PhonePe’s ATM service: Should you use it to withdraw cash?

You need to locate shops offering the ATM service on the PhonePe app and then click the “withdraw” button to transfer an amount to the merchant account. After the amount is transferred successfully to the merchant’s account, you can collect the cash from the shop or establishment to which you transferred the sum.

Murali Nair, President of Zeta's Banking Business says, “This seems to be a convenient option to withdraw cash. Users no longer need to go and find an ATM to withdraw money using a card.” You can locate a neighbourhood store on the app and can withdraw money instantly.

This ATM facility may be beneficial for residents of tier-2 and tier-3 cities where the number of ATMs is far lesser compared to those in metros. Says Locheb, “We are creating the right type of financial inclusion, where people who have never seen an ATM, would now be able to withdraw the cash from shops in the vicinity.” Other beneficiaries of this ATM service are students and vendors wanting to withdraw small amounts.

But the ATM facility goes against the efforts taken by the Government and Reserve Bank of India (RBI) in trying to reduce the flow of cash in the financial system. Nair says, “The government’s objective was to facilitate digital transactions, but are going back to cash. Other digital payment firms too may roll out something similar in the near term to compete if it’s successful.”

Previous experiments

In November 2016, Visa and MasterCard facilitated cash withdrawal at Point of Sale terminals. This facility didn’t really take off as expected, as the process was a tad complicated for consumers and awareness levels were low.

Paytm, too, has cash points; in December 2017, Paytm Payments Bank set up some additional facilities. Easy banking access was brought in with ‘Paytm Ka ATM.’ These specially branded outlets were allowed to open savings account holders for depositing/withdrawing money. Even this facility has not picked up. The target of adding over one lakh ‘Paytm Ka ATM’ banking outlets across India is far from being achieved.

Sunil Khosla, Head Digital Business of India Transact Services Limited says, “We have Ongo as a brand operating mini ATMs for the last three years in the market and consumers can withdraw money from shops associated with us.” A consumer can withdraw upto Rs 2,000 from these mini ATMs through point-of-sale (PoS) transactions using a debit card.

Precautions while withdrawing cash

Merchants associated with PhonePe ATM service have the feature to switch on and off the ATM facility through the app depending on the level of cash they hold. So, in case merchant forgets to switch off the ATM facility, payment could be declined by the merchant when you go to withdraw money from the store. Locheb says, “The consumer should visit the store, have an interaction with the merchant for ATM service, and only then initiate the withdrawal process, not beforehand.”