News & Views - Savantor

Feb 2005 – The debate on IADs

Tuesday, 01 February 2005

Of late, much has been made of the number of ATMs charging for the withdrawal of cash. Such a furore has been caused in the media that this has lead to a Treasury Select Committee being appointed to investigate the practise further. But is this a "storm in a teacup"? Who is actually complaining?

The vast majority of fee generating ATMs have, to date, been installed by Independent ATM Deployers (IADs). These are commercial organisations that, unlike Banks, do not have other financial products to supplement the costs of installing and maintaining ATMs, or generate alternative revenues and margins. IADs claim that their ATMs are located at sites not covered by non-charging ATMs. However, approximately 8% of fee charging machines are located within 100 metres of a free ATM (source Nationwide Building Society). At these locations, the consumer therefore does have a choice. It appears that the IADs are offering a service in areas where, in the majority of cases, Banks have not located ATMs. For this, the IADs charge a fee when dispensing the cash.

Of the 50,000 ATMs deployed in the UK, it is estimated that some 20,000 are fee charging. These generate some £140 million per annum in fees. However, in the UK as a whole, cash withdrawn from fee charging ATMs represents only 3% of the total cash withdrawn from all ATMs (source LINK). So, one might ask, is the charging of a fee not simply a commercial reality?

How is this debate affecting the industry?

At least one IAD has recently stated that these discussions are a distraction from the day-to-day business and will affect revenues going forward as well as acquisition strategy.

So what can the IAD do?

The Building Society Association has recently written to the Treasury Select Committee requesting fee generating cash machine operators to display clearer warnings if they charge consumers for withdrawals. This seems only reasonable and the IADs would be wise to comply.

Are the Banks concerned by IADs?

One would think not, as a leading financial institution has recently sold its ATM estate to an IAD. However, if the trend for fee charging ATMs continues (fee generation has grown 133% over the last 12 months - source Nationwide Building Society), we may well be faced in the foreseeable future with all ATMs charging.

If this happened, would current account holders return to the practise of cashing cheques in branches to obtain cash? This would prove problematical for many Banks as they have, over the last few years, moved the branch facilities away from cashier interfaces to product sales points. As an alternative, facilities such as cash back offered by many supermarkets may become more popular and be utilised further.

So, are the concerns justified?

In a free market economy, the consumer has the choice to use the service and pay the fee or not. There is a growing school of thought in the industry that says, why not let commercial reality and market forces deal with the longevity of fee charging ATMs, without the need of interference from Government.

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