Sticks and carrots: Why a plan to redistribute ATMs in the UK is bound to fail

By Suzanne Cluckey on ATMmarketplace.com

Overriding the objections and concerns of ATM operators, consumer groups and Members of Parliament, Link UK announced last week that it intends to carry out its plan to cut 20 percent from fees paid by member banks to other ATM providers for off-us transactions.

Too many ATMs?

Link contends that the U.K. has too many ATMs — up to 80 percent more than necessary in urban areas, it claims — and that cutting fees is the best way to weed out thousands of ATMs that it deems to be redundant.

The cuts, which will be phased in over a four-year period starting in July, will eventually reduce interchange paid to off-us ATM providers from 25 pence to 20 pence (35 cents to 28 cents).

The network has, however, pledged to maintain fees at their current level for ATMs that are at least 1 kilometer from one another.

It's not entirely clear how or who will decide which ATMs will stay and which will go, though. Will the highest-traffic machine in a given area get to stay? Will the deployer with the longest tenure prevail? Will an operator with the best record of innovation and ATM uptime get the nod? Will the victor be decided by the flip of a coin?

And, anyway, why is Link so concerned about a surfeit of ATMs in large cities? Logically, competition would prompt deployers to provide more and better services at their ATMs, wouldn't it? And wouldn't that be a benefit to all the consumers the network ostensibly serves?

Further, what is the difference in cost to Link member banks of, say, 2,800 ATM transactions carried out at one machine per kilometer compared with the same number of transactions carried out at many machines within the proximity of less than one kilometer? In short ...

What's it to them?

More ATMs are more opportunities for bank customers to seek out and use independently owned and operated machines. Which translates to more fees paid out by banks.

Understandably, they would prefer to limit the number of transactions at IAD-operated machines. And the best way to do so is to limit the number of IAD-operated machines.

Additionally, by reducing the number of machines, and by extension, access to cash, banks gain the opportunity to drive consumers to other more desirable — to them — forms of payment.

In a press release, however, Link said that its objective is to "maintain and rebalance the U.K.’s ATM network, shifting incentives from deploying ATMs in city centers to rural and less-affluent communities." Without question, a worthy goal.

To achieve it, Link will triple its current financial inclusion subsidy from 10 pence to 30 pence (from 14 cents to 42 cents) per transaction for ATMs located in underserved areas with poor cash access.

In many cases, these are small towns and villages from which branches and ATMs operated by U.K. banks have been disappearing at a rapid — and ongoing — clip.

But, what about the underserved?

But will an additional subsidy for village ATMs compensate operators for the added cost of operating a network of remotely located ATMs? India has employed this gambit to no avail. After five years of "encouraging" (or just plain requiring) deployers to expand their ATM networks to underserved areas, those areas remain underserved.

The reason for this is simple and, in fact, it's the very same reason why U.K. banks are shuttering their branches and ATMs in (now) underserved communities: It's not profitable.

Link's plan for redistributing ATMs across the U.K. is contentious and fraught. And it is costing independent ATM deployers a small fortune. Well, actually, a large fortune.

Even before the planned reductions take effect, they have contributed to a half-billion dollar haircut at Cardtronics, according to a Financial Times report. (To be fair, though, the company has also felt a pronounced effect from the loss of its 7-Eleven contract in the U.S., involving approximately 8,500 ATMs.)

Another independent ATM deployer in the U.K., Note Machine, has also felt a pre-landing impact from the cuts. The company's U.S.-based owner, Corsair Capital, completed a turnaround of the company and was looking for a buyer when the fee-cut proposal first surfaced. Potential buyers fled like their hair was on fire.

You can't do more with less

It should be obvious that reducing the current profitability of ATM providers is not likely to move them to put their ATMs in potentially even less profitable locations.

If these companies are profitable, it is due to the fact that they have been free to place ATMs where cash is in demand and providing it offers a return on investment.

Using the stick-and-carrot approach of fee reductions and dubious subsidies is simply the wrong way to solve the problem of cash access in the U.K.

If this truly is what Link and its member banks hope to achieve, they'll need to work with independent deployers to soften the blow from the stick and increase the appeal of the carrot ...

If cash access for all truly is what they hope to achieve.