How the rise of fee-charging ATMs threatens the U.K.’s small merchants
Fears are growing that the rapid rise in fee-charging ATMs could have catastrophic consequences for the U.K.’s fragile SME market, with major supermarkets and card networks predicted to be the biggest beneficiaries.
Nearly 1,700 of the U.K.’s free-to-use cashpoints were converted into fee-paying machines between January and March this year, according to research conducted by consumer association group Which? in April. Increasing numbers of ATM operators are following this trend, with NoteMachine planning to start charging on 4,000 of its 7,000 ATMs this year. As a result, the U.K. is expected to lose 13% of its 52,000 free cashpoints within the next few months.
According to NoteMachine and other ATM operators, they are being forced into charging through the actions of LINK — the administrators of the U.K.’s biggest ATM network — which is gradually cutting the interchange fees it charges high street banks and then pays to operators each time a customer withdraws cash.
“The banks effectively provide the funding for LINK,” explains Ron Delnevo, executive director for the ATM Industry Association (ATMIA) in Europe. “Now the banks have said to LINK, we don’t want to go on paying as much interchange, but because the margins in the free-to-use ATM business are very low, even a reduction of a few pence means that those ATMs are now losing money for every transaction they carry out.”
Earlier this year, interchange dropped from 25p to 22.5p, and despite ongoing pressure from Which? and the Federation of Small Businesses (FSB), this may reduce further. Delnevo predicts that the majority of consumers will be unwilling to use fee-charging ATMs, and instead will choose to withdraw money at free cashpoints still provided by large supermarket chains such as Sainsburys and Tesco, who can afford to subsidise their own ATMs.
“When these ATMs switch to charging, it’s going to destroy a lot of the neighborhood’s local businesses located nearby,” he says. “People will either go to bank branches or the bigger retailers to withdraw cash, and take their spending power with them. We believe that 75-80% of people will stop using these ATMs over the next 12 months, which will work out at around 300 million transactions across the U.K.”
Both ATMIA and the FSB think that one of the biggest problems is a lack of transparency in how interchange fees are set across the payments market. Delnevo says that one of the reasons why banks have been able to exert such pressure on LINK to cut interchange is because the card networks have been allowed to steadily reduce their own interchange. In the U.K., Visa now offers interchange rates of 20p or less per cash withdrawal, while Vocalink, a payments technology company which supplies the LINK ATM scheme with ATM processing services, was acquired by Mastercard in 2016.
“Many people have argued that acquisition was not a good thing,” said Delnevo. “But I don’t think it’s had anything to do with what’s happening. Arguably Visa have driven this because the banks can now say, ‘If we connect our ATMs to Visa rather than the LINK network, we’d be paying less.’ This is happening to an even greater extent in Ireland, where Visa have just announced that they’re reducing interchange to 5 euro cents, which is a completely arbitrary change, and will cripple the economics of providing those transactions at ATMs.”
As a result, the FSB is campaigning for the Payments Systems Regulator (PSR) to be permanently involved in regulating interchange levels to ensure that maintaining a certain number of free ATMs across the country remains financially viable.
“We feel there’s a need for a regulator to take sole responsibility of ensuring that levels of access to cash do not decline any further,” said Lorence Nye, senior policy advisor at the FSB. “That would be through monitoring metrics such as average distance to free to use cash machines. If we see those figures drift, someone has to be able to step in and say, ‘Actually this is not acceptable, there must be more funding through the interchange fee to address this issue.’”
The joint campaign by Which? and the FSB has meant that the interchange fee is currently frozen at 22.5p, while the PSR conducts a thorough review. But Delnevo says there are further steps which need to be taken, to safeguard free access to cash and protect local businesses across the U.K.
“We need recyclable ATMs in every community as well,” he said. “At the moment you can only deposit cash in your own bank’s ATMs. We need that implemented as a LINK transaction, so you can take your cash to any ATM in the country that accepts deposits. In other countries where this has been implemented, such as Greece, sometimes more than 100% of the cash needed for withdrawals is actually deposited by businesses within that community. The Bank of England have already given their backing for this, but we need that implemented this year.”