Memorandum submitted by LINK
1. INTRODUCTION
LINK is the organisation that controls the participation
of the Banks, Building Societies and other organisations in the
Scheme that provides customers with the ability to draw cash from
virtually every Cash Machine in the United Kingdom. LINK has over
50 Member organisations, each of which either issues Cash Machine
cards to its customers (referred to as Issuers) or operates Cash
Machines (referred to as Acquirers). Most Banks and Building Societies
both issue cards and operate Cash Machines.
This paper summarises LINK's submission and
the Appendices provide detailed factual information on charging.
As requested we will be attending the oral hearing of the Committee
on 21 December and will be represented by the Chief Executive
(John Hardy) and the Card Scheme Director (Howard Aiken).
We were asked to submit comments under three
main headings:
— The principle of charging and the
growth in the proportion of Cash Machines that charge;
— Transparency of charging and the
enforcement of rules;
— Access to free cash machines in certain
localities.
In addition, evidence is also sought on the
security implications of recent trends in the provision of Cash
Machines.
2. THE PRINCIPLE
OF CHARGING
The Office of Fair Trading (OFT) examined LINK's
agreements in great detail over a period of 14 months. This resulted
in LINK being granted an Individual Exemption under the Competition
Act. In their Decision, the OFT noted that in respect of surcharges
(ie, any charge that the Cash Machine operator levies) "it
is a matter for the individual Member concerned whether they choose
to surcharge and if so, the level at which the surcharge is set".
The OFT also noted that "The ability to surcharge provides
a . . . safety valve and exercises a competitive restraint on
the level of [interchange fees]".
Clearly LINK cannot determine or control the
amount of the charge that is made to customers nor can it determine
which Cash Machines can charge and which cannot. To do so would
be anti-competitive and contrary to the Individual Exemption that
the OFT have granted LINK.
In the UK over 97% of transactions at Cash Machines
are free of charge to the customer, which is unusually high by
international standards.
3. GROWTH IN
THE NUMBER
OF CASH
MACHINES THAT
CHARGE
The number of Cash Machines that are part of
the LINK network continues to grow. In the past year the number
of free Machines has grown by 3.5% and the number that charge
has grown by 25%. Whilst aware of individual instances where a
free Cash Machine has been replaced with one that charges, we
are also aware of instances of charging Machines being replaced
with free ones. We see no evidence of systematic replacement of
free Cash Machines by ones that charge and the growth in the number
of free Machines further suggests that this has not happened.
4. TRANSPARENCY
OF CHARGES
LINK has been at the forefront in providing
transparency of charging at Cash Machines. The UK is the only
country in the world where customers are told of the amount of
any charge at the Cash Machine at the time of the transaction
and given the opportunity to cancel without charge. This was introduced
in February 1999 at the same time as the introduction of charging
Cash Machines. For systems reasons, and of necessity, this notification
comes late in the transaction (because there can be an issuer
charge and LINK rules prohibit both an issuer charge and an acquirer
charge being applied to the same transaction and so the acquirer
has first to determine whether there is an issuer charge before
applying a surcharge).
LINK also took the initiative and improved transparency
still further in April 2004. To ensure that customers would know
whether they would be charged before they insert their card into
a Cash Machine an additional rule was introduced that requires
in addition to the existing notification, that all Cash Machines
that charge must also carry a sign (either on-screen or external)
that is "clearly visible to cardholders before a card is
inserted". That rule has now been in force for six months
and a review is now being undertaken to assess both the effectiveness
and the degree of Member compliance.
This review is considering whether the sign
should be on-screen or external or both. It is also reviewing
the size and placement of external signs, and their visual clarity
(eg, colours used, font size) and how best to ensure that Members
comply with the rule. We plan to present the findings, together
with any recommendations for change, to the governing body of
LINK within the next two months.
We see no evidence from customer behaviour that
there is any wide scale confusion about charging. Although 37%
of Cash Machines charge, less than 3% of transactions result in
a customer paying a charge. Additionally, we ask our staff and
the Members of LINK to report to us any Cash Machine that they
see is not properly signed. In total, thirteen such instances
have been reported to us (and in every case we have taken action
to ensure that the situation has been corrected). Both the Sun
and the Daily Mirror have recently asked their readers
to tell LINK of Cash Machines that were not properly signed and
this resulted in five of the instances being reported to us. We
encourage anyone who sees a Machine that is not properly signed
to tell us so that we can get the situation corrected. Indeed
we note that the Treasury Committee has invited members of the
public to notify them of any charging Cash Machines that are not
properly identified and we would ask that any details received
be copied to us so that we can ensure that they are brought into
compliance forthwith.
We do take the issue of transparency very seriously
and, as indicated, we have taken the initiative in providing a
high degree of transparency and we will continue to make changes
that will improve transparency still further.
5. ACCESS TO
FREE CASH
MACHINES IN
CERTAIN LOCATIONS
Deciding where Cash Machines are installed,
and indeed whether they charge or are free, is for each individual
Member of LINK to decide and Competition Law prevents LINK from
playing any role in these matters. However, we believe that in
many cases the choice is not between a free Cash Machine and one
that charges, but rather between no Machine and one that charges.
6. SECURITY IMPLICATIONS
All LINK Members, whether they are a bank that
installs free Cash Machines or a company that installs charging
Cash Machines, are subject to the same security standards. LINK
has an on-going regime for ensuring that the standards are met.
This requires Members to produce Certificates of Compliance each
year that are prepared by competent auditors. The Members' Certificates
are subject to independent examination by LINK, which includes
site visits to verify compliance.
The major type of fraud at Cash Machines at
present is "skimming". This involves copying or reproducing
the magnetic stripe of a Cash Machine card by means of a device
fraudulently attached to the Machine that reads the data on the
card. This type of fraud is virtually unknown at charging Machines,
probably because of the low number of transactions that occur
at them, and the fact that they are generally in locations where
they are constantly observed by staff at the site. This is unlikely
to make them attractive targets for fraudsters.
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