Banks announce removal of ATM fees for domestic card transactions
Coleman Review Hearing highlights possibility of a shared ATM ‘utility’, and potential rationalisation of networks
Shared ATM networks exist in Sweden and the UK, but the policy environments differ
Source: Australian Financial Review
Point of View
On 24 September, all four major banks announced the removal of ATM direct charges for all domestic cardholders. A number of smaller banks have since followed suit. With this move, around half of the 32,000 ATMs in Australia are now fee-free. This development occurs in the context of continued decline in cash use, reduced number of cash withdrawals, yet growth in the ATM network.
In response to the announcements, there has been government pressure on the industry not pass costs on to customers in an alternative channel. Given the further loss of revenue from this channel, organisations are increasingly focusing on how to manage costs and optimise the ATM business model.
At the Coleman Review Hearing in October 2017, Committee members expressed interest in banks’ discussions over the possibility of an ‘ATM Utility’. One idea raised was that a shared network of ‘white label’ ATMs might be provided on a coordinated basis to consolidate the number of ATMs. For example, in shopping malls where currently multiple ATMs coexist. The Committee members also noted their concerns that a ‘race to withdraw ATMs’ might emerge.
The Reserve Bank Payments System Board touched on the issue of ATMs at its November meeting, stating that “…there may be scope for consolidation or fleet rationalisation that results in a more efficient and sustainable ATM industry while still maintaining broad access to ATMs.”
Internationally, Sweden and the UK each have shared ATM networks. However, the policy environments and market developments across the two countries and Australia differ.
Virtually all ATMs in the UK are operated by LINK, which has 39 members including financial institutions and independent ATM operators. Nearly 80 per cent of ATMs are free to use by domestic cardholders. More than 98 per cent of withdrawals do not attract a fee, instead owners of these ATMs receive interchange fees from card issuers. The remaining fifth of ATMs attract a fee for use directly from cardholders; no interchange fees are paid.
Currently the multilateral interchange fee is the average cost per transaction across the entire free-to-use network. It is recalculated annually by LINK, and is around 25 pence per withdrawal. However, pressure from a number of card issuers to reduce the interchange fee has led some LINK ATM operators to consider removing ATMs or to begin charging cardholders directly. LINK is now consulting with members on reducing the interchange fee by 20 per cent over the next four years.
In Sweden, Bankomat AB – jointly owned by the five major banks – has owned and operated the majority of the country’s ATMs since 2013. The Sveriges Riksbank anticipated in 2011 that the joint infrastructure would introduce efficiency in the ATM systems by allowing the banks to share investment in the network. Since 2012, the number of ATMs in Sweden has declined by nearly 17 per cent. Bankomat AB does not directly charge cardholders but card issuers may charge their customers transaction fees – presumably to recoup interchange fees.
A key purpose of the 2009 ATM system reforms was to ensure that the ATM network continued to provide sufficient cash to meet the needs of Australians. The reforms involved setting the bilateral interchange fees to zero and introducing direct charging. Banks subsequently removed the ‘foreign fee’ previously levied when their own customers used an alternative network.
The reforms saw proliferation of ATMs, largely by independent operators. ATM operators could now charge for the cost of providing access to cash in previously underserved locations, rather than be constrained by interchange fees.
The previous regime in Australia was similar in some ways to the free-to-use network operated by LINK and the model in Sweden. On the other hand, the post-reform model here is akin to LINK’s pay-to-use network.
Generally, observations suggest that prevalence of fee-free ATMs can lead to a degree of network consolidation. As such, it will be interesting to see how developments in the Australian ATM system play out. Whilst the Payments System Board has already commented on the possibility of network consolidation, we still await the report from the Coleman Review Committee on the topic.
The opinions and views expressed in this publication are those of the authors exclusively and do not purport to reflect the opinions, views or official policy position of AusPayNet or its members.