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Outlook: Nationwide ATM network going up in smoke

THE BIG, bad banks seem these days to find themselves under attack on virtually every front. Only in the City do they command respect, this for profits that seem to rise ever more effortlessly. For some reason, everyone else thinks they are only on the make.

The Chancellor hates them because he thinks they are ripping off small business. The Consumers' Association positively despises them because it believes they overcharge through cross selling of poor value financial products to their captive account holders.

Even the big retailers have got it in for them. They too think they are being ripped off, in their case through excessive charges on credit card transactions. Everyone other than shareholders, it seems, thinks they are being taken for a ride by the banks. Now Nationwide building society has joined the chorus and, putting its money where its mouth is, it says it will sue Barclays for attempting to charge Nationwide customers for using Barclays cash machines.

Barclays came out fighting yesterday, insisting that it was only making ATM charges more transparent. It scarcely needs saying that few are going to have much sympathy for its position. Most people thought the prospect of a truly national cash point network, allowing customers to use any ATM they please free of charge, to be one of the few decent things to have emerged from the banking industry for many a long year. By charging in this way, Barclays seems to be leading the charge to dismantle it.

There must be some good reason for wanting to make yourself even more unpopular than already, so why is this? Barclays has invested more in ATMs in Britain than any other bank, and its network is larger than anyone else's. In the round it, therefore, finds itself a net loser, since its own customers use the ATMs of rival banks a good deal less than others use the Barclays network. In effect, says Barclays, it is subsidising rivals.

To correct the problem, it has decided to start charging the customers of other banks up front. The problem with this defence is that under the Link system which connects ATMs, those customers are already charged through a so called "interchange fee". Nobody outside the banks knows exactly how big this charge is - commercially confidential, old boy - but it is generally assumed to be enough to cover the economic costs of running and maintaining an ATM network, probably in the region of 30p-40p per transaction.

Everytime you use an ATM on someone else's network, your bank pays this charge to the ATM operator. Some banks, such as Barclays, claw it back by directly charging the customer a "disloyalty" fee. Others, like Nationwide, the Co-op and Royal Bank of Scotland, just throw in the charge as part of the service. For Barclays to charge extra is, therefore, a surcharge, and according to Nationwide, a breach of the rules under which Link was set up.

You can argue about the specific pros and cons of this approach until the cows come home. Certainly there is something to be said for the argument that banks cannot be expected to invest in ATMs for the benefit of rivals.

But one thing seems clear. Any return to the fragmented ATM networks of the past will setback the cause of competition in retail banking years. One of the big pluses of the Link system is that it profoundly reduces barriers to entry in the banking markets by allowing new entrants a ready- made national network of cash dispensers.

Is not this the real reason why Barclays and others have decided to break it up? In other industries, notably telecoms and electricity, incumbents are forced to make their networks available to new entrants at what the regulator decides is an economic cost. The same model might usefully be applied to banking. The way they are going, bankers are soon going to have John Bridgeman of the Office of Fair Trading to contend with alongside the irritant of Don Cruickshank.