Could free-to-use cash machines soon become a thing of the past?

Fee-charging ATMs will outnumber the rest in a year's time, warns Nationwide
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The Independent Online

Cash machines that charge have mushroomed and the trend shows no sign of abating, raising fears that the days of free withdrawals could soon be numbered.

Since 1999, when all 30,000 automated teller machines (ATMs) in Britain were owned by the banks and free to use, the number of machines charging for a cash withdrawal has grown to more than one in three. Over the past six months alone the number of fee-charging ATMs has risen by 40 per cent to about 18,500.

Nationwide, which has mounted a campaign against the spread of charging machines, says they cost consumers more than £60m a year and this is set to escalate as their numbers grow. The building society estimates that if all machines charged, it could cost consumers more than £2bn a year. Since publishing its report in September, Nationwide has become more pessimistic and brought forward its prediction for when fee-charging machines will outnumber free ones to the end of next year.

Stuart Bernau, Nationwide's executive director, said: "At the present rate, more than 50 per cent of cash machines will be charging by the end of next year. The danger is that charging will become accepted as the norm as it is in the US, where charging is commonplace."

The number of independent cash-machine operators such as Cardpoint and Moneybox, which typically charge £1.50 or £1.75 for a withdrawal, is growing. They are the beneficiaries as the high street banks, which until now have been prevented from charging for withdrawals by the public's resistance, have moved to sell or close down some of their non-bank branch machines. In June HBOS sold 816 cashpoints to Cardpoint, which plans to convert half of them to the fee-paying model. Abbey National last year sold 50 to Moneybox.

Five years ago Barclays tried to start charging customers of other banks for using its cashpoints, triggering a public outcry which forced it to abandon the plans. The banks then set up the Link network to pool their costs of running cashpoints. Under the system, they pay fees to reimburse each other when their customers use other banks' machines. This so-called interchange bank fee is currently fixed at 19p for a cash machine at a bank branch and 30p in a "remote" location.

Designed to prevent "double-dipping", the Link rules - which have been approved by the Office of Fair Trading - state that operators of cash machines either receive the interchange bank fee or charge customers direct, but cannot receive both. The independent ATM operators have opted to charge customers direct and get an interchange bank fee only for balance enquiries and cancelled transactions, which are free to consumers.

The operators argue that they fill a gap in the market as the banks increasingly desert "remote" locations away from the high street where cashpoints are expensive to run. They say that the charges to customers reflect the high cost of operating these machines in shops, pubs and garages.

Moneybox, which owns about 2,800 ATMs, argues that direct charges to customers could be cut, and that an overhaul of the Link system is needed. The proposals come as a parliamentary inquiry into cash machine charging gets under way.

Moneybox suggests that the Link rules be rewritten so that the cost of running cashpoints is spread more evenly between ATM operators and card issuers. Under the proposals, the independent operators would also receive the interchange bank fee, enabling them to cut direct customer charges. Peter McNamara, the chairman of Moneybox, said that charges could be "much closer to a pound" although not below £1. He said: "You won't get machines in more remote locations unless there is a mechanism that makes them more economical." Moneybox said that a flat fee falls much more heavily on people on low incomes who want access to money in shops or pubs.

However, Nationwide is sceptical about the approach, saying that the entire business model of cash machine operators is based on charging and that charges are more likely to sneak upwards.

Meanwhile, Nicholas Tod, the chief executive of the ATM operator Scott Tod, wants to stick with the current charging system. He said: "I feel that's fair. I don't see that the banks should subsidise us."

He believes that over time the UK will become like the US where most cash machines charge, and said that banks were unable to make cash machines in remote locations pay. "Why should they be forced to provide a service that is loss-making?" he said.

Alerted by Nationwide's recent report, the House of Commons Treasury Committee, chaired by John McFall, is looking into the trend towards charging. Written submissions from banks, machine operators and Link must be made by Monday. In particular, MPs will investigate whether charges are presented clearly at cashpoints and whether low-income households are disadvantaged because of limited access to free machines in certain areas.

At the first public session on 21 December, members of the committee will hear evidence from the consumer organisations Which?, Citizens Advice and the National Consumer Council, as well as from Link. Executives from the Post Office will be grilled at a later session, after it emerged that only 650 of the Post Office's 2,000 branch cash machines allow free withdrawals.

James Plaskitt, a member of the committee, who has twice raised the charging issue in the House of Commons, said: "All the evidence is that these charges are steadily creeping up in excess of the rate of inflation. Eventually the (independent) operators will be in a position to corner the market and there is very little control on prices."

He said he was concerned that it was often not clear which cashpoints charge - only some of them have stickers and they tend to be rather small, he said - and that fee-charging ATMs were not placed in only isolated locations but sometimes close to free ones, with the sole purpose of "milking the consumer".

On the bright side, the number of free cashpoints in Britain has not fallen but risen slightly to just under 33,000. And even though fee-charging ATMs now make up 40 per cent of the total, they account for only 3 per cent of the value of cash withdrawn.

Consumers are voting with their feet. But if charging machines continue to spread, customers may one day have little choice but to fork out for what has until now been accepted should be a free service.

Mr Bernau said: "This is a defining moment. Unless action is taken now, the danger is that we could all be paying to withdraw our own money."