Select Committee on Treasury Written Evidence


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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