Article

Time for a change?

Barclays Bank thinks the time is right to charge non-customers at its ATMs. But they'll have to convince other British banks before they can introduce the fees. by Ann All, editor

March 11, 2002

A major brouhaha over surcharging is brewing in Britain, where Barclays Bank is trying to become the first major financial institution in the UK to charge non customers at all of its ATMs.

Many of the arguments -- banks with smaller networks contending they'll suffer a competitive disadvantage, Barclays insisting it needs to recoup some of the costs of maintaining its network, and newspaper columnists saying customers will be the ultimate losers -- sound all-too-familiar to U.S. ATM deployers.

Last July, Barclays signaled its intent to begin charging non-customers £1 (about $1.60) to use any of its 3,200 machines. Barclays also announced that it would stop levying a £1.50 "disloyalty" fee against its own customers when they used other banks' machines. Barclays planned to implement both changes on Oct. 11.

After other banks protested, however, Barclays put its plans for surcharging on hold. The bank will still scrap the "disloyalty" fee.

The Nationwide Building Society, its most vocal critic, had threatened to take legal action if surcharges were introduced. In a joint statement issued by Barclays and Nationwide, the two banks called on Link, the UK's shared ATM network, to help mediate the dispute.

"We'll see what happens at the Link board meeting in November. At that meeting, we're hopefully going to try to work our way forward," said Barclays spokesperson Yasmin Choudhury.

Nationwide spokesperson Jackie Lawrence contends that Barclays' plan violates the spirit of the Link agreement. "For us, it's a discrimination issue," she said. "Members of Link can't discriminate against each other."

Barclays is one of the most recent additions to the Link network, joining last spring. Chris Smith, group corporate affairs manager at Co-operative Bank, another outspoken opponent of Barclays' plan, said, "It's taken 15 years for the British people to use any cash machine for free, and it's only 15 weeks to tear it down."

Ann Pilkington, a spokesperson for Woolwich, said the board meeting is "the appropriate forum" to address the issue. "We'd like to see it sorted out within the board of Link members."

Woolwich has been quietly surcharging on some of its machines since last January. It levies a £1 fee on 150 of its 650 machines, all of which are located off-site and provided by third-party service companies. Woolwich provides the connection to the Link network.

The bank is careful to differentiate those 150 ATMs from its 500 more traditional units, calling them "convenience cash machines." Pilkington said public reaction has been largely positive.

"There's not enough footfall at those locations to justify a traditional free cash machine. The machine wouldn't be there otherwise," Pilkington said. "That's the key difference, I think. We're not replacing something that was already there and was free. It's a new choice for people that didn't exist before."

Every major British bank is a member of Link. According to a Link statement, its purpose is "to enable members to provide their customers with a national network of ATMs relatively inexpensively by sharing the costs."

No free lunch

Customers of all member banks can use each other's machines -- but often at a price. Just as in the U.S., many banks pass interchange and switch fees along to their customers. The "disloyalty" fees paid by those using foreign machines range from 60 pence to £1.50.

To offer more free access, some of Link's 34 members have forged alliances of their own. For instance, Barclays customers do not pay a foreign or "disloyalty" fee when using machines owned by Lloyds TSB, Bank of Scotland or Royal Bank of Scotland. Some arrangements predate Link, which was established in 1986.

Even under Barclays' new plan, not all competitors' customers would pay the £1 fee. Lloyds TSB customers would be exempt. And according to a Financial Times article, Abbey National also hoped to come to an arrangement with Barclays.

Royal Bank of Scotland tried to capitalize on consumers' increasing awareness of the charges by creating newspaper and radio ads spotlighting its own "no foreign fee" policy. According to the Financial Times, RSB hoped to lure customers away from competitors with its stance.

Press pundits have focused on the cost to the consumer. In an Aug. 29 opinion piece, Financial Times columnist Naomi Caine wrote: "The most convenient cashpoint may also be one that hits you with a charge. And what if your free machine suddenly runs out of money? You may then have to queue for another -- and pay for the privilege."

Charged by choice

Choudhury maintains that clearly notifying ATM users of any charges at the machine, as Barclays plans to do, is "the right way forward for the industry to take." She said, "We're blue in the face from saying, 'Pre-notification -- we all have to do it.'"

"Charges do exist at the moment but they're hidden. You're in a situation where customers are using these machines and have no idea of what the charges are," she added. "Nobody's got time to be thinking about 'which cash machine can I use?' or 'who charges me what?' If charges are going to exist, then they should be made quite clearly."

At Woolwich's "convenience" machines, Pilkington said, consumers have to "positively accept that they want to pay the charge." The screen message also states that the surcharge is in addition to any "disloyalty" fees that may be charged by an ATM user's own bank.

Pilkington spent a day at a convenience store where one of the Woolwich ATMs was installed. Most customers opted to pay the fee, she said, although there were some rejects. "If somebody rejects it, that's actually a good thing 'cause it means they've been able to make an informed choice."

Lawrence said Barclays' motivation is "just going out to make a massive profit." Noting that Nationwide's network of 1,000 ATMs does 35 million foreign transactions a year, she estimates Barclays' network does "two to three times that." With that many transactions, the interchange should more than cover the cost of maintaining machines, she said.

Barclays is trying to put its own customers first, Choudhury countered. "We don't think it's fair we charge our own customers for using another bank's machine," she said. "A bank that owns a cash machine should be the one to charge non-customers for using its service."

Pointing out that 600 of Barclays' 3,200 ATMs are at off-site locations, which carry increased costs for service and maintenance, Choudhury said, "We're prepared to absorb the costs for our customers, but we're not prepared to absorb costs for non customers."

Small banks and building societies have been among the most resistant to surcharging, she added. "They've got smaller networks, and they've relied on our network to provide their customers with free access."

Smith, of Co-operative Bank, said, "It hardly benefits society when they get selfish about their own customers." Noting that the surcharge seems to violate the UK's long-established tradition of free banking, he added, "That's all being eroded. It's death by a thousand cuts rather than one clean slice."

According to Smith, Britons rely heavily on electronic banking for tasks like paying bills. For such a largely card-based society, "cash machines are integral," he said. "We've practically eliminated checks. But now it'll be cheaper to go into a branch and write a check than it will be to use a Barclays machine."

Barclays claims to have impressed at least one prominent personality: Don Cruickshank, head of the government's banking review. The review, which is investigating the degree of competition in British banking, lauded Barclays' plan for its transparency and for promoting competition.

Debate over the surcharge will likely intensify because the stakes are so high. According to Link, bank and building society customers withdrew £9.678 million from cash machines in the first half of 1999, a 39 percent jump over withdrawals for the first six months of 1998.