Direct Charging

In Aug-07, the Reserve Bank of Australia announced a package of reforms to the ATM industry including the abolition of bilateral interchange fees on ATM transactions. These reforms are known as Direct Charge and will commence on 03 March 2009.

Under the current system, financial institutions pay ATM owners a negotiated interchange fee, and then charge customers a fee to recoup the cost. These fees were not disclosed, and customers did not see the withdrawal charge until they received a statement from their bank. This system discouraged new entrants as an organisation wishing to provide ATM services would need to negotiate with each financial institution involved in the network separately, according to the Reserve Bank.

Direct charge will allow ATM owners (such as ICP) to charge customers a fee directly for the use of their machine, as long as the charge is displayed on the ATM screen before the withdrawal proceeds. The changes affect foreign ATM transactions, where customers withdraw money from an ATM that doesn't belong to their bank. As ICP is not a card acquirer, all transactions are foreign transactions.

The financial impact to ICP is that they will earn a higher proportion of the average $2 per transaction fee thereby boosting revenues and margins. In line with overseas experience, the number of withdrawals is forecast to decline by an initial 20% and resume historical volumes within six months.

The direct charge reforms are expected to lead to more ATMs in a wider variety of locations, increasing choice to consumers. They are also likely to promote increased competition in the provision of ATM services, with new ATM operators encouraged to provide ATMs in both new and existing locations.
 

Consumer choice is the ultimate regulator in ATM reform

SYDNEY - The Managing Director of Australia's second largest independent ATM deployer iCash Payment Systems (iCash; ASX:ICP), Mr James Manny, supports RBA ATM reforms which commence on the 3 March 2009 and says consumer choice will ultimately regulate ATM fee structures.

"Responding to consumer wariness of ATM "fee abuses" in the current economic climate, anecdotal evidence from owners of iCash ATMs indicates that many will not change the existing $2 transaction fee in the immediate period post-reform," says Manny.

While optimistic about the reform, Manny acknowledges the concerns of cardholders and market commentators who fear that many ATM owners, including banks, will increase fees. This includes opportunistically over-charging users of foreign ATMs (ATMs from institutions other than those affiliated to the card provider) especially in remote or single-ATM locations where consumers may have little or no alternative.

"iCash, as an independent operator, can now deploy ATMs in more locations adding competition where there was previously none and increasing choice for consumers. Since it remains to be seen how much banks, for example, will charge cardholders from other financial institutions for accessing their ATMs, iCash may provide alternatives," he says.

"We anticipate that a good majority of ATMs will continue to charge a standard $2 fee and we feel optimistic that customers will not be taken advantage of when accessing their own cash through independent iCash machines."

Manny believes competition is the key to reform and urges consumers to remember that the choice is ultimately theirs:

• Read material from your card provider/s about ATM reform and what it means for you

• Familiarise yourself with the transaction fees of ATMs in your local area

• Budget ahead when withdrawing funds, and decide a price you are willing to pay for convenient and immediate access to your funds if you're caught out

• While it is the ATM owner's discretion what fee they charge, it is your choice to pay - so be mindful of when and where you could need extra cash (ie. late at night, near public transport, remote locations, no competition)

• Be assertive if you feel there is too little choice among ATMs in your area

• Think outside the square about procuring an independent iCash ATM in your local community such as in easy-to-access shop-fronts of local businesses, local MP and council offices - even charities and churches where part of the fee can be redirected to local causes.

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