Memorandum submitted by HSBC
Cash machine charges
Thank you for your letter dated 9 November 2004
addressed to Mr Geoghegan, Chief Executive Officer, requesting
that HSBC Bank plc make a written submission to assist you with
your inquiry. I am responding on his behalf as he is away from
the office. We aim to provide the Committee with information on
HSBC's automated teller machine ("ATM") network and
our views on the current state of the market.
HSBC's network
HSBC is a member of LINK whose network has 53,507
ATMs, of which 20,895 charge a fee for withdrawals. Our customers
have access to all LINK ATMs. HSBC alone has 2,957 ATMs, of which
508 are not located in branches. We do not charge for use of our
ATMs, nor do we charge our customers when they withdraw from other
providers' ATMs.
These machines provide the following services
to customers: cash withdrawals; account balances; Personal Identification
Number ("PIN") changes; statement ordering; mini-statement
prints; and account transfers between HSBC accounts at the same
branch. We have also introduced multi-function machines which
combine the features of paying-in machines and ATMs.
The principle of charging
Providing ATM access to customers is a significant
operational cost for banks. HSBC receives an interchange fee for
every non-HSBC customer using our machines, but also pays an interchange
fee every time one of our customers uses a competitor ATM. Overall,
the running cost of HSBC's ATMs plus the cost of our customers
using other bank machines mean that the net cost of providing
cash through ATMs is very large.
We provide our customers with free access to
the majority of the ATM network. The members of LINK agree an
interchange fee to cover average operating costs, as defined by
an annual independent study carried out by KPMG. This process
was endorsed by the OFT following its investigation into ATMs
completed October 2001 which allowed cost recovery through application
of an interchange fee. The OFT also permitted the use of surcharging
as an alternative to the interchange fee.
The interchange system is concerned with cost
recovery, not profit. Since the interchange fee is based on the
average cost of an ATM transaction, the only way an operator can
make a profit is by:
1. Operating an ATM network more efficiently
than the rest of the market so that the interchange fee exceeds
the operator's actual cost. This might involve getting more people
to use its machines, so achieving economies of scale.
2. Surcharging instead of receiving the interchange
fee for transactions.
Factors affecting growth
We consider the UK market for ATMs to be near
saturation point with over 53,000 ATMs. There are very few new
high volume sites available now and, therefore, new sites tend
to be lower volume and more difficult for the provider to cover
costs. In addition site owners now view ATMs as a source of income
and are increasingly seeking to maximise returns.
The significant costs of maintaining and renewing
ATM networks, particularly in non-branch sites, have led to some
financial institutions selling parts of their network. This is
not an option that we have pursued.
Transparency
We provide customers with clear guidance on
our machines regarding charging. Our ATMs indicate on screen that
they provide free withdrawals and if a credit card withdrawal
is being made, the customer is warned that their card issuer may
charge them.
We believe that any ATM surcharges should be
clearly indicated and give the customer the opportunity to end
the transaction before committing to the withdrawal. With these
measures in place, we consider our customers capable of deciding
whether to withdraw funds from a charging ATM or use another method
to access their funds.
The LINK rules on notifying surcharging currently
state that: "A sign saying `This machine may charge you for
LINK cash withdrawals' must be clearly visible to cardholders
before a card is inserted in a surcharging ATM (either by notice
on the machine or an up-front on-screen message, at the discretion
of the ATM deployer)". However, we consider that some surchargers
do not make the fact that they charge sufficiently clear to customers
as the stickers indicating that machines charge are not always
prominent and a warning screen is not necessarily shown at the
start of the transaction. We would therefore welcome any action
by LINK to improve clarity.
Codes of conduct
The revised Banking Code covers the issue of
cash machine charges and HSBC already complies with its terms.
Not all cash machines providers subscribe to the Banking Code.
All LINK members have to comply with the LINK rules which are
based on the Banking Code. We believe that compliance with the
Banking Code and the LINK rules is sufficient regulation to ensure
that transactions are conducted fairly and in a transparent way.
Problems of access in remote locations
In the main, surcharging machines are situated
in low volume locations where a provider cannot recover the running
costs through the interchange fee. These sites tend to be convenience
stores, pubs and stations and are not sites that are financially
viable as there would be insufficient income from the interchange
fee to cover costs.
HSBC is committed to providing banking services
to all sections of the community where it is viable to do so.
I trust that you will find HSBC's views helpful.
6 December 2004
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