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The issues
At the time of the Cruickshank Report in 2000, only a tiny proportion of cash machines involved a direct charge. The proportion now is 37%. Cash machines are the most important method of cash withdrawal in the UK, used by millions every week. Concerns arise about:
- the principle of charging and the increasing prevalence of charging machines;
- the clarity of presentation of these charges to the consumer;
- the impact that the spread of charging may have on financial exclusion.
The principle of charging and the prospects for the free ATM network
Cash machines which charge consumers are a legitimate business model. However, their spread gives rise to a public policy issue: how far is such a trend desirable? Although charging machines only account for around 3.6% of total cash withdrawals in October 2004, it is estimated that over the past twelve months consumers have paid around £140 million in charges. At the same time, the number of free machines is also increasing.
The increase in the number of free machines, alongside the increase in charging machines, should represent an increase in non-charging sites. However, because of their location and increased concentration in machines, there is a question how far this growth has actually increased the number of generally available and genuinely different sites.
Provided the LINK agreement remains in force and banks continue to offer free banking for personal customers, at present there seems little threat to continued free access to all cash machines located in bank and building society branches.
The independent charging operators' expansion of their business will result in cash machines in previously unserved locations, but will also result in a trend of free machines being forced out of sites and replaced with charging machines. Banks and building societies have incentives to sell some of their non-branch machines to independent operators: there could accordingly be conversion of a large number of free ATMs to charging.
The attitude of the site owner is very important in determining whether a cash machine on their premises is free of charging. The public sector has a particular responsibility and public sector managers will wish to take into account the extent to which their employees and other site users may find it difficult to access free cash elsewhere.
Overall, opinion differs as to how far the trend of free machines converting to charging, in locations away from bank branches, will go. A great deal will depend on the attitude taken by banks to the provision of free machines in these areas. It is therefore important that the Government monitors the situation very closely, and is ready to respond.
Transparency of charges
The industry has a duty to provide consumers with sufficient information to allow an informed choice about whether to use a charging machine. Poor standards of transparency are detrimental to consumers, and hinder competition. The arrangements put in place by LINK since April 2004 are inadequate. The improvements agreed in December 2004, to take effect from July 2005, are welcome but do not go far enough.
We recommend: clear indication of the amount of surcharge on external signage; larger minimum font sizes; standardised labelling for all free and charging machines; no use of the word 'free' in connection with other services available from a charging machine; timely and prominent warnings where a machine previously free is to be replaced. There is also a need for evidence of greater effectiveness in LINK's enforcement procedures.
Regulation
LINK needs to improve consumer representation and to develop greater openness. The present LINK approach to enforcement is inadequate. The Banking Code should be extended before the end of the year to cover all charging cash machine operators (including Code subscribers' subsidiaries) and to incorporate LINK transparency rules.
Financial exclusion & the Post Office
Vulnerable consumers should not be subject to disproportionate costs as a result of ATM charges. A substantial reduction in the availability of free machines could exacerbate existing financial exclusion. The Government needs to keep developments under review.
The Post Office has a unique role. Most post office ATMs charge, with sub-postmasters having no control over the decision. This is not in the best interests of sub-postmasters, benefit recipients or local communities. Government should ensure that the switch to direct payment of benefits does not disadvantage recipients in their access to cash.
Key areas for action from Government, regulators and the industry:
- Growth of charging machines: There would be important public policy concerns if, away from existing branches, free access to cash withdrawals declines. The Government needs to keep developments under review.
- Better transparency: Improvements have been made in the requirements set down by LINK, but more needs to be done.
- Regulation and the Banking Code: Charging cash machines need to be brought within the Banking Code.
- Financial exclusion: Cash machine charges may have a disproportionate impact on low-income consumers. If free machines are withdrawn from areas without bank branches then this may exacerbate existing financial exclusion. The Post Office has a particular role and there is a need for a fundamental change of strategy.
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