Access to Cash in Scotland Contents

3Scotland’s ATM network

LINK network and interchange fee reduction

12.ATMs, or cash points, are the main way that consumers access cash accounting for 90% of cash withdrawals.22 Which? describes free-to-use ATMs as providing “essential banking functions for consumers, particularly those who choose not to, or cannot, use digital payment alternatives”.23 In 2018 the number of ATMs in Scotland fell by 355, of which 225 were free-to-use.24 The loss of free-to-use ATMs can have a significant impact on communities. A survey of Which? members on the impact of potential reductions in free-to-use ATMs found that:

Removing free-to-use access would leave 9% of consumers struggling to make payments, shutting many consumers out from local shops and services.
16% of consumers would be deterred from using outlets that accept cash only.
Some 11% of respondents would have to walk more than 30 minutes to access their nearest cashpoint, while a further 9% said the nearest machine was too far away to reach on foot.

Which? research also found that, across the whole UK, a greater proportion of machines were being lost in rural communities compared to urban areas.25

13.According to ATM operators, one of the main reasons given for recent ATM closures is changes to how the LINK network is funded. LINK is the UK’s largest cash machine network, of which all of the UK’s banks and building societies are members, as are several independent ATM distributors. LINK’s network is funded by the “interchange fee” and is regulated by the Payment Systems Regulator. The interchange fee is paid by banks to ATM operators every time a bank card is used to withdraw money from a “free” ATM that the bank doesn’t run. As such, the current network is largely funded by banks who make payments to independent ATM operators. The image below has more information about how this works.26

14.At the end of 2018 the interchange fee was set at around 25p. On 31st January 2018, LINK announced that the fee would be reduced in stages to 20p over four years.27 The first interchange fee reduction of approximately 1p took place in July 2018 and the second in January 2019. However, in July 2018, LINK announced that the third reduction due in January 2020 was cancelled and the fourth reduction due January 2021 was to be put on hold pending a review.28

15.According to NoteMachine, an independent ATM deployer (IAD), since the reductions in the interchange fee there has been a significant reduction in UK ATM numbers. They say that since July 2018 there are around 3,500 fewer ATMs in total (5.3 per cent) and around 2,100 fewer ‘free’ ATMs compared to before the announcement of the reduction.29 They have called for a moratorium on any further reduction being implemented while a full assessment of the impact on consumers is undertaken30 The Association of Convenience Stores has said that the changes to the interchange fee are “forcing” retailers to review whether they keep ATMs in their shops, with stores either: retaining their ATM at a loss; switch to a charging ATM or removing the ATM completely.31

16.LINK argued that the changes to the interchange fee were designed to shift incentives for ATM deployers to rebalance the UK’s ATM network away from over-providing ATMs in busy city centres.32 John Howells, Chief Executive of LINK, told us that:

Ten years ago there were 40,000 free ATMs in the country; a year ago there were 55,000. I think that growth was not right and at a time when consumer usage of cash was going down […] was not helpful. [There are] more [closures] to come and at the moment the closures are predominantly coming out of busy city centres.33

17.When Mr Howells appeared before us in early 2018 he estimated that between 50 to 100 ATMs would close in Scotland as a result of LINK’s changes34 but in total 355 ATMs closed in Scotland during that year.35 Mr Howells defended LINK’s position saying that around 100 of the closures had been due to decisions taken by LINK, but accepted that a new approach was needed in the future:36

What worries us is that when you have a massive and expensive network of ATMs […] and you have what is looking like a 10% reduction in cash usage every year, the current system cannot hold together without reform. […]

I am completely happy that the changes LINK made about a year and a half ago to the so-called interchange to keep the thing stable have worked, but I am equally happy that they will not work going forward without a different and new approach.37

Mr Howells also cited the effort LINK was taking to support access to ATMs in rural, and other vulnerable areas, through its Financial Inclusion Programme, which we will consider later in the Report.

18.Another reason offered for the reduction in the interchange fee was the risk that banks might leave the scheme if the costs did not fall. Other schemes, run by Visa and Mastercard, offer interchange rates 30% lower than LINK’s and LINK argued that without reducing its fee its members may leave to join alternative providers. This, they argue, would impact consumers as if card issuers leave the LINK scheme it will lead to ‘a substantial and immediate decline in the number of ATMs’.38 John Howells told us that the reduction to the interchange fee made so far had saved banks around £70 million, with a corresponding reduction to the ATM industry.39 Some groups were critical of this as a reason for reducing the fee, arguing that the fee should be set at a “level that accounts for the operating costs and commercial viability of hosting an ATM” and cited the previous practice of fees being set by an independent cost study by KPMG.40

19.Ensuring consumers still have free and reliable access to their cash is essential to a well-functioning and fair economy. We are concerned by the ATM closures that have been seen since the interchange reductions were introduced. We do not believe that the fourth interchange reduction should go ahead and call on the government to intervene to prevent further reductions if necessary at least until the government publishes a strategy outlining the steps it will take to ensure Scottish consumers’ continued access to cash. We further recommend that the Payment Systems Regulator should publish a full assessment of the economic and social impact of any future interchange reduction before it can be implemented.

Financial Inclusion Programme

20.Since 2006, LINK has been running a Financial Inclusion Programme (FIP) aimed at improving free access to cash in the most deprived areas of the UK. Initially LINK identified the most deprived areas of each nation in the UK41 and offered ATM operators an additional 10p subsidy on the interchange fee to run an ATM in these areas. Since it was introduced the scheme has seen a number of changes:

In July 2018, LINK implemented an increase in the subsidy for ATMs in deprived areas to 30p as part of its response to the interchange fee reduction.
In July 2018 LINK introduced ‘Protected ATMs’–these are ATMs that are more than one kilometre from the next nearest free-to-use ATM. LINK committed to ensuring that these ATMs would not be subject to any of the proposed cuts in interchange.
In April 2019, LINK implemented its ‘Super Premiums’ scheme to increase payments to ATM operators by up to £2.75 per cash withdrawal on the lowest volume protected machines as well as those in deprived areas under the LINK Financial Inclusion Programme.42

21.According to LINK, in Scotland 204 of the 334 areas in scope of the scheme have free access to cash, none of which had a free ATM before the programme was launched.43 In 2018 the value of this programme to Scotland was £365,000, which LINK forecasts will increase to £1.4 million once additional subsidies are introduced.44 However, Cardtronics, an independent ATM deployer (IAD), has described the scheme as “complex and difficult to administer” relative to its benefits and said that “many free-to-use ATMs in remote and rural areas do not benefit from it.”45 They also quoted Charles Randell, Chair of the Payment Systems Regulator and Financial Conduct Authority, who said that the scheme does not always “reflect the lived experience” of consumers.46

22.When LINK appeared before us, we explored further whether the programme was properly identifying all the communities in need of support and whether it guaranteed a sufficient level of service. Mr Howells acknowledged two shortcomings of the current scheme:

That there was no mechanism for getting a free ATM in communities that need one. This has been recommended in the Access to Cash Report.47
That there could be physical problems with a machine’s placement that made it difficult to use.48 For example Cambuslang Community Council told us about the problem caused by one of their local machines being at the bottom of a steep hill,49 while Citizens Advice said that older people’s willingness to use an ATM could be affected by how well the area is lit, how busy the area is or the width of the surrounding pavement space.50

Mr Howells also accepted the main aim of this scheme was to prevent further closures rather than to incentivise providers to open new ATMs.51 This was a particular concern of independent ATM deployers (IADs) who were worried that if they opened a new ATM within a kilometre of a protected ATM, neither ATM would benefit from the scheme.52

23.We also considered whether the network which was protected by the Financial Inclusion Programme was sufficient to meet consumer needs. We discussed with LINK concerns that when a bank’s ATM closed the remaining ATMs were often based inside a shop or Post Office which is not accessible 24/7.53 Cambuslang Community Council also raised concerns about communities having to rely on a small number of ATMs, highlighting the problems caused when one goes out of service.54 Responding to the issues of reduced opening hours when an ATM was hosted in a Post Office, Mr Howell’s accepted that this was a reduction in service but said that where access was available to an ATM six days a week, a subsidy would not be provided.55

Payment Systems Regulator

24.The LINK scheme is overseen by the Payment Systems Regulator (PSR). The PSR’s statutory objectives are to ensure that payment systems promote both the interests of businesses and consumers, to promote competition in the payment systems and services markets, and to promote development and innovation in payment systems and their infrastructures.56 Which? has called on the Payment Systems Regulator (PSR) to complete a “review of LINK’s Financial Inclusion Programme, including the current ATM replacement process, to ensure that it is fit-for-purpose and adequately protects access in the areas that need it most.”57

25.The PSR has already intervened once by issuing Specific Direction 8 (SD8) in October 2018 to LINK, which required them to do “all it can to fulfil its commitment to maintain the geographical coverage of the ATM network.” According to the PSR:

In response to SD8, LINK has developed and introduced policies to protect FTU (free-to-use) ATMs that are more than 1km from the nearest neighbouring FTU ATM, to help ensure that free access to cash is preserved in such areas. Where such a ‘protected ATM’ is known to be at risk of closure, LINK has also established mitigation measures aimed at either keeping the ATM open or procuring a replacement ATM if it has been closed by its operator.

26.The PSR’s evidence argues that as a result of its intervention and monitoring of the ATM network, LINK has taken the following steps to maintain a broad geographical spread of free to use ATMs:

making its Protected ATM policy dynamic (i.e. if an ATM becomes the last one in an area, because of the closure of a neighbouring ATM, it obtains ‘Protected ATM’ status and benefits from additional interchange revenue). Over 80 additional ATMs have become ‘protected’ since July 2018 because of this approach;
implementing a new ability to commission replacement ATMs directly, where the offer of additional interchange fails to replace a Protected ATM which has closed;
raising additional funds from its issuing members to support its Protected ATM policies;
introducing a new ‘super premium’ to boost the interchange revenue payable to Protected ATMs with low usage, and
continuing to monitor LINK, including whether its policies and procedures are fit for purpose to support its commitment to preserve the broad geographic coverage of FTU ATMs.58

27.When they gave evidence, we discussed with the PSR the extent to which their intervention had changed the situation, given that versions of the Financial Inclusion Programme had been in place since 2006, and significant changes were announced in January 2018, before the PSR’s intervention. In response Chris Hemsley, co-Managing Director, Payment Systems Regulator, said there and been a lack of clarity about what has been proposed in the January 2018 announcement and what action LINK would be taking and that their intervention had ensured that the PSR “understood what that commitment meant in detail.”59

28.While we welcome the recent changes to the Financial Inclusion Programme we believe the scope of the programme is too narrow. The Financial Inclusion Programme should aim to encourage new ATMs to open in vulnerable communities not just try to slow the rate of closures and aim to ensure 24/7 access to cash, to ensure that communities have access to a reliable and resilient network of ATMs. We recommend that the PSR review the Financial Inclusion Programme and set out how it can encourage greater coverage of ATMs in the most rural, remote and deprived communities.

Deposit-taking ATMs

29.One proposal made to support businesses that have lost access to their local banks and provide an additional revenue stream for ATM operators, was the introduction of deposit-taking ATMs which was recommended by the Access to Cash Review.60 While deposit-taking ATMs already exist, customers are required to deposit cash in ATMs run by their bank, rather than being able to use any deposit-taking ATM. The Access to Cash report found that:

it would be feasible to roll out these deposit-taking ATMs far more widely across the UK. Independent ATM operators (IADs) tell us that they are ready and willing to start deploying the terminals–they just need banks to agree to it.61

LINK told us that this was a system they could put in place “if it was wanted” and said it felt “one of the big missing things we have here is the ability for retailers to pay cash into ATMs”62

30.Cardtronics told us they were supportive of new models of ATMs that would provide access to wider financial services such as deposit-taking and financial management arguing that it would help to reduce the fixed cost burden of cash processing by supporting “cash recycling” within the community. Ron Delnevo, Executive Director, Europe, ATM Industry Association, described the recommendation for universal deposit-taking ATMs as “ the single most important thing that came out of [the Access to Cash] report, […] because businesses now are having to travel miles to deposit their cash.” and gave examples of how a similar scheme has worked in India and Japan63

31.When we raised this proposal with the retail banks they did not directly address this issue, instead focusing on their cash deposit arrangements with the Post Office,64 although Ricky Diggins, Network Director, Bank of Scotland, did say they were “investing in new technology”.65 Barclays, Lloyds and RBS are also piloting a shared depositing facility, which we consider later in our discussion of shared banking hubs. John Howells, LINK, said the reason the scheme hadn’t gone ahead was the difficulty getting the “20 to 30 competitors” involved to reach an agreement:

The reality is that in the world we are in today, they are too busy. They do not want to do it. You need to have the priority put up if you are going to have it done. […] We do not have anybody giving that central steering hand and I think that is what is needed now.66

Ron Delnevo also said that the current rules on when cash deposited in a shared deposit-taking ATM is considered as an asset that the receiving bank can lend against, act as disincentive for banks to participate in the scheme, but that these rules were currently being reviewed by the Bank of England.67

32.The idea of sharing these facilities was raised back in 2014 when Andrea Leadsom MP, then Economic Secretary to the Treasury, asked LINK and its members to develop this facility and allow cheque and even cash deposits across the LINK network.68 When we raised the issue with the current Minister, he said while some banks did allow deposit-taking at ATMs, the use of the technology “would be a decision for the banks to make on a bank-by-bank basis. I do not think it is appropriate for me to mandate.”69

33.Introducing universal deposit-taking ATMs would provide a valuable service to businesses that have lost their bank branches while helping with the sustainability of the ATM network. Given the lack of interest in the scheme to date, and LINK’s view that a “central steering hand” is needed to get a scheme implemented, we recommend that the Government set up a working group with industry to introduce network-wide deposit-taking ATMs.

22 Access to Cash Review, Final Report, March 2019

23 AFS 37

24 AFS 44

25 AFS 37

26 Which?, AMT closures: U-turn on funding cuts after Which? Money investigation, July 2018

27 LINK, The Link Board Announces Changes to Operation of its ATM Network, 31 January 2018

28 LINK,LINK update to Interchange rate implementation, 16 July 2019

29 AFS 36

30 AFS 36

31 AFS 35

32 LINK, LINK moves to secure future of free ATMs, 31 January 2018

33 Q73

34 Q39, ATM Network in Scotland, May 2018

35 BBC, Scots ‘battle’ to get cash after banks and ATMs shut, 12 February 2019

36 Q69

37 Q69

38 LINK, The Link Board Announces Changes to Operation of its ATM Network, 31 January 2018

39 Q96

40 AFS 35 & 36

41 A Super Output Area in the bottom quartile of the Index of Multiple Deprivation (IMD) or Output Areas where greater than 25 per cent of the population are in receipt of government benefit.

42 LINK, Financial Inclusion Programme, accessed July 2019