STRATEGIC PARTNERS
The U.K.'s national shared ATM network, which recently added three large banks to its membership rolls, is gearing up for changes in the market. by Ann All, editor
July 18, 1999
LINK CEO John Hardy can envision a future in which there may be no interchange in the U.K. Barclays, Midland Bank and Lloyds Bank have signed on as members of the U.K.'s national shared ATM network, meaning LINK cardholders can use essentially any terminal. Because of this universal interoperability, Hardy believes there are other, more efficient economic models than interchange. "I could conceive a situation in which each institution put into the pool a certain number of ATMs, and that governed the dividends they got out of the whole scheme," he said. As far as Hardy is concerned, it all comes down to efficiency. "In an interchange situation, the whole network and all its components operate at a sub-optimal level, so you've got a higher cost base than necessary," he said. "In theory if one optimizes for efficient delivery as a whole, you can drive down the cost base and save everyone money." He acknowledged that there would be obstacles in making this vision a reality, not the least of which is possible resistance by network members. In the U.K., as in the U.S., financial institutions are constantly jockeying for a competitive advantage. The key, Hardy said, would be to "make sure you left (financial institutions) all in the same position relative to each other." The main way British financial institutions differentiate themselves is by offering enhanced services such as balance inquiries to their customers. They're facing new competition from retailers. Tesco Personal Finance, a subsidiary of the huge Tesco supermarket chain, offers basic bank services including ATM access. Retailers typically don't have brick-and-mortar branches, so their costs of operation are low. They compete with established banks by offering inducements such as interest-bearing checking accounts. "They're largely mail or phone-based with the ATM as their primary delivery channel," Hardy said. "They aren't offering particularly sophisticated financial services, but a large proportion of the population doesn't have particularly sophisticated banking needs." The addition of Barclays, Midland and Lloyds expands LINK's membership to 33 financial institutions, with a total of about 25,500 ATMs. The off-site market has yet to truly develop in the U.K., but that could change with a new LINK rule allowing third-party deployers to enter the market if they are sponsored by a financial institution. "They have to be sponsored by a network member which takes responsibility for the operation in the legal and financial sense and provides a recourse for the customer," Hardy explained. Despite the rule change, Hardy thinks only a handful of independents are seeking sponsorship. "The idea of independent, third-party providers just hasn't taken off in the U.K.," he said. Two notable exceptions are Euronet and Moneybox, independents that have recently announced plans to deploy a combined total of 1,200 ATMs within a year's time. Both are sponsored by LINK member Woolwich plc, a mid-sized building society turned-bank. Both also plan to charge a 1-pound convenience fee at their Woolwich-branded ATMs. Hardy predicts that more surcharging ATMs will be installed at off-site locations over the next few years, even though British banks are concerned about how consumers will react to the fees. "It's going to take a lot of courage to start surcharging on a wide basis," he said. LINK's own management subsidiary, ATMOS, just signed a contract to oversee 1,000 machines. Hardy believes they will be located at convenience stores and service stations, and will most likely assess a surcharge. Despite the contract, outsourcing has yet to catch on in the U.K., he said. "Most institutions have outsourced 100 machines or less." Hardy believes that LINK's status as a single, nonprofit network owned by its members is a vast improvement over the early days of shared ATMs in the U.K., when the largest banks operated under loose, bilateral arrangements. In fact, he feels it's more effective than the U.S. model of regional networks. "Ten years ago, (U.S.) shared networks were well ahead of anything that was occurring in the U.K.," he said. "Now in a sense, the single surviving network here has moved ahead because it's a national, regional and local network all at the same time."