Why free cash machines are under threat - and does it matter?
Link network working group will report back later this year to try to solve row
The humble cash machine has been making headlines of late, with news that we could be about to see the end of free withdrawals and lose thousands of ATMs across the country. Here's what you need to know.
What is going on?
Threats have been issued that more than half the UK's cash machines could disappear and/or we could all start being charged to withdraw cash. The news is the result of an argument over the fees banks pay to use the Link network of ATMs.
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What is the Link network?
It is the nation’s biggest network of cash machines, responsible for 70,000 ATMs - it pretty much covers all cash machines that are currently in use.
At present you can withdraw cash from the vast majority of those machines for free. But while you don’t pay, your bank does. When you use a Link cash machine that is owned by an independent provider - that is not a bank - your bank pays around 25p per transaction.
A row has now broken out because some banks want to see the fee they pay cut, to reduce costs of about £900m a year. In particular, they want to pay the independent operators as much as 20 per cent less.
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The problem is that those independents say if banks pay less then that lost revenue could be recouped elsewhere, either by customers paying to withdraw their cash, or by getting rid of some costlier cash machines.
When will the row by resolved?
Late last month the members of the Link network got together for crisis talks to try and sort out the disagreement. The row wasn't resolved.
“Whilst commercial perspectives may vary, every Link member was clear at the meeting that ensuring the future of the Link Network and the cash access needs of UK consumers remains their number one priority,” said John Howells, chief executive of the network.
A working group of members has now been set up to look at the problem and try and come up with a “way forward for the sustainability of the Link scheme,” added Howells. That group will report back later in the year.
What if it isn’t resolved?
“If one player pulls out of Link, [it] is likely to collapse,” says Ron Delnevo, director of the ATM Industry Association. “Those independents will find that they struggle to get their interchange fee and then those ATMs will start disappearing.”
We may also see the return of charges to withdraw cash. Currently around 18,000 cash machines already charge up to £2.50 per transaction.
Many readers will remember the days when free cash withdrawals were limited to transactions at your own bank’s cash machines. It could be that the bank’s return to that model, setting up deals with a few other banks to allow free withdrawals, but leaving customers to be charged if they used other ATMs.
Does it matter if we lose a few cash machines?
Potentially, yes. The independent cash machine operators have grown and grown in recent years as banks and building societies close branches, and as such bank-based ATMs disappear.
If the independent ATMs are removed we could end up with “cash machine deserts”, according to the ATM Industry Association - and MPs on the Treasury Select Committee have therefore threatened to intervene in the row.
The counter argument is that we are becoming an increasingly cashless society more reliant on paying by card or app than with cash. The loss of a few cash machines, or a return to charging for withdrawals, would just drive more people to live an increasingly cash-free life.
Also, with banks looking for new ways to make money from their current account customers, cash machine charges could just be another blow to the increasingly fragile notion that free banking exists.
MPs to intervene if banks end free cash machines
23 January
MPs could intervene if banks start charging for withdrawals from Link cash machines.
Andrew Tyrie, chairman of the parliamentary Treasury committee, told The Times they would "almost certainly want to investigate" if the ongoing dispute over funding the network results in customers having to pay.
The "public detriment… could be considerable", he said.
Tyrie added he will be "writing to Hannah Nixon, managing director of the Payment Systems Regulator, to ensure that it is aware of the depth of public concern".
He also issued a warning over the potential hit on customers in rural areas, who are already dealing with branch closures.
"Safeguards are needed to ensure that the most vulnerable customers, particularly those in rural areas and poorer urban neighbourhoods, are not disproportionately affected," he said.
The 39 members of the Link network, which include high street banks and a number of independent cash machine operators, will meet this week to discuss reforming the system of "intercharge fees", which allows customers to withdraw their money for free.
At present, banks pay for using their rivals' machines, with charges based on the number of customers they have and machines they operate.
On average, that costs around 17p per transaction, rising to around 25p for independent operators.
The banks are arguing that the system is unfair, particularly as they run most of the machines in rural locations, which are costlier to maintain.
Link has proposed a cut of around ten per cent in charges, but the banks want a reduction of around double this amount.
Overall charges to fund the network are around £900m a year and banks are looking at ways of cutting costs at a time when their profits are being squeezed by low interest rates.
Independent companies in the network warn that without a resolution, they could introduce charges or even cut the number of machines.
Around 18,000 of the UK's 70,000 cash machines already charge for withdrawals, with the average fee set at around £2 per transaction.
Is the era of free cash withdrawals coming to an end?
20 January
A row between the members of the UK's main Link network of cash machines could signal the end of free cash withdrawals for many of us.
Peter McNamara, chief executive of Note Machine, the second-largest operator in the network, warned that attempts at cost-cutting could result in "more customers being charged", says the BBC.
The dispute centres around the intercharge fees that allow a bank's customers to withdraw cash from machines run by other members of Link. Banks are calling for the amount they pay to be cut in an attempt to reduce a combined bill of around £900m per year.
How much card-issuing banks pay is based on the number of customers they have and the volume of transactions related to their accounts.
In general, says the BBC, this equates to an average of 17p per withdrawal to rival banks and 25p to independent operators such as Note Machine and Cardtronics, the market leader.
Banks argue the system is unfair as it does not take into account the location of machines – more rural cash machines, which are costlier to maintain, are run by banks – and also penalises those with a larger customer base.
Link suggested cutting fees to independent operators by around 10 per cent, but the lenders are "calling for a reduction much closer to the 17p branch rate", equating to a cut of around 20 per cent, adds the BBC.
Discussions on the changes between all 39 members of the network will begin next week.
When the row first erupted last year, there were warnings it could result in the number of cash machines being cut, with consequences especially for those in rural areas.
There are around 70,000 cash machines in the UK, of which 53,000 are free to use. Others charge a fee of around £2 per withdrawal.
So are we facing an end to widespread free cash? Probably not. The BBC says the new regulator for the network, the Payment Systems Regulator, "might step in and dictate a solution if Link's members fail to reach an agreement".