How Brits got easy ATM access — and could lose it just like that
composite photos istock
The current arguments threatening to undermine the Link free-to-use ATM Network are bringing to a head issues that have not been properly exposed to scrutiny for 20 years.
It's time they were.
Until 1998, ATMs in the U.K. were solely run by banks and building societies. Of the 25,000 ATMs in the U.K. at that time, approximately 19,000 were located at bank branches.
In essence, banks were telling their customers, "We are the bosses here. If you want cash, come to us. We certainly are not going to bring it to you."
Those were the heady days for banks, which could do whatever they liked, almost. They were respected, held in awe and feared in equal measure.
And then the company I worked for at the time, Euronet, changed the rules of the game by installing the first Independent ATM in the U.K.
The Link website gives the date of 1999 for this momentous event but in fact it was 1998. I know; I was there!
The banks that monopolized Link in 1998 certainly did not want Independents running ATMs, even some that couldn't be bothered with running ATMs at all. Thousands of business customers were clamoring for ATMs on their sites, but most were simply told "no."
That first U.K. Independent ATM, located in a Spar store in Stonecross in Birmingham, broke the mold of banks dictating where ATMs could be located.
And the banks did not like it.
At that time, independent ATM deployers were not allowed to hold Link membership. But luckily for IADs and the British public, a worthy building society — the Woolwich — decided to sponsor the IADs into the Link club.
The story might well have ended there, however. Two years after the installation of the first IAD-owned, Woolwich-sponsored ATM, the story Barclays Bank bought the Woolwich and promptly informed the IAD community that it was not prepared to sponsor them on Link. (see box, right, for more of the story)
With the refusal to sponsor IADs into Link, Barclays could have killed off independents. Fortunately, the government at the time had received a report that banks in the U.K. were suppressing fair competition. They were told to stop doing so.
As one signal that they were listening, the banks decided (just as Barclays was withdrawing IAD sponsorship) that Link would admit IADs.
Then, shortly after IADs were admitted to Link, Barclays announced that they would charge their customers for cash withdrawals at another organization's ATMs.
Whether this was about making money or making cash less popular, it is hard to say. Whatever the intention, it stirred up a hornet's nest for Link, with the media taking a strong line against charges for ATM transactions.
In the end, Barclays backed down and Link member banks did not introduce charges at that time.
However, Barclays' actions focused unwelcome attention on IADs, who at that time mostly made a small charge for cash withdrawals at their ATMs.
This prompted some ill-informed and possibly ill-intentioned politicians to leap in to try to undermine IADs. For the most part, Link management bowed to their criticisms.
However, the IADs refused to go away.
They had realized that they could run free-to-use ATMs more efficiently than the average bank, and started installing free-to-use ATMs the length and breadth of the U.K., a move that was immensely popular with the British Public. Suddenly, cash was conveniently available from ATMs located in local shops in communities everywhere.
And that's where today's problems at Link began.
Link free-to-use ATMs were not funded by charging ATM users directly. Instead, the banks worked out a formula, whereby each would receive a small cost-based fee — called interchange — when the customer of one bank used the ATM of another.
When only banks operated free-to-use ATMs, everything was more-or-less lovely for those banks. In approximately 70 percent of transactions, bank customers used their bank's ATMs, and these transactions were interchange-free. The remaining 30 percent balanced out between the banks, mostly, so that net payments of interchange were low.
However, IADs installing thousands of free-to-use ATMs changed this more-or-less lovely scenario.
The U.K. public was getting the cash access they needed and deserved at ATMs — while the banks were having to fund this improvement in service to their customers through Link interchange payments to IADs.
Between 2006 and 2016, the British public had 10 golden years of improved ATM services as 20,000 free-to-use ATMs were added to the Link ATM Network — nearly all of that net growth thanks to IADs.
Some banks did install off-premises ATMs during that 10-year period, but others deinstalled even larger numbers. These deinstallations, plus a massive reduction in the number of bank branches and on-site ATMs meant a net decline in bank ATM numbers over the decade.
The Link website proclaims, "10 years of improved access to cash," but what it should really say is "10 years of IADs improving access to cash." However, this would make uncomfortable reading for the banks that call the tune at Link.
The reality is that some banks have not met their responsibility to provide cash access to their customers.
Ten years ago, when the U.K. public was using cash for more than 70 percent of day-to-day payments, banks themselves should have installed the ATMs needed to meet demand.
Instead, they gave their customers tens of millions of cards enabling the use of ATMs without actually providing the ATMs for them to use.
The banks intended that their customers would use these cards to make purchases, because each transaction brought the bank a fee from the merchant.
Stubbornly, and despite hundreds of millions of pounds spent by banks to promote card use, the public continued to use cash.
The banks then decided that security considerations were standing in the way of a good "story" for cards. So, along came contactless cards, with no PIN number needed and the banks promising to cover fraud losses (ultimately paid in higher shop prices, but that's a different story).
Contactless has been hyped to a massive extent. But in the 12 months prior to April 2017, 76 percent of purchases in 50,000 U.K. convenience stores were still made using cash. These mostly small-ticket purchases should have been the first to switch to contactless — but most of them haven't.
Meanwhile, the Bank of England annually flies in the face of the "cash is dying" storyline by announcing that even more of it is in circulation. The most pronouncement from the Bank of England announcement is that cash in circulation increased 10 percent over the prior 12-month period.
The inconvenient truth for vested interests is that cash will not die on its own. So they apparently have decided that they will have to attempt to murder it.
Banks have helped in the plot by closing branches, taking with them their ATMs. Even more effective would be making 20,000 independently owned ATMs uneconomic and therefore subject to deinstallation.
This is exactly what slashing Link ATM interchange would achieve. It cannot be allowed to happen. Loud voices must be raised in opposition:
- The payment systems regulator must act to maintain and improve the Link ATM Network that it oversees, with deposit and withdrawal functionality for notes and coins a top priority.
- The Bank of England must intervene to ensure that the cash it produces is circulated conveniently for the public and businesses through an expanding Link ATM Network.
- The Treasury, acting for the government, must ensure that British citizens and the British economy are safeguarded through improved access to cash at ATMs.
No delay is acceptable.
Now is the time for action.
Tomorrow may be too late to save the payment choice enjoyed by the U.K. public.
Companies: ATM Industry Association (ATMIA)
Ron Delnevo Ron created the U.K. IAD Bank Machine in 2003 and led the company until 2012. In March 2014, he took up the role of executive director for the ATM Industry Association in Europe. Ron has a special focus on supporting choice in payment methods.