We were pleased to see Nicky Morgan MP, chair of the Treasury Select Committee, write today to the chairman of LINK, the group that manages the UK’s ATM network, about their proposals to reduce the interchange fees that banks pay to businesses providing ATMs. I think this is important for convenience stores and the eco system of local businesses that we trade alongside, and I’ll explain why, but first, here’s a very quick primer on how the ATM system works (if you know all this, skip a paragraph).
If you’re a customer of a particular bank, you benefit from being able to access your cash easily and at no charge. But if bank A provided a big network of ATMs and bank B didn’t offer many, it would be wrong that bank B could get a free ride on bank A’s investment in their ATM network. The interchange fee system is there to make sure that the banks pay for the services their customers use, so currently when you get cash from an ATM, your bank pays 25p to that ATM provider for the convenience to you. Over the years, we’ve seen more ATMs offered by third party providers like Cashzone or Note Machine, but the principle is the same: banks pay whoever provides the ATM on a per transaction basis to offer that convenience to their customers. One more thing to throw into this: business rates. The operator of an ATM has to pay business rates based on the usage of that machine, and this is usually a four-figure cost annually. This means that as well as the costs of installing an ATM, servicing it, filling it with cash, and maintaining a communications link with it, the operator has to pay these business rates, all of which is funded by those 25p interchange fees.
LINK are now proposing to reduce this 25p interchange fee to 20p, in a phased approach over four years. It’s the ATM operators who will see their income directly hit by this, but as that changes the economics of offering ATMs, it will impact on convenience stores as well - 45% of convenience stores offer free to use ATMs, with a further 13% offering charging ATMs. ATMs that are used a lot – probably those in town centres or shopping centres or near busy transport hubs – might become less profitable for the operator and the retailer, but they’ll probably still be viable. It’s the sites with a lower number of transactions that could be pushed into being unviable, and they will be more likely to be located in villages, estates and secondary areas around high streets. I would argue that these machines are especially important services, because there are less likely to be alternative ATMs and other cash outlets available, and because the businesses in those areas are also likely to have less footfall and turnover, so may not accept card payments. Add to that the market, the school fete, the sports club bar and all the cash-based services in those areas, and the impact goes far beyond convenience stores losing an income, it becomes about the whole local economy. LINK gives a higher interchange fee to about 300 ATMs in areas where the service is particularly important and at risk, but this is a small proportion of the network and of the communities who would struggle without a free to use ATM.
It’s up to retailers how they respond to a challenge like this, but those I speak to tell me two things on this subject: firstly, they want to offer a free to use cash machine and don’t feel their customers would accept a charging machine, and secondly they can’t subsidise services in their store. Footfall is great, but you pay your staff and suppliers with the profits you generate, and every square foot of space has to earn its keep to maintain a productive and viable business.
This all takes me back to the start, and Nicky Morgan’s intervention. Parliament should be taking an interest, because the impact of this cut in fees will be felt in every constituency. LINK should think about the full impact of their proposal to cut interchange fees, effectively to help banks who have cut their networks and expect ATM operators and retailers to offer these services when they won’t. The equation here looks pretty clear: big banks vs small shops and communities.
