An Access Regime for the ATM System – February 2009 3. The Reform Package

Reflecting the concerns set out in the previous section, the Bank has been working with the industry for a number of years to reform the ATM system. The history of those efforts was set out in the earlier Consultation Document. These efforts ultimately led to a reform package being developed by the industry with the following elements:

1. an industry-developed access code implemented through APCA;
2. ATM owners having the freedom to charge cardholders directly for the use of an ATM, with any charge being disclosed to the cardholder prior to the withdrawal being made;
3. zero interchange fees between direct connectors;
4. sub-networks being able to retain their multilateral interchange fees;
5. an ability for institutions to enter into arrangements to rebate the direct charge for their customers at the time of the transaction; and
6. a dispute resolution and disclosure regime.

The Bank's analysis of this package is that it addresses the two central problems discussed above.

In particular, the move to a regime in which ATM owners directly charge cardholders rather than earn revenue through interchange fees will increase competition in the provision of ATM services. With the price of an ATM withdrawal clearly displayed there is an opportunity for the normal forces of competition to come to bear. Where an ATM is charging a fee above the cost of provision in many cases it will be possible for a competitor to put an ATM with a lower fee near the high-fee ATM. These competitive forces would be expected to lower the cost of ATM services below what they would otherwise be. In addition, the access reforms will make it easier for new firms to enter the market, strengthening these competitive forces.

The reform package will also increase the transparency of the price of ATM services. Customers will be made aware of the price of a foreign ATM withdrawal at the time of a transaction and given an opportunity to cancel the transaction if they are not prepared to pay the fee. This will be a significant improvement over the current situation where the fee for using a foreign ATM is included on the account statement usually well after the time of the transaction.

The package will also promote choice and the provision of ATM services in areas that do not currently have ATMs. Direct charging allows ATM owners to place ATMs in locations that were uneconomic under the one-size-fits-all interchange fee system. This means that low-demand locations are likely to get ATMs that they would not have in the past – increasing choice and convenience for consumers. A related benefit is the potential for ATM deployers to offer different services through their ATMs that were difficult to accommodate under the fixed interchange fee system.