Memorandum submitted by Nationwide Building
Society
INTRODUCTION
1. Nationwide Building Society is the UK's
fourth largest mortgage lender, second largest savings provider,
and seventh largest high street financial organisation. We are
also the world's largest building society, with more than eleven
million members.
2. Nationwide is a member of the LINK network.
The Society has 2,333 ATMs, of which 958 are in our branches.
Our 1,375 non-branch, or "remote", ATMs are located
in:
Petrol Stations 327
High Street Retail 280
Supermarkets 230
Post Offices 155
Convenience Stores 129
Other sites (including airports, agencies) 116
Railway Stations (LU) 55
Shopping Centres 49
Hospitals 32
Nationwide does not charge customers a fee for
cash withdrawals at any of our ATMs.
3. Nationwide is proud of its record of
promoting transparency, honesty and fairness across the financial
services industry and we have for some time been advocates of
greater clarity and fairness in the cash machine network. The
Society welcomes the Committee's inquiry into charging cash machines
and is pleased to submit evidence to it.
THE PRINCIPLE
OF CHARGING
4. Nationwide believes that the provision
of a network of free cash machines represent best practice, whether
they are located at bank or building society branches, or in "remote"
locations such as railway stations or shopping centres. All Nationwide's
cash machines are free, and the Society remains committed to retaining
a viable network of free cash machines in the UK.
5. Nationwide has a history of campaigning
for a free cash machine network. In 1999-2000, Nationwide successfully
fought to retain fee-free cash machines in the UK when its threat
to sue Barclays forced the bank to abandon its plans to introduce
a charge for customers of other organisations using Barclays'
cash machines.
6. In 2003 Nationwide's campaign led to
agreement being secured among members of LINK to introduce the
requirement for machines charging a fee to warn consumers in advance.
This requirement came into effect on 1 April 2004 and since then
all fee-charging machines have been required to carry a notice
on the machine or an up-front on-screen message warning customers
"This machine may charge you for LINK cash withdrawals".
7. Since that time, the number of cash machines
that charge customers to withdraw their own money has grown at
an increasing rate. Five years ago virtually all cash machines
in the UK were free. Today the latest figures indicate that almost
20,000 charging machines are operating in the UK, more than 40%
of the UK's network.
8. The rate of growth of fee charging machines
has been very rapid, in comparison with the rate of growth of
free machines, which has slowed down almost to a standstill. LINK's
figures show that from end December 2003 to July 2004, the number
of charging machines grew by 29%, compared with overall growth
of free machines of just 0.3%.[26]
9. At present, charging machines handle
a small proportion of transactions. However, this is likely to
change as the number of fee-charging machines increases, and as
free machines are replaced by charging machines. The majority
of new machines being installed are fee-charging and if that rate
of growth continues, then fee-charging machines will outnumber
free machines by this time next year.
10. Even though the proportion of ATM transactions
on which a charge is levied is relatively small, consumers pay
a considerable sum in fees. The latest figures show that in the
twelve months to September 2004 consumers made 98.8 million withdrawals
on which a charge was paid, and paid around £141 million
in ATM fees. (This figure is rapidly increasing—we had previously
quoted a figure of £64 million in ATM fees for the period
April 2003-March 2004.)
11. Nationwide does recognise that charging
machines have a role to play in some locations where it might
otherwise be uneconomic to install a machine. Nationwide makes
ATM location decisions based on a number of factors, primarily:
population density, transport hubs, and facilities which create
a demand for cash. Small, isolated villages would often be considered
difficult areas to run a profitable ATM, as would residential
areas of towns or cities where there are few shops, cafes and
pubs and so little consistent need for cash. In such areas the
Society would accept that there may be a role for a charging machine.
12. However, the Society is concerned that
the definition of "convenience" has been stretched far
beyond its original intention. According to LINK, "convenience"
machines are found "in locations that would not normally
justify the cost of installing a cash machine because fewer people
are expected to use them". The locations where charging machines
are found have multiplied, and they are now in busy motorway service
stations, shopping centres, petrol stations, bars, Post Offices,
railway stations, hospitals and cinemas. In some locations charging
machines may even be found alongside free ones. Charging operators
will describe these locations too as "convenience",
but in such busy areas as a motorway service station or a main
shopping centre it would be difficult to argue that a free machine
would be unprofitable.
13. Indeed, a worrying trend for organisations
like Nationwide which remain committed to maintaining a free network
of cash machines is the aggressive approach of the charging operators
who seek to expand their networks by taking over sites where banks
or building societies currently operate free machines profitably.
Charging operators offer the site owners financial inducements
to replace free cash machines with charging ones. Inducements
can be as much as 10 times the rental income, plus an increased
margin on each withdrawal. Nationwide has submitted, separately
and in confidence, evidence of a charging operator offering such
inducements to the owner of a site where Nationwide currently
has a free ATM.
14. Nationwide believes that much of the
growth of the charging network has been at the expense of the
customer, as free ATMs are replaced with charging ATMs to deliver
greater profits. Nationwide has submitted, separately and in confidence,
evidence of sites where we supplied free ATMs profitably which
have now installed charging ATMs.
15. Another trend of concern to those seeking
to protect free access to cash has been the conversion of free
machines to charging machines through the sale of the networks,
or portions of the networks, of high street banks. Both HBOS and
Abbey have recently sold a portion of their free ATM networks
to companies whose machines charge a fee for withdrawals. In the
case of HBOS, almost a quarter of its network has been sold to
the charging operator Cardpoint. Cardpoint confirmed in November
2004 that more than 250 of those will start charging from March
2005.
TRANSPARENCY
16. From 1 April 2004, LINK has required
ATM operators to place a notice on fee-charging ATMs, warning
customers that they may be charged for LINK withdrawals. The requirement
says that a sign must be clearly visible before a card is inserted
into a surcharging ATM, either by physical notice on the machine,
or an up-front screen message.
17. Compliance with this requirement has
not been consistent. Nationwide would like to see LINK conduct
random inspections to assess compliance and report non-compliance.
Nationwide also supports sanctions for persistent non-compliance,
such as fines or disconnection of ATMs.
18. Nationwide would also like to see greater
efforts made on the part of LINK to inform consumers about the
rules governing transparency, and to publicise the means by which
consumers can alert LINK to examples of non-compliance.
19. Some operators appear to be flouting
the spirit of this agreement by displaying warnings in a way that
makes them difficult to spot. For example, notices are displayed
in extremely small print, considerably smaller than any other
print used in signage on the machine; warning stickers or signs
are of the same colour as the machine's background; notices are
"hidden" on the side of the machine or low down below
eye level. Nationwide believes that inadequate signage constitutes
non-compliance. A clear, unambiguous definition of what is "adequate
signage" is needed and Nationwide has suggested that relating
the size and prominence of fee warnings to the size and prominence
of other advertising and information is the best approach (see
our proposed Code of Practice).
20. Nationwide has argued that on-screen
warnings alone tend to be inadequate, even where these are up-front.
By the time a customer sees an ATM screen, he or she may have
queued for some time and may feel "committed" to the
transaction. In 2003 when LINK members were considering the introduction
of warnings on charging machines, Nationwide argued for a requirement
to warn customers through a clear notice on the machine and against
the option of on-screen warnings, but this was not accepted by
the industry.
21. Nationwide research,[27]
conducted since LINK's early warning requirement came into effect,
shows that the current warnings on charging machines are inadequate.
Almost one in five (18%) of those surveyed had used a machine
which charges, but a quarter of those (23.5%) had not seen any
early warning before requesting their cash. 97% of those surveyed
thought that the visibility of warnings should be improved.
22. Nationwide believes that improved transparency
is in the interests both of consumers and of the industry. Consumers
would clearly benefit from improved transparency and clearer information
on charging machines, enabling them to make an informed decision
about whether or not to use a charging machine. The industry would
also benefit from giving consumers better information: it does
the reputation of the financial services industry no good at all
to be unclear about charges and fees.
23. Consequently, in September 2004 Nationwide
published a draft Code of Practice for charging cash machines,
which would build on the LINK agreement on early warnings. This
proposed Code would help ensure consumer awareness and transparency,
and would promote fair practice among cash machine providers.
24. The proposed Code of Practice is appended
(appendix 1) for the Committee's information. As the Committee
will see, it builds on the current agreement but would improve
transparency in a number of important ways:
— By linking the prominence of warnings
to the prominence of other signage, to ensure that warnings are
clear.
— By including warnings on other signage
and marketing material (for example, street signage for in-store
machines) to make clear at every stage that a machine charges
so that customers cannot be misled at any point.
— By giving advance warnings where
a machine is to become charging where it was free, or where charges
are to increase, so that consumers who have previously used the
machine are aware that a change is about to take place. (The Banking
Code requires subscribers to tell customers 30 days in advance
where day-to-day charges on their account are to be introduced
or increased and we believe the same principle could be applied
where an ATM is to introduce or increase the charge customers
will pay.)
— By indicating a maximum acceptable
fee, so that consumers know what they are liable to pay at any
charging machine and are reassured that fees are fair.
— By guaranteeing that consumers pay
only for withdrawing cash and are not liable to pay a charge on
other transactions (eg balance inquiries).
25. Nationwide believes that this set of
principles governing the operation of charging cash machines could
in the future be incorporated into the Banking Code as part of
the section regarding cash machines.
26. The suggestion that a maximum fee should
be set has been particularly controversial and concern has been
expressed that this might constitute a breach of competition law.
Since our proposal is for a voluntary agreement on what constitutes
good practice, it is the Society's opinion that this would not
be the case. In addition, Nationwide suggests that it could be
possible for an arrangement to be put in place governing the fairness
of fees for cash withdrawals from ATMs by LINK under the supervision
of the OFT. There are parallels with the existing arrangement
between LINK and the OFT regarding interchange fees.
27. LINK sets the level of its multilateral
interchange fees centrally and commissions an annual independent
study into the level at which these fees should be set, to ensure
that the interchange fee remains genuinely cost-based. The OFT
has granted LINK an exemption from the Competition Act to set
interchange fees centrally on the ground that the fees are genuinely
cost-based and that this is in the interests of the consumer.
Nationwide believes that a similar argument could be made regarding
fees for cash machine withdrawals.
FINANCIAL EXCLUSION
AND LOCATION
28. Lack of transparency is a concern as
it impacts on every consumer, but Nationwide would be particularly
concerned if cash machine charges fell disproportionately on lower-income
groups.
29. It seems intuitive that with the proportion
of machines which charge growing so rapidly, the burden would
fall most heavily on people without debit or credit cards, who
are most reliant on cash and on using ATMs to access their cash.
This would include young people aged 11-16 as well as individuals
with poor credit scores who may only be eligible for a Basic Bank
Account.
30. The trend for high street banks to sell
off their non-branch ATMs to charging operators, and the rapid
growth in the number of charging machines in locations such as
convenience stores, off-licences, petrol stations and pubs, also
have an impact. These changes mean that in areas where there are
no bank branches, or where branches may have been closed, the
chances are greater that the nearest machines will be fee-charging.
31. In an attempt to consider the question
of the prevalence of charging machines in areas of poverty, Nationwide
has examined the situation in the 10 poorest and 10 richest areas
of the country by postcode[28].
(We have appended the data gathered at appendix 2. LINK may be
able to provide the Committee with a more comprehensive overview
of the situation.)
32. This rough comparison is of course not
comprehensive, nor does it show a clear pattern, but nonetheless
it does identify some situations of concern. For example, Liverpool
L5, the fourth poorest postcode in the UK by household income,
does not return a single free machine in LINK's identification
of the nearest 10. In contrast, at least two free machines are
identified for each of the 10 wealthiest postcodes. In two more
very poor areas—Glasgow G3 and Liverpool L14—six of
the 10 nearest machines identified levy a charge, a higher proportion
of charging machines than the national average.
33. Charging machines in Post Offices are
also a matter of concern. Post Offices have not traditionally
been seen as a typical "convenience" location. The Post
Office began installing its first charging machines in 2002 with
800 charging machines, mainly located in rural areas according
to a spokesman.[29]
However, in July 2003 the DTI revealed in a written answer[30]
that of the 2,100 cash machines in Post Offices, "around
1,500"—more than 70%—now charge a fee. Nationwide
has 155 free machines in Post Offices and runs these profitably
without levying a charge on customers.
34. Nationwide is a basic bank account provider
and has made arrangements to enable our basic account customers
to withdraw cash from any Post Offices over the counter, free
of charge. It is therefore a matter of concern to us that our
customers, including basic account customers, might be paying
a fee to withdraw cash from a Post Office ATM as we believe these
customers expect Post Office banking services to be free for them
to use.
35. Nationwide is of course a commercial
organisation and recognises the need to ensure a reasonable return
on investment in services. In some locations it may not be economic
to provide a free ATM and we do recognise that there may sometimes
be a case for charging. However, it is our practice to make every
effort to keep an ATM in an area and make it profitable: we will
often try to relocate ATMs (sometimes moving an ATM a few hundred
yards or changing its aspect can make an enormous difference).
36. We have also introduced new features
at our ATMs which can improve income without introducing fees
for withdrawing cash by encouraging more use of Nationwide ATMs
and better Nationwide customer "loyalty" to Nationwide
ATMs. In November 2004, for example, we introduced mobile phone
top-ups at all our branch ATMs, and some remote ATMs, and expect
this to generate increased income. We can provide the Committee
with projected revenue figures in confidence if these would be
helpful.
26 LINK figures: at end December 2003, 15,278 charging
machines and 32,237 free machines; as of July 2004, 19,682 charging
machines and 32,350 free machines. Back
27
Research conducted for Nationwide Building Society in June 2004
using Marketing Sciences' PanelWizard ®survey. 1,038 adults
were questioned. Back
28
Poorest and wealthiest areas by postcode, according to household
income, were taken from the CACI Wealth of the Nation report 2004.
The data on ATMs was taken from LINK's online ATM locator as at
13 October 2004. Back
29
"Rural levy for Post Office cash machines", BBC News
Online, 18 March 2002. Back
30
Written answer, Hansard 17 July 2003, col 513W. Back
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