PROPOSAL TO REDUCE ATM INTERCHANGE FEES TO ZERO

COMMUNITY FEEDBACK SOUGHT ON PRINCIPLES FOR  DIRECT CHARGING MODEL 

Sydney, 3 March, 2003: A community consultation process has today been launched on a proposal to reduce ATM interchange fees to zero and replace the current system with a direct charging model.

The ATM Industry Steering Group, initiated by the Reserve Bank of Australia (RBA), is encouraging interested groups to make submissions on the set of principles which it intends to apply to a direct charging model for ‘foreign’ ATM transactions.

ATM reform is the third tranche of a wave of RBA reforms transforming the Australian payments system.[1] The second tranche of reform – reducing debit card (EFTPOS) interchange fees to zero – is currently being assessed by the Australian Competition and Consumer Commission (ACCC) and is planned to come into force by the end of October to coincide with the RBA’s credit card reform timetable – which was the first tranche of the reform process.

A discussion paper prepared by the ATM Steering Group, which comprises banks, building societies, credit unions, independent ATM deployers and payments systems providers, has been posted on the RBA website (www.rba.gov.au) to facilitate consideration.

The ATM interchange reform proposal will only impact on the 30% of ATM withdrawals that are made from ‘foreign’ ATMs because it is only those transactions that involve an interchange fee. A ‘foreign’ ATM transaction is undertaken when a customer uses an ATM which does not belong to their card issuing institution.

The RBA and ACCC have asked the ATM industry to consider a ‘direct charging’ model for foreign ATM fees instead of the current interchange fee arrangements, which they argue are inefficient and non-transparent. This would replace the bilaterally negotiated interchange fees between a cardholder’s institution and an ATM owner.

The RBA/ ACCC Joint Study noted[2] that the benefits of a direct charging regime could include:

• encouraging transaction fees more in line with costs and promote transparency;
• providing an incentive for ATM owners to place ATMs in higher cost (eg remote) locations offering greater convenience for customers willing to pay;
• making transaction charges obvious to users.

Currently, when customers use a foreign ATM their financial institution pays an interchange fee to the ATM owner. Most, although not all, institutions charge their cardholders a ‘foreign ATM fee’ for such transactions, to cover this interchange payment to the ATM owner and other costs.

Under ‘direct charging’, the interchange fees between a cardholder’s institution and an ATM owner would be set to zero and ATM owners would be able to charge cardholders directly for using their machines. 

The ATM Industry Steering Group is seeking community views and comments on these proposals to help in developing a proposal to be presented to the ACCC for ‘authorisation’.

David Bell, Chief Executive of the Australian Bankers’ Association, said: “The new reforms could lead to an improved system. Community feedback is important and will be factored in to the final proposal.”

John Toms, Spokesperson for Australian Association of Permanent Building Societies (AAPBS), said that building societies were pleased to see that reform of interchange arrangements could extend to the use of ATMs.  “Such reforms come around rarely and it is important to receive community feedback in order to develop an equitable and workable model.”

Ken Gaunt, ATM Industry Association (ATMIA) board member and Director of Cashcard, said: “The industry supports the search for the optimal business model for all ATM deployers because this will underpin the future success of the industry. Feedback from the community is important on the Discussion Paper because better business models will ensure ATMs can be installed where ever customers want them.”

Louise Petschler, spokesperson for Credit Union Services Corporation (CUSCAL), said: “There are many important issues in this debate.  We are keen to hear community views on the suggestion from regulators for ‘direct charging’ on ATMs, to help develop fair and effective options for reform.”

The RBA will collect written submissions on behalf of the ATM Industry Steering Group.

Send written submissions to:

Payments Policy: ATM Direct Charging Reform

Reserve Bank of Australia

GPO Box 3947

Sydney NSW 2001

Or deliver by email: ATMs@rba.gov.au

The RBA will receive submissions on the industry’s behalf until April 22.

Notes for Editors:

·        The Discussion Paper by the ATM Industry Working Group can be found on the RBA website – www.rba.gov.au

·         In assessing the merits of ‘direct charging’, the RBA/ACCC  Joint Study – “Debit and Credit Card Schemes in Australia: A Study of Interchange Fees and Access” (October 2000, p 34) said that:

“The attractions of a direct charging regime are that it may encourage transaction fees more in line with costs, and promote transparency. For a start, it puts the ATM owner in a direct economic relationship with the cardholder, rather than only an indirect one via the issuer. If the consumer is to exert any direct influence on pricing – for example, by patronising the less expensive ATMs – this regime would achieve it more effectively than the present system.”

“As an additional factor, under current arrangements, the ATM owner receives the same interchange fee for an ATM withdrawal from a given issuer, regardless of where that transaction is undertaken.