Those who grew up in the 1960s or later might remember a game called "Don't Break the Ice." It consisted of a six-inch square frame holding a field of plastic "ice" blocks. One by one, players tapped blocks out of the frame until one player "broke the ice," causing the center block — and the hapless plastic polar bear sitting on it — to tumble.
It's a little like the state of the U.K. ATM system now. RBC and Lloyds policies that limit ATM access for no-frills accountholders have taken million-user blocks of ATM users out of the nation's LINK network. The ATM industry and the British Parliament are worried that if others follow suit, the system could collapse. As a result Members of Parliament asked the Treasury Committee to investigate and report on the issue.
Defining the 'basic account'
According to the Treasury report:
Basic bank accounts are available to those who may not meet banks' minimum criteria to open a personal current account owing to a poor credit score or no credit history. There is evidence that access to a basic bank account can help those on lower incomes to manage their money more effectively. Furthermore, access to a bank account may promote financial inclusion by acting as a "gateway" to other mainstream financial services products, including saving, insurance and credit.
As of 2010 there were nearly 8.5 million basic bank accounts under management by 16 banks across Britain, all of them allowing free access to any ATM by any cardholding customer. But that changed in 2011.
Late in that year, the Royal Bank of Scotland and Lloyds TSB told basic accountholders (with the exception of certain "grandfathered" customers) that they would no longer be allowed to use ATMs operated by an independent bank or third party.
Lloyds and RBS insist their cardholders will still have access to services from their own extensive estates of ATMs. Lloyds told the commission that 95 percent of its customers were within one mile of a Lloyds ATM. RBS said that basic accountholders who were disabled or remote from the bank's ATMs would be granted a full-access account.
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However, the true picture is not so rosy, said Flora Hamilton, the ATM Industry Association executive director for Europe. "The impact on one million basic accountholders — who are typically from low income groups — has been dramatic and direct … their cards won't work on ATMs not part of their own bank's network, restricting choice and convenience. This could result in such inconveniences as paying more in return fares on public transport to reach their own bank's ATMs."
Missing the point
The question isn't just one of access, though; it's also one of balance. By withdrawing from the interchange system, RBS and Lloyd's have significantly altered the ATM payments equilibrium.
While the two banks no longer pay interchange fees to other banks for ATM transactions by basic accountholders, other banks still have to pay fees to Lloyds's and RBS for use of their ATMs.
"The ATM system is effectively an ecosystem with a reciprocity agreement between all institutions," Nationwide Building Society Group Product and Marketing Director Chris Rhodes told the Treasury Committee. "As soon as somebody restricts access to the whole estate then effectively someone else is going to pay the income cost. [T]hey [RBS and Lloyds] are taking a benefit and effectively imposing costs on others, which may cause other people to have to change their stance."
So far, no other banks have followed suit with Lloyds and RBS. And three key FIs — Barclay's, Santander and HSBC — told the Treasury Committee that they had no such intentions. But these assurances do not mean that banks can't or won't ever change their policies. They may find themselves with no other choice.
"[O]ur disproportionate and increasing market share is unsustainable," John Hughes, executive director of retail banking at The Cooperative Banking Group, one of the largest providers of basic accounts, said in a letter to the Treasury Committee chairman. "[I]f it becomes the convention that banks place restrictions on ATM access for their basic bank account customers, we would have to, regretfully, consider following suit."
Risking the system
A briefing prepared for the Treasury Committee by LINK, the national ATM network, explained that serious consequences could follow if more FIs begin to deny access to LINK ATMs.
"Issuers removing all LINK access for basic bank accounts and/or leaving LINK could risk closing or turning fee paying approximately 4,000 ATMs nationally: These machines are the free-to-use non-bank ATMs with LINK cash withdrawals of under 1,000 per month," LINK stated in the report. The impact of the loss of free-to-use ATMs would be felt most in "deprived and rural areas," the report said — the very places where the financial inclusion program has been most useful.
Moreover, the report said, "A smaller or more fragmented cash machine network could favour incumbent banks with large existing cash machine networks and make it more expensive for new providers of retail banking services to enter the market."
The banks have said that restricting ATM access and reducing interchange fees has been necessary in order to prevent cross-subsidization of basic accounts, which they said cost them £10–£12 ($16–$19). However, the Treasury Committee report pointed out that the banks continued to cross-subsidize their free checking accounts without concern over profitability.
The relatively small savings on basic account costs could have "potentially disproportionate effects," the committee concluded. "As the main purpose behind the development of the basic bank account initiative was to improve financial inclusion, it is particularly regrettable that this 'beggar my neighbour' approach may lead to the closure or, in the case of cash machines not operated by banks, conversion to charging of existing free to use cash machines. We recommend to the banks concerned that these restrictions be removed."
Keeping an eye on the outcome
"I welcome the decision of the Treasury Select Committee to request that all banks restore and maintain universal access to ATMs for basic account holders," Ron Delnevo, director of the U.K. Payments Council and Chairman of the European Board of the ATM Industry Association, said in response to the committee's recommendation. "This presents both Royal Bank of Scotland and Lloyds Bank Group with an ideal opportunity to demonstrate they can act quickly in the public interest."
But so far there has been no action by the two banks, and speculation continues as to whether Parliament will step in to impose regulations requiring universal ATM access to basic accounts.
"As you can imagine, this is impossible to predict," Hamilton said. "But ATMIA Europe will continue to monitor the situation and make further appeals if they are necessary but we sincerely hope that this will not be necessary."
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