Memorandum submitted by HBOS
1. INTRODUCTION
1.1 HBOS welcomes this opportunity to contribute
to the Committee's inquiry into the surcharging at some ATMs.
Our position is clear: we are committed to providing access to
our ATMs, free of charge, to all customers now and in the future.
As the operator of one of the largest free to
use ATM networks in the country, we fully support all efforts
to increase the transparency of charging. This includes the new
regulations recently proposed by LINK, prompted by Nationwide's
suggested code of practice.
1.2 The UK is unique amongst developed countries
in having a free banking system where access to the vast majority
of ATMs does not involve any charge for the customer. It is important
that this central fact is not obscured by the recent publicity
about the growth in the number of surcharging ATMs. Over the last
20 years major banks, including Halifax and Bank of Scotland,
have democratised access to banking in the UK and free ATMs have
been at the forefront of this development. There is currently
no indication that any major bank intends to start charging customers
for the use of its ATMs.
1.3 Over the last 10 years, the number of
ATMs in this country has grown dramatically. In 1993 there were
19,140 ATMs in the UK. By the end of September 2004, this figure
had grown to 55,346.
The arrival and growth of surcharging ATMs since
1999 has been in addition to, rather than at the expense of, free
ATMs. At the end of 1999, prior to the arrival of surcharging
ATMs in the UK there were 27,379 bank owned ATMs. At the end of
September 2004, this figure had risen to 33,175. The number of
free ATMs in the UK is still on the increase; the growth rate
in 2003 was 2.3%.
1.4 Customers are very discriminating about
how and when they use surcharging ATMs. This canniness on their
part is evident from the most recent cash machine usage figures
issued by APACS. In 2003, a total of £144 billion pounds
was withdrawn from ATMs. Of this, £140.5 billion pounds was
from free machines whereas £3.6 billion pounds was withdrawn
from surcharging ATMs. So, by value, free ATMs account for 97%
of withdrawals.
A similar trend emerges if one analyses the
volume of ATM transactions and the way in which they are apportioned
between free and charging machines. So, for example, in 2003,
2.3 billion transactions were completed at free ATMs compared
to 80 million at surcharging machines. The trend is clear. While
free ATMs account for just over two thirds of all U.K. machines,
they handled 97% of all cash withdrawals by volume for all U.K.
customers. Each free machine dispenses approximately £500
in cash every hour and there is no sign of the demand for this
valuable service abating.
These figures are obviously a reflection of
consumers' reluctance to pay for cash withdrawals at ATMs. They
are also a reflection of the sites which many of these machines
occupy. For example, we would not expect repeat transactions to
be made at petrol stations.
2. SALE OF
ATMS TO
CARDPOINT
2.1 HBOS recently sold 816 remote ATMs to
Cardpoint. We have no plans to sell any further ATMs.
As an operator of remote ATMs, we rent the space
off the site owner. This is a competitive market where retail
"wall space" is at a premium and the site owner has
the upper hand. Typically, contracts are negotiated between the
owner and the bank on a three to 10 year basis; at the end of
the contract, there is no guarantee that the owner will continue
with that particular bank and an auction for the wall space inevitably
occurs. This process sums up the free market in operation.
2.2 We carefully scrutinised the sale of
our remote ATM network prior to the sale to Cardpoint. In doing
so, we were very mindful of our broader responsibilities to the
communities we serve. As a result, cash machines in hospitals
and public spaces like museums and galleries were excluded from
the sale. We also retained ATMs in communities where there is
no other free banking service available. It is worth noting that,
of the machines that were bought by Cardpoint, 73% are within
1.6Km of a free ATM and 92% are within 3Km.
The committee may also be interested in how
the proceeds of the sale to Cardpoint were allocated within the
HBOS group. As a matter of fact, the sale proceeds have been reinvested
in improving our customer service across the UK For instance,
the group has recruited an extra 2,000 staff and deployed them
in our branches and call centres. This was probably the largest
single recruitment exercise in the U.K financial services market
this year.
2.3 Cardpoint are required, as a member
of LINK, to meet regulations regarding surcharging. A customer
prompt appears during the transaction, again advising of a charge,
and giving the customer the option to cancel the transaction before
a fee is incurred. In addition, a visible notice is displayed
on the ATM fascia advising that customers may be charged for making
cash withdrawals.
3. OUR BANKING
NETWORK
3.1 The considerable role that HBOS plays
in the financial services industry is matched by our presence
right across the UK In particular, our ATM network is an important
extension of our 1,100 strong branch network.
HBOS owns 2,750 ATMs which are free to use for
our own cardholders and to all cardholders using the LINK network.
Our machines are sited in a variety of locations. The vast majority
are located either outside our branches, within the banking hall
itself or in our estate agencies.
3.2 HBOS is one of the few UK institutions
offering free ATM services everywhere in the UK, unlike some other
major banks. For example, our 36 ATMs in Northern Ireland are
free to use, just like their equivalents in England, Scotland
and Wales. The committee will of course be aware that Which? has
lodged a "supercomplaint" with the OFT against the major
banks in northern Ireland and ATM charging forms part of that
legal challenge.
Four yeas ago, Halifax was the first major ATM
provider to announce that it would not surcharge customers for
using any of its cash machines. This principle has been maintained
since the creation of HBOS in 2001.
3.3 The committee may be interested in a
brief analysis of the economics of ATMs. At HBOS, the annual cost
of running a "remote" ATM is roughly double that of
running a branch based ATM. This significant additional cost is
due to telecommunications, security, business rates, travel and
site rental costs.
3.4 The issue of access to ATMs is part
of a broader financial inclusion agenda which HBOS is playing
its part in redressing. Much has been done in the past few years,
but there is still a long way to go.
According to the BBA, twenty-five years ago,
only 38% of the population had current accounts and a third of
all adults had no account of any type. Now 93% of all adults have
an account of some sort. All major high street providers now have
basic bank accounts that can be accessed at the post office.
3.5 With two-thirds of the market, HBOS
is by far the largest provider of basic bank accounts and has
been for some time. Halifax's Cardcash account was launched in
1983 and Bank of Scotland's Easycash account in 1991. Our annual
commitment to providing these products costs over £25 million.
These bank accounts provide essential banking
facilities to underprivileged sections of society. Customers can
use their cash card free of charge at any ATM in the LINK network.
We open 25,000 basic bank accounts a month.
3.6 As well as our provision of basic banking
products, HBOS has pioneered a number of successful community
banking projects which demonstrate our commitment to the localities
in which we operate.
Bank of Scotland's Community Banking team is
working with Prospect Housing Association to give tenants access
to financial advice and practical assistance on personal banking
and budgeting. Through this scheme, more than 1,000 basic bank
accounts have been opened since April 2001. This model will be
expanded and built upon by our team.
Halifax is the only financial institution working
with the Government on the "Savings Gateway", a project
designed to encourage savings by those on low incomes. As the
Chancellor announced on the pre-budget report in December 2004,
this scheme has been highly successful and will be extended over
the coming year.
4. INDUSTRY
CODES OF
PRACTICE
4.1 Nationwide Building Society recently
proposed a new Code of Practice governing surcharging ATMs. These
proposals now form part of a set of new regulations governing
transparency which have been put forward by LINK. We have reviewed
these draft proposals and formally registered our support at a
recent LINK meeting.
We support any initiative intended to improve
the clarity and transparency of charging for any banking services,
including ATMs. We also support strengthening the regulatory framework
within LINK to ensure compliance with these proposals as well
as existing regulations. Stricter enforcement of regulations and
codes of practice by LINK is supported by HBOS.
4.2 The LINK Interchange Network provides
access to all institutions, whether ATM acquirer or card issuer,
that meet operational and audit standards.
This means LINK is an enabler of free competition,
rather than a barrier to it. On this basis, we consider it is
right that both free to use and surcharging ATM owners are admitted
to the network.
5. CONCLUSION
5.1 In conclusion, it is clear that although
the number of surcharging ATMs has grown, the vast majority of
transactions in the UK are conducted free of charge. Currently,
surcharging machines only process 3% of all ATM transactions.
HBOS is committed to maintaining its branch
based ATM network and to continuing to provide this service to
our own customers and those of other banks. In addition, we are
working with the industry to ensure the highest possible standards
of transparency on all surcharging machines.
December 2004
| 
