Memorandum submitted by the Royal Bank
of Scotland
CASH MACHINE
CHARGES
Thank you for your letter of 9 November to Sir
Fred Goodwin inviting the Royal Bank of Scotland Group ("RBS")
to contribute to this study. Sir Fred has passed your letter to
me, since Automated Telling Machines ("ATMs") fall within
my area of responsibility. Our response below includes our subsidiary
company Hanco ATM Systems Ltd ("Hanco"), which was also
invited to contribute.
1. INTRODUCTION
There are two separate and distinct markets
in cash dispensing. The first, comprising 93% of all current transaction
volumes, is the provision to consumers of Automated Telling Machines
("ATMs"). This market is characterised by units that
have high running costs, are rich in functionality and handle
large volumes of transactions. The High Street Banks currently
provide these free of charge. We estimate the annual cost to the
"Big Four" of providing this service to be in the region
of £450 million to £500 million.
The second market is the provision of Convenience
Cash Dispensers ("CCDs") that primarily charge for withdrawing
cash. The CCD market currently accounts for 7% by volume and 5%
by value of all automated cash withdrawals and are most typically
low cost units with basic functionality, handling small numbers
of transactions. Following consultation with The Office of Fair
Trading, LINK rules were amended to allow wider access to LiNK
membership. A practical consequence of this was the emergence
of the CCD supplier market following the entry of Independent
ATM Deployers ("IADs") into LINK which gave them access
to the customers of all LINK members. Membership of LINK has enabled
the CCD suppliers to grow rapidly.
2. ATM MARKET
AND RBS
UK wide access to ATMs was created when LINK
became the primary provider of switching services to ATM deployers.
In the main these units are located at bank branch premises or
in separate high footfall locations.
These machines are usually through the wall
with high costs of provision relative to CCDs. These costs relate
to the sophistication of the unit itself together with costs of
installation, security, telecoms and cash replenishment. These
ATMs are designed to handle thousands of cash withdrawals every
month.
When another bank's customer uses one of our
ATMs we receive an interchange fee and this applies equally in
reverse. There are two levels of interchange: a fee for cash withdrawal
and a fee for a balance enquiry. The amount differs between branch
and remote machines and is determined through an independent cost
study, reviewed and agreed by all LINK members annually. No doubt
you will receive full details of this from LINK.
RBS has never charged customers for use of our
ATMs and following acquisition of NatWest their previous policy
of charging was reversed. RBS are currently the largest member
of LINK with over 6,000 free to use ATMs in the UK. These machines
are also available to non-customers providing their card issuer
is a member of the LINK network. The ATMs in our network sited
away from our branches enable us to provide a service to our customers
beyond our branch footprint. These machines are also available
to customers of LINK member organisations.
Retail Banking under The Royal Bank of Scotland
and NatWest brands, provides the majority of our ATM estate with
a total of 4,636 machines across the UK, all of which provide
free cash withdrawals to customers of participating LINK member
organisations. 3,135 machines are located at our Branch premises,
of which 2,508 are available 24 hours a day 365 days a year. The
remaining branch based units are available inside our branches
during normal opening hours. Machines within the remote estate,
consisting of 1,501 units, are typically located at high footfall
locations such as supermarkets, railway and underground stations,
and high street retailers. These units carry significantly higher
overheads, including the costs of remote cash provision and rental
payments to the host.
Tesco Personal Finance ("TPF") is
a joint venture between RBS and Tesco providing financial services
and products to Tesco customers. TPF's current estate consists
of 1,487 units, located at Tesco stores. These units are included
within the overall RBS numbers.
Our policy is to meet the needs of our personal
customers in a changing market place. In response to the wishes
of our customers for increased provision of ATMs, we have continued
to invest in new units at our branches and in remote locations.
As a result, our ATM network has grown by 19% over the last five
years.
3. GROWTH IN
THE CCD MARKET
Following the availability of wider access to
LINK it became possible for IAD's to provide cash dispensing services
to the customers of all LINK member organisations. This had the
effect of creating a market for lower footfall sites of convenience
to the consumer, where commercial viability would be achievable
through the levying of a charge for withdrawals. Since the granting
of wider access to LINK there has been continuous growth in this
market, driven, above all, by increased consumer demand for convenience.
A survey of our customers in 2002 highlighted greater convenience
as their number one priority.
To illustrate the nature of this demand we estimate
that RBS customers have undertaken somewhere in the region of
30 million transactions at CCD's that charge this year. In the
same period we have received no written complaints from our customers
about cash machine charging and a total of only 566 verbal concerns.
RBS have not converted any of our free machines
to Hanco units since its acquisition. Retailers are, however,
becoming increasingly aware of the potential for increased revenues
from hosting charging machines as distinct from free to use units.
Providers of free ATMs are already being forced out of sites as
these are converted to charging units by the retailers. As an
example Welcome Break removed 14 NatWest ATMs, replacing them
with CCDs earlier this year.
4. HANCO
RBS acquired Hanco in June 2004 to help meet
the growing demand from our business retailer customers to supply
convenient cash access to their own customers. This acquisition
was consistent with our policy of continuously seeking to add
value to our customers by enhancing the range of products and
services we provide.
Hanco currently support c6,000 machines across
the UK. Their model of supplying, installing and maintaining CCDs
has proved popular with retailers. Hanco provides the unit to
the merchant, who thereby acquires free access to the LINK network
of member organisations and their customer base.
The provision of low cost free standing units
by Hanco, where cash replenishment is provided by the merchant,
can achieve break even with a few hundred withdrawals per month
subject to the levying of a transaction fee.
Under the Hanco model the retailer has the benefit
of a cheap and convenient mechanism to re-circulate cash. Revenue
is enhanced through attracting new customers, the transaction
charge and an increase in spend from existing patrons. In addition
the retailer reduces cash handling costs through a reduction in
the amount of money paid in to his bank. It is the retailer—not
Hanco—who determines how much he wishes to charge to the
consumer for making cash withdrawals. Hanco receives a flat fee
per transaction. Hanco also receives the current interchange tariff
for balance enquiries.
This proposition has particular attraction to
pubs and convenience stores including rural post offices. In some
cases, the provision of these facilities not only increases revenues
but helps maintain the viability of the business. In addition
to the appeal of convenience to the consumer, the retailer is
also providing improved personal safety to their patrons with
access to cash in locations such as pubs, removing the need to
leave the premises to find a through the wall machine.
5. TRANSPARENCY
OF CHARGING
RBS support the principle of full transparency
of charging to the consumer. We consider it a requirement of continuing
LINK membership that its members comply with the code agreed at
the Link Network Members Council meeting on 15 August 2003:
"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) and this must be implemented no later than
1 April 2004."
* Under LINK rules no charge can be levied by
the CCD supplier if the transaction is subject to an issuer charge
as is the case with some credit cards.
To meet this obligation we provide this information
on screen before a customer begins a transaction. We believe this
to be the most effective way to ensure compliance, as well as
giving the customer the opportunity to consider alternative means
to access their money. As a result, the fact we charge is totally
transparent. Recent analysis of over 300 RBS customers using Hanco
CCDs indicated that 95% of those surveyed either knew in advance
or recalled being informed that the machine may charge.
In the course of the transaction we advise the
customer of the exact amount of the charge. At this point the
customer is given the opportunity to cancel the transaction if
he does not wish to pay the transaction fee. This feature provides
additional consumer protection, as the transaction will not proceed
without a positive selection by the customer. In the analysis
referred to above 96% of those surveyed recalled being provided
with details of the exact amount of the charge before completing
the transaction.
RBS will be fully compliant with the proposed
revisions to the Banking Code in relation to charging transparency
which are due to take effect from March 2005 and will support
reasonable future proposals to improve transparency. This includes
the recent recommendation to LINK members to provide early notification
to consumers of a change in status of a machine from free to charging.
6. FINANCIAL
EXCLUSION AND
LOCATION
Whilst the distribution and therefore availability
of ATMs and CCDs will inevitably vary across postal districts
our analysis suggests the distribution is broadly related to population
density rather than any socio economic factor. In fact, RBS provide
more free ATMs and more CCDs per head of adult population in the
bottom 20% of postal districts measured by deprivation than in
the remaining 80%.
6 December 2004
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