Will UK banks break Link?
The Link UK ATM Network announced a few months ago that it planned to reduce ATM interchange by 20 percent over four years.
This move stunned many observers because Link interchange is calculated each year using a transparent cost-recovery formula, which was approved by U.K. regulatory authorities well over a decade ago.
The essence of the argument put forward by the Link board to justify the massive cut in interchange is that there are too many free-to-use ATMs in the U.K.
How can a judgment be formed as to whether there are too many ATMs in the U.K.?
The easiest way is to look at comparisons with the U.K.'s European neighbors.
So, here are some international comparisons that demolish the argument put forward by Link that there are too many free-to-use ATMs in the U.K.
- Switzerland — 7,000 ATMs, each averaging 1,800 cash withdrawals per month; 3,000 bank branches; population 8.2 million.
- France — 56,000 ATMs, each averaging 2,200 cash withdrawals per month; 40,000 bank branches; population 66.6 million.
- Germany — 58,000 ATMs, each averaging 2,500 cash withdrawals per month; 36,000 bank branches; population 82.2 million.
- Poland — 23,000 ATMs, each averaging 2,600 cash withdrawals per month; 8,000 bank branches; population 38.5 million.
- The U.K. — 55,000 ATMs, each averaging 4,800 cash withdrawals per month per ATM; 8,000 bank branches; population 66.1 million.
U.K. cardholders use ATMs for cash withdrawals at approximately twice the rate their European neighbors.
On this basis, surely more ATMs are needed in the U.K., rather than fewer!
Note also the number of bank branches in other European countries. The U.K. has the lowest number of bank branches per 100,000 residents of any major European market.
There used to be nearly 20,000 bank and building society branches in the U.K. There are now 8,000 and that number is forecast to shrink to 4,000 within the next four years.
Many in the U.K. are asking why, having lost so many bank branches, they are being told that they should have fewer ATMs as well, even though those ATMs are so well used.
This is particularly hard for the public to accept when they look at the figures from Link giving the number of ATMs they would like to see closed.
That figure is 5,000 ATMs.
Essentially, Link is claiming that there 5,000 "excess" ATMs in town centers and that slashing interchange by 20 percent will lead to the desired effect, i.e., their closure.
As previously noted, 4,000 U.K. bank branches are likely to close in the next 4 years. Each has, on average, two ATMs. This means that closures alone could lead to the loss of 8,000 ATMs, without any reduction in interchange.
That's 3,000 more ATMs than Link says should be removed. And, of course, bank branches in the U.K. are now mainly to be found (if one is lucky enough to find one at all) in town centers, so ATMs lost through branch closures will be in the very same locations where Link currently wants to see closures.
In any case, the truth about major town centers is that bank branches in such locations often have as many as 10 ATMs.
Take the example of Market Street, the major shopping hub in the city of Manchester. On this street sit branches of four of the Big five U.K. banks with more than 30 ATMs among them!
Clearly, banks don't need Link interchange slashed to reduce the number of ATMs in the U.K. They could simple remove two from each of their major town center branches and, hey presto, more than 5,000 ATMs will disappear.
The truth about the proposed arbitrary cuts in interchange is that they are not targeted at removing bank ATMs in town centers. Banks are happy enough to provide cash withdrawals at their remaining branches because interchange is paid at the lowest level on cash withdrawals from ATMs in these locations.
Interchange fees are highest for off-premises ATMs, which most often are operated by super-efficient ATM providers who, thanks to their efficiency, earn a small profit per transaction from their ATMs.
As bank branches — and their ATMs — have closed in recent years, thousands of small towns, rural villages and suburbs have been left with no bank branch and no bank ATMs. These communities are now largely dependent on free-to-use independently owned ATMs for convenient local access to cash.
The problem is that some banks no longer want to make the tiny Link interchange payments that enable their customers to get cash from these ATMs. So they are telling Link that savage cuts in interchange are required, and they are threatening that if such cuts are not forthcoming, they will leave the Link network.
This ultimately would lead to the end of convenient access to cash for 66 million U.K. citizens because the network would completely unravel. Missing Link would be the outcome for the British public.
What is to be done?
The patently arbitrary cuts to interchange cannot be accepted. A transparent method for the calculation of cost-recovery interchange must be retained.
With 30,000 ATMs threatened by the proposed cuts, and with bank branch and their ATMs fast evaporating, cash deserts would soon become the norm in thousands of communities around the U.K.
I believe there should be an independent inquiry into issues related to Link and interchange. Such an inquiry might lead to changes and even cost reductions, but these must be made transparently and in a manner that allows for reasonable profits for efficient ATM operators.
These profits will underwrite further investment in ATM innovation, allowing ATMs to become viable local substitutes for the thousands of bank branches that have closed across the U.K.
To initiate a public inquiry will require intervention by the Payment Systems Regulator, the Treasury or the Bank of England.
I urge these bodies to act now in the public interest to halt the arbitrary cuts and ensure that a public inquiry takes place.
Instead of demanding arbitrary cuts to interchange, any bank that really wants to leave Link should simply and clearly inform their customers that they wish to do so.
There is little doubt as to the reaction and with account switching in the U.K. now guaranteed within seven days, the first bank to announce its intention to leave Link may well be in for a very unpleasant surprise.