Link, the UK’s biggest ATM network, has announced that it is pushing through plans to make changes to the way that fees are paid to cash machine operators, a move that operators say could cause a significant reduction in the number of free cash machines.
When you withdraw money from a free-to-use ATM that isn’t from your own bank, your bank pays the cash machine operator an ‘interchange fee’. This is currently around 25p.
Link had initially planned to cut this by 20% over a four year period, to 20p. From 1 July 2018, it will reduce the interchange fee by 5%, or 1p, and review the fee annually.
It says this will reduce the number of cash machines in areas where there are too many and secure the future of free ATMs, arguing that the move will improve the geographical coverage of ATMs across the UK.
But independent cash machine operators have railed against the proposal, saying that they will be forced to close ATMs which will no longer be financially viable.
Which? research has found that there are more than 200 communities in Britain have poor or no access to cash machines, leaving them vulnerable to cuts in the network.
And while Link has made commitments which it says will ensure all communities retain free access to cash, Which? has warned that Link’s plans should not be waived through without a review by the Payment Systems Regulator (PSR), the watchdog that oversees this industry.
The regulator said today that it was happy with Link’s plans, but would monitor developments.
Why is Link making the changes?
Almost every cash machine in the UK is connected to the Link network, which allows banks and building societies to offer their customers access to cash anywhere in the country.
Link’s network has almost tripled in size since 1998, and now comprises 70,000 machines across the UK. Just one in five of these charges you for withdrawals – most are kept free thanks to the ‘interchange’ fees paid by banks.
Link argues that there are too many cashpoints in concentrated areas, and that the current incentives on offer mean that ATM operators tend to put cash machines in city centres. It says 80% of free ATMs are within 300m of another free cashpoint.
While Link is reducing the interchange fee overall, it will keep it at the same level or increase it to incentivise cash machine operators to focus on other geographical areas. These changes include:
- All ATMs one kilometre or more from the next free ATM will be exempt from any reductions in interchange fees.
- An enhanced subsidy of up to 30p (tripling the current 10p) will be paid wherever needed to ensure that free ATMs remain in areas that could not otherwise sustain them. This means that, this year, an ATM provider could earn 54p for every withdrawal, reducing to 50p in four years.
Furthermore, Link said it will strengthen its Financial Inclusion Programme to ensure that all communities retain free access to cash.
Link chief executive John Howells said that Link is ‘committed to protecting free access to cash’ and that the UK has a near record number of ATMs, yet the ‘recent growth has led to the majority of these being placed in busy areas where there simply is no need for a new ATM.’
The changes would rebalance the network, Link says, making sure that ATMs were installed and protected in areas that really need them.
Which areas are most vulnerable to ATM closures?
At this stage, it’s hard to predict which cash machines – if any – are likely to be affected by the changes.
But earlier this month, we analysed Link data on 70,000 cashpoints to identify those areas of the UK that already have limited or no access to cash machines.
Currently, over 123 postcode districts have no cashpoint, equating to a population of around 110,935.
In a further 116 postcode districts, there’s just one ATM – and of these, 37 charge a fee for use.
Which? also found the local authorities with the highest proportion of fee-charging ATMs.
More than half of ATMs charged fees for use in Cherwell (57%), the Shetland Islands (56&) and North Warwickshire (52%).
Is the change all about too many ATMs?
The ATM industry argues that the changes will make it significantly less profitable to operate a free cash machine, leading to mass closures UK-wide – something Which? is concerned about.
We believe that lowering the interchange fee could lead to a reduction in the free-to-use ATM network, and have called for the Payment Systems Regulator to review Link’s proposals and intervene if consumers’ access to cash would be restricted.
Link carried out no public consultation before making the proposals. In the member consultation it conducted – Link members are made up of card issuers and some ATM operators – the changes were also prompted by a reduction in interchange fees by a rival network, resulting in an ‘an obvious threat’ to Link’s competitive position.
Card issuers have the option of moving to a cheaper service provided by competitors, said the consultation, suggesting that the move has been pushed by banks and building societies, which believe fees should be going down as the use of cash declines, looking to save money.
Around 2.7 million people rely solely on cash and, according to UK Finance, in 2016 consumers and businesses made 15.4 billion cash payments – 25% more than debit cards, which were the second most frequently used method.
How have ATM providers reacted?
Cardtronics, the largest supplier of card machines, welcomed the steps towards financial inclusion but called for further clarity on how the measures would be implemented and what their true impact would be.
It said that the UK’s ATM network needed to be able to ‘respond to the changes in today’s banking landscape, where we’re already seeing record numbers of bank branch closures up and down the country. But the arbitrary cuts that Link is planning to announce, are not a viable solution.’
It had previously told Which? that it would have ‘no choice’ but to pull out a significant number of free ATMs straight away, and that many more ATMs will follow if the full 20% cut goes ahead.
Peter McNamara, CEO of operator Notemachine said that: ‘Link’s proposals sounds like a great reassurance, but the practicalities will be very different. It will lead to massive uncertainty – for independent operators, and for retailers deciding whether to host an ATM.
‘The financial inclusion programme has been around for years, and only 380 ATMs, which helps fewer than one in every 100 consumers, actually receive a subsidy under the existing 1km promise.’
The Federation of Small Businesses
Mike Cherry from the Federation of Small Businesses (FSB), said ‘access to cash is absolutely vital to local growth in rural and deprived communities. Too often we hear of towns running out of cash because current cashpoint provision simply isn’t good enough.’
‘Consumers and small firms have already been hit by thousands of bank branch closures in the last few years. Now, our cash machine network is under threat. We’re not convinced that today’s announcement includes enough protections for vulnerable communities.’
Mr Cherry added that ‘there’s no guarantee that having everyone within a kilometre of a cashpoint will be enough to meet demand.’
Both Cardtronics and the FSB called on the PSR stop any further action from Link until it had carried out its own review.
The ATM Industry Association
Ron Delnevo, from the ATM Industry Association (ATMIA), said that he would be pressing the PSR and the Treasury Select Committee for a full enquiry.
He said ATM providers would have to make immediate cuts to the number of cashpoints they operate, because they won’t sit on sites that don’t make money in the future.
He also argued that without the interchange revenue, ATM providers would not be able to afford to innovate and develop cashpoints with smarter capabilities that could help consumers do more banking business in the wake of countrywide bank branch closures.
How has the regulator reacted?
The Payment Systems Regulator said that it will continue to actively monitor developments, and will force Link to report to it on a monthly basis on the impact on its decision.
The PSR will require Link to report monthly on the impact of its decision. If any protected ATM is due to close, the regulator is keen to ensure there is a quick transition to a new operator without any adverse effects on consumers.
Hannah Nixon, from the PSR, said ‘we will intervene if we believe the current broad geographical spread of free-to-use ATMs is threatened.’
Which? and other parties have called on the regulator to step in to ensure consumers aren’t left without access to cash.