EXCLUSIVE: “Balls to the ATM network!” – Ron Delnevo, Cash & Card Consultants in ‘The Paytech Magazine’
Ron Delnevo of Cash & Card Consultants argues that a simple solution to the dwindling number of ATMs is staring the UK government in the face. It can solve the access-to-cash lottery… through the National Lottery!
HM Treasury has just conclude yet another consultation on issues connected with access to cash in the UK. Concerns about access to cash are of fairly recent origin for residents of this small island.
Until 2017, the number of free-to-use ATMs, which dispense more than 90 per cent of the cash used for day-to-day payments, had been increasing every year since 1998 – from 24,500 to 54,500. However, just beneath the surface of this apparently wholly satisfactory situation, trouble was brewing. In fact, it had been brewing for many years and it’s not difficult to understand why.
All ATMs in the UK are connected to the LINK ATM Network (LINK), which is funded by UK banks by way of a small payment per cash withdrawal by their customers to other banks and non-bank operators Until the dawn of the new millennium, INK was basically a bank club and the payments made for ATM cash withdrawals were fairly well-balanced between them all. No bank faced significant net outgoings. Then, independent ATM deployers (IADs) joined LINK. They realised that they could make a decent profit by operating free-to-use ATMs to supply bank customers with the cash they wanted. Over the next decade or so, IADs installed thousands of ATMs, improving access to cash for tens of millions of people. But it meant that some banks now faced substantial net outgoings.
The methodology for calculating what should be paid, per ATM cash withdrawal, had been agreed by the UK competition authorities in 2001 and, every year, accounting firm KPMG used it to calculate what the payment per cash withdrawal would be for the next 12 months. It was fair and transparent, but of no consolation to those banks that were paying more each year for ATM services. This went on for years, with the banks stymied in their attempts to reduce their outgoings by the threat of regulatory action against them.
The threat of regulatory intervention faded somewhat over the years, and, eventually, the banks were able to bring about changes. The organisational structure of LINK was altered and, crucially, a new LINK board replaced the previous members’ council, with the power to set payments for cash withdrawals as it saw fit, whatever findings KPMG produced. Unsurprisingly, perhaps, payments for cash withdrawals were reduced. This reduction had an immediate and continuing impact on ATM numbers. Free-to-use ATMs that were deemed by operators to be no longer profitable, were either removed or switched to pay-to-use. Today, there are only around 41,000 free-to-use ATMs in the UK, a 25 per cent fall in only four years, and numbers continue to decline. ATMs are not only being lost because they are unprofitable, of course.
Every time another bank branch closes, on average another two ATMs go. At the current rate of reduction in free-to-use ATM numbers, within five years there could be as few ATMs as there were before the IADs appeared on the scene. So, where does all this leave the Treasury’s latest consultation?
It has suggested that ‘designated firms’ will be made responsible, by law, for ensuring that access to cash in the UK meets some yet-to-be-agreed minimum standard. Some of those firms are the same banks that have been reluctant to meet the costs of cash withdrawals through LINK for the last 20 years: they would be asked to do something they patently do not want to do and, even more assuredly, don’t want to fund. The Financial Conduct Authority (FCA) is the regulator mooted to have oversight of the designated firms under these new arrangements. But the FCA has many irons in the fire in relation to the UK’s big banks. There is surely a danger that, at some point, the banks will be excused some or all of their obligations in relation to cash, in exchange for doing something in another sector of financial services that the FCA may consider expedient to prioritise. The issue of cash access could easily become a mere bargaining chip.
Free UK public the access to cash has a significant disadvantage in that, whatever form it takes – old-style cashback, access at post office counters, community shared banking hubs, and, of course, ATMs – all require banks to meet the bill. So, what can be done to ensure that cash, a pillar of personal freedoms, independence and choice for a mere 2,500 years, does not get removed from the payment choice menu? One solution is available: access to cash can be provided under the auspices of the UK National Lottery.
Camelot, the current operator, has been keen to offer financial services before, but was knocked back by a regulator that may have believed community financial services, including cash access, were at that time relatively well catered for. Now is surely time for the Lottery regulator to have a rethink. Thousands of communities have lost all local access to financial services in the last few years. Creative thinking by the regulator can help fill the gaping holes in service provision.
A new National Lottery licence is due to be granted soon, to come into effect in 2024. It will last until 2034 and could, potentially, offer a long-term solution to the UK’s cash access problems. The good news is that the operator selected to run the UK National Lottery from 2024 onwards will be obliged to install 45,000 new Lottery terminals – an investment of well over £100million. Think of that: 45,000 new pieces of state-of-the-of-the art hardware, supported by leading-edge software, which can be configured to do much more than provide Lottery entries. In fact, these machines can become local financial services hubs for every community around the UK.
Already, 95 per cent of the UK population lives within a mile of a National Lottery terminal. This coverage can be enhanced under the new Lottery licence to ensure the new community financial services hubs meet the needs of virtually, everyone in the country. A company I helped successfully launch in the UK – Swiss Fintech Sonect – has already engaged with the government on cash access through Lottery terminals but, in truth, cash access is only one facet. These hubs could provide multiple financial services, effectively replacing the bank branches and bank ATMs that have been lost for good.
Again, it’s not just about cash withdrawals; being able to make cash deposits is also vitally important. There are more than 400,000 retail and other high street businesses in the UK still welcoming cash. For many community businesses, convenience stores in particular, cash still accounts for 50 per cent or more of sales. In the absence of bank branches, such businesses need new solutions for depositing cash – and that cash, circulated efficiently locally via Lottery terminals, can meet most or all of the cash needs of residents in those communities.
So, National Lottery-powered community financial services hubs, and associated technology, could provide a comprehensive solution – and the beauty of this is that it need cost the UK government and taxpayer nothing. Retail and other businesses that wish to continue to offer the National Lottery can be obligated to provide associated financial services.Most will wish to do so anyway, as they know that helping their customers get cash will also mean their own businesses will enjoy higher sales, as most of the cash they provide will be spent locally. And, when a particular National Lottery retailer is short of cash, apps such as Sonect’s can ensure the public are directed to alternative local Lottery retailers where they can get the amount they want. Equally, some National Lottery retailers may, on occasion, wish to use the services of cash management organisations such as Loomis, to deliver cash to top up what they have in their tills to meet peak demand. The cost of offering cash withdrawals and other services could simply become part of the overall financial structure of the National Lottery.
A few banks are likely to want to participate in funding on a voluntary basis, in order to play their part in providing their own customers with access to cash and other services. Some may raise concerns about associating cash provision with a form of gambling. However, there is no evidence that the UK National Lottery particularly attracts those with serious gambling addiction. Also, there will be no direct connection between obtaining cash and purchasing a Lottery ticket, simply the use of the same terminal, in the same convenient local location.
There is already a precedent for such a service: 35,000 National Lottery retailers in Italy will start offering access to cash early on in 2022. The UK’s new National Lottery licence offers a once-in-a-generation opportunity to create community financial services hubs, meeting the long-term cash and other financial services needs of llocal residents and businesses. It is an opportunity that must not be wasted.