Access Regime for the ATM System: A Consultation Document – December 2008 2. The ATM System

The Australian ATM system is comprised of a number of ATM ‘networks’, linked together through a series of bilateral agreements. Most of these individual networks are owned by large banks and were initially established to provide their customers with access to cash withdrawals and some account management functionality. There are also two ‘sub-networks’, operated by Cashcard and CUSCAL, which were initially set up to serve building societies and credit unions (respectively), although these days their membership is wider. These sub-networks effectively link together ATMs of a large number of smaller institutions so that they can provide their customers with access to a larger network of ATMs. In addition, in recent years, a large number of ATMs have been deployed by owners that are not financial institutions, but rather whose sole business is to provide ATM services. The networks owned by these ‘independent deployers’ are also linked into the system, typically through one of the financial institutions. Figure 1 provides a stylised representation of the Australian ATM system.

When ATMs were first introduced in Australia in the early 1980s, cardholders could only use the ATMs of their own financial institution. Gradually, however, these individual networks were connected so that bank customers could use their ATM card at a wider range of ATMs. By the 1990s, these interconnections had progressed to the point where most cardholders had universal access to ATMs – most ATM cards can now be used in any ATM in Australia, regardless of who owns the ATM.

The interconnection of ATM networks was facilitated through bilateral agreements between network owners that allow each institution's cardholders to use the other institution's ATMs. Among other things, these bilateral agreements provide for the payment of ‘interchange fees’ from the card issuer to the ATM owner in compensation for the service that the ATM owner is providing to the cardholder.^[1]

Since interchange fees are set through bilateral negotiation they have typically been confidential to the parties in the agreement. In 2000, however, the Reserve Bank and the Australian Competition and Consumer Commission (ACCC) undertook a study of interchange fees (the Joint Study), including those for ATMs, which found that interchange fees for a cash withdrawal varied between $0.80 and $1.30, averaging around $1.00.^[2] The Bank's understanding is that there has been very little change in these fees since that time.

As interchange fees are a cost to the card issuer, many financial institutions charge their customers a ‘foreign fee’ when they use an ATM belonging to another financial institution. These fees are, however, typically significantly higher than interchange fees. Currently the four largest banks charge $2.00, up significantly from the average of $1.35 at the time of the Joint Study. Since interchange fees have not changed since this study, the increase represents a substantial rise in the margin over interchange fees. In contrast, many smaller financial institutions choose to absorb the cost of the interchange fee for their customers, effectively providing them with fee-free access to a large number of ATMs.

The ability to use ATMs of other networks is an important public benefit, providing cardholders with choice and convenience, as well as helping promote competition between financial institutions. Indeed, of the 850 million cash withdrawals from ATMs undertaken in the year to June 2008, almost half were conducted at ATMs not owned by the cardholder's financial institution. This is despite the fact that, as noted above, many banks charge their customers for using such ATMs.

Footnotes

In this respect, they are quite different from interchange fees in most other payment systems. ATM interchange fees can be understood as a fee for service rather than the more complicated balancing device used in card payment systems. [1]

Reserve Bank of Australia and Australian Competition and Consumer Commission (2000), Debit and Credit Card Schemes in Australia: A Study of Interchange Fees and Access, October. [2]