Reform of interchange fees paid between owners of automatic teller
machines and the banks that issue the debit and credit card used in
those machines has more or less ground to a halt.

Most of the vested interests in the ATM sector say they want to reform
ATM fees in principle, but many ATM owners and operators outside of the
major banks don’t want the reforms to apply to them, while the major
banks have only been going along with the project because of arm
twisting by the Reserve Bank of Australia.

The current sticking point relates to efforts by building societies,
regional banks and First Data, which owns Cashcard, to secure
concessions equivalent to those that ATM owners agreed in the second
half of last year would apply to credit unions.

The background to this row is the work being undertaken by an industry
working group with the objective of replacing the interchange fees paid
to the owners or operators of ATMs by a card issuer (that is, a bank)
when their cardholders uses another institutions’ ATM.

The notional objective is to replace the ATM interchange fee – paid
between banks in the background – with a transparent direct charge that
would make the cost of using an ATM clear to the card holder. The idea
is that a cardholder would agree to the fee – which could be zero, could
be $1, and could be a lot higher – at the time they use an ATM for a

The industry’s been talking about changes in fee arrangements under
prodding from the Reserve Bank of Australia, which views interchange
fees in the ATM sector with scepticism.

The RBA’s complaints are that – as with interchange on credit cards,
Eftpos and Visa Debit – the interchange fees on ATM transactions were
mostly negotiated on a bilateral basis long ago, have become inflexible,
and bear little relation to costs incurred. The working group says there
are 68 bilateral agreements governing ATM interchange fees.

In turn, this means that the so-called foreign ATM fees charged by a
cardholder’s bank for using another banks ATM – and typically in the
order of $1.50 a time – bear no relation to costs.

About one third of ATM transactions are conducted at “foreign ATMs”,
according to research by Roy Morgan published by the ATM Industry
Working Group, with about half of those conducted by frequent users of
ATMs. A majority of ATM users tell Roy Morgan they manage to mostly use
their own banks ATMs, and thus avoid the foreign ATM fees.

The ATM Industry Working Group, which draws together all the banks,
credit union, building societies, FRD/Cashcard and Pulse, has been
debating proposals that would eliminate the bilateral ATM interchange
fees and introduce a direct charging model.

However, having outlined the principles of the model and a project
timetable back in July 2004, the working group is facing increasing
difficulty in reaching agreement among its members.

Regional banks, building societies and FDR/Cashcard are understood to
want the same freedom to maintain existing fee arrangements within their
own networks of ATMs that the working group has agreed could apply to
credit unions, and which would exclude credit unions from charging their
own customers from using another credit unions ATM.

Ten months after the working group last outlined its work in progress in
a submission to the Reserve Bank, these issues appear a long way from

The working group has law firm Gilbert & Tobin drafting a submission to
the Australian Competition and Consumer Commission for authorisation a
new charging framework. However, the lawyers will need better guidance
from ATM owners if they are to complete this work.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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