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The UK’s Payment Systems Regulator (PSR) has launched a consultation on new rules for LINK, the free cash machine network.
The PSR is calling for views on its new rules, otherwise known as a Specific Direction, to aid the operator of LINK in ensuring that it can meet the objective of continuing to maintain a broad geographic coverage of the Free-to-Use (FTU) ATM Network in the UK and meet service user needs.
Within the draft Specific Direction, the PSR is requiring that:
- LINK’s policies and measures meet certain objectives — this includes requiring LINK to set out the criteria it will use to determine the circumstances in which alternative cash access will be considered as an adequate substitute for a lost ATM.
- LINK to provide the PSR with one month's notice if it proposes to vary, revoke or replace any of its procedures, policies processes and measures. LINK cannot bring any of its proposed changes into effect if the PSR raises objections within the one-month notice period.
However, the new Specific Direction also lowers reporting and monitoring requirements for LINK, according to the regulator.
The new direction will replace Specific Direction 8 (SD8), which expires in January 2022, with the draft of the new consultation open until November 21 this year.
“Despite the recent decline in cash usage, there are still over five million people that rely on it,” said Genevieve Banks, the PSR’s head of policy.
Cash is also still the second most frequently used payment method, after cards, and ATMs are an important part of the cash infrastructure as most people access their cash through an ATM.
The PSR’s priority, it has said, is to support the ATM network and ensure it remains sustainable, resilient and accessible to those who need it.
A key part of the PSR’s role is to make sure that the markets that are in scope of regulation support choice and help people pay in ways that work for them, continued Banks. “And in this case, so they can withdraw cash when they want to without having to travel too far.”
UK ATMs - The Whole Story
Although falling cash and ATM usage has been significant over the last couple of years, it has only exacerbated a wider issue in the access to cash debate.
For example, cash in the UK declined from a peak of 21bn transactions in 2012 to just 6bn in 2020, according to UK Finance. In particular, since 2016, there has been a 65 percent decline in usage.
Yet despite this decline, ATM usage in terms of the number of cash withdrawals had until recently been less severe. Between its peak of 2.9bn transactions in 2012 and 2018, there was an average annual decline of just 3 percent.
In 2019 and 2020, however, the rate of decline jumped significantly, primarily in the later year due to COVID-19, resulting in a 50 percent overall fall in usage across the two years.
Concerns over access to cash predate this major decline and are partly the result of the decision by LINK in 2017 to lower the rate of interchange in response to a changing market environment.
Historically, banks operated their own ATM estates and receive a small fee (interchange) when a cardholder from another bank withdrew cash from their ATM. This fee created a market opportunity for independent ATM deployers (IADs), who could create and efficiently run their own ATM estate and operate at good margins based on the interchange they received. The fee also meant that IADs could make a profit without charging the cardholder for using their ATM.
As time went on, many banks started to sell their remote estates — ATMs not attached to their branches, such as in shopping centres — to these IADs. As this ownership change evolved, banks started to complain that they were overpaying interchange, as usage increased at IAD-owned ATMs.
The banks argued that as interchange had been originally worked out based on their costs to run these estates, it should be lowered to reflect the more efficient IADs.
On the flip side, the IADs argued that if interchange declined, they would have to start charging customers to maintain their income. Concerned that this argument would reduce the use of free-to-use ATMs and restrict access to cash for the most vulnerable, the consumer body Which? called for regulatory intervention to protect the consumer, while the government indicated that it expected the PSR to take control over this issue.
This call for intervention was back in 2018, and as we have seen, the fall in ATM usage over the last couple of years has further challenged the economic viability, particular for IADs, of maintaining large ATM estates that are free-to-use. For example, according to UK Finance, from a peak of 41,213 at the end of 2017, the number of IAD owned ATMs declined to 32,032 at the end of 2020. In this same period, the number of free-to-use ATMs decline by 12,431 to 42,721.
Developing a sustainable future for ATMs, particularly as we move further towards a digital future, will be high on the PSR's agenda as it looks to ensure no one gets left behind and that the most vulnerable customers can get access to cash.
