withdrawals at ATMs

ECONOMY/ SCIENCE & TECH

• GS-3: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.
• GS-3: Science and Technology- developments and their applications and effects in everyday life. 

Cardless cash withdrawals at ATMs

Context: India’s Central bank announced cardless cash withdrawals at ATMs across the country. 

• The feature will let consumers use Unified Payment Interface (UPI) on their smartphones to withdraw cash from ATMs. 
• RBI stated that all ATMs across the country must enable this feature in their cash-dispensing machines.

How will this system work?

• Cardless cash withdrawals are to be authenticated via UPI. 
• ATMs are expected to show an option for withdrawing cash using UPI. 
• Once a user selects this option, they can input the amount to be withdrawn and a QR code will be generated on the ATM screen. 
• Users will then need to scan that code via their UPI app, and enter the password to withdraw cash from the ATM. 
• Until now, only fund transfers between accounts were enabled via UPI. With this option, consumers can also take cash out from ATMs without a card.

What issues does this technology solve?

• According to the RBI Governor, cardless cash withdrawals will enhance security of cash withdrawal transactions. 
• Besides, it would help prevent frauds like card skimming and card cloning.
• Currently, only existing customers of a few banks are allowed to withdraw cash without cards, and from specific bank’s ATM networks. However, the RBI’s move to allow interoperability in cardless withdrawals will enable users to take cash from any and all ATMs. 
• The RBI’s move will invite more players into the payment ecosystem in India to innovate and solve further problems of customers.

What is card skimming?

• Criminals steal data from credit/ debit cards by tracking a card swiped at ATMs. They pick this information from using a skimming device that reads the card’s magnetic strip. These devices are secretively installed on ATMs.
  • These devices are difficult to identify as they appear to be a legitimate part of an existing ATM, or like a regular in-store card reader. It is skilfully fitted into the payment machines.
• Once the device picks up the data, it can be used to gain unauthorised access to the user’s banking records. 
• The stolen information can be coded onto a new card, a process called cloning, and be used to make payments and transact with other bank accounts. 
• Problematic ATMs that function intermittently, and the ones located in isolated areas are often used to install such skimming devices.
• Fraudsters also install scanning devices on point-of-sale machines. These devices stealthily scan a card before it is swiped at the payment counter at a departmental store. 

What are the limitations and challenges of the cardless cash withdrawal feature?

• Currently, ICICI Bank, Kotak Mahindra Bank, HDFC Bank and SBI allow cardless cash withdrawals for their users. But, accessing the feature is cumbersome as it has certain withdrawal limits, and the transaction is charged. 
• At the moment, it is not clear whether UPI-based cash withdrawals will have the same restrictions and service fee inclusions.
• Scalability of this feature might be a challenge as it has to be seen how many banks quickly roll it out to their customers.
• In cardless withdrawal, the security vulnerability of a card is minimised, but the risk will soon transfer to a mobile-enabled feature. The mobile can now become the epicentre of transactions, making it the next target for fraudsters.

What is the future of debit cards?

• Issuing cards will not be stopped as they have several other utilities beyond cash withdrawals. They can be used at a restaurant, shop, or for payments in a foreign country.
• A debit card is a very evolved financial product and has already gone through a lot of iterations to reach its current perfection. In its further evolution, there are new use cases for debit cards like having standing instructions or EMI payments.
• Moreover, the debit card will continue to serve some segments of the economy which are not comfortable with pure digital payment solutions like UPI or who want to have higher transaction limits.

Connecting the dots:

• UPI123: UPI for feature phone
•  E-RUPI
• E-RUPI & Governance