Article
Direct ATM charging in Australia: Is the timing right?
The Reserve Bank of Australia is now allowing ATM deployers to set their own ATM fees, and says the direct model will lower the overall fees consumers pay.
February 28, 2009
Beginning March 3, ATM operators in Australia will be able to set the fees they charge out-of-network users to use their ATMs. The Reserve Bank of Australia is mandating direct ATM charges and ditching the old system, which involved interchange fees and "foreign ATM" charges from card issuers. According to the Reserve, direct charging offers the transparency and encourages competition among ATM deployers, eventually leading to lower ATM fees for consumers.
But 27 percent of ATM industry experts who answered an informal poll by NCR Corp. in Australia said they expect surcharges to increase over time.
So the new rules have left some uncertainty. How much will ATM operators charge? How much will FIs charge for foreign-use fees? Who will gain the most from the changes?
"It's quite early to see who's going to benefit," said Mangala Martinus, a consultant with the agency Edgar, Dunn & Co., a company that led a comprehensive ATM market study in Australia in 2008. "There's been a lot of speculation about who's going to benefit. It really will depend on what everybody does with the fees."
Before March 3, sponsoring financial institutions imposed interchange fees on all ATM transactions, and they added an extra fee when their own cardholders used out-of-network ATMs. The problem, the Reserve says, is that users were not notified of the charges and what they were up front; rather, consumers were not notified of the charges until they received their monthly bank statements. And even then the charges were often bundled with other fees listed on the statement. It was hard to discern what was going to interchange and what was going to the FI for an out-of-network ATM fee.
"You might not always be conscious of the fee," Martinus said. "It wasn't completely transparent who was getting what in the transaction."
Under the new fee structure, direct charges have to be shown on-screen at the ATM before the user approves the transaction. The consumer has the option to decline, once the fee is announced.
The Reserve Bank says it mandated the direct charging to encourage banks to do away with the foreign ATM fees they charge. Though some banks initially indicated they would charge, at minimum, reduced foreign fees, large banks currently have done away with them.
The direct charges also are expected to vary by location, and possibly even by time of day. ATMs located in bars, clubs or casinos will probably cost several dollars to use; fees could also be high in low-population areas, where access to ATMs is relatively low. That same issue was highly contested in the United Kingdom two years ago, when consumer-advocacy groups pushed Link Interchange Ltd., the U.K.'s primary transaction processor, and the high street banks to start offering more surcharge-free ATM transactions in low-income areas. A similar consumer resistance could rise in Australia, but only time will tell.
And those watching the fee changes in Australia are already noting imbalances. For one, customers of FIs with large ATM networks will likely notice little change, since those FIs have enough ATMs to offer their customers plenty of in-network options. Other banks, to be competitive, offer their customers unlimited ATM usage for a monthly fee.
But the new fee structure does offer some advantages to smaller players.
Under the new rules, smaller FIs can band together, allowing their combined customer bases to withdraw from any ATM owned and operated by one of the FIs in the band.
But since about half of Australia's roughly 25,000 ATMs are independently owned, the stipulations put in place to benefit the FIs won't benefit independents, or the consumers who use those so-called "white-label" ATMs. Under the current system, the only money they can make comes from the interchange fee paid to them by banks, which works out to be roughly $1.
But independent ATM deployers can set their own direct charges.
Adverse ATM effects?
NCR's informal poll of ATM industry experts found that most expect ATM transactions made by Australian consumers to drop by 10 percent after direct charging takes effect. But, they say consumers will likely take out more money per transaction.
"There are many variables that will determine what ATM deployers will charge and it will take time for things bed down," said Phil Chant, NCR's marketing communications manager. "But right now, everything is an unknown and very fluid."
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