Excuse if I sound cynical, but the idea of the Australian bank oligopoly giving up some of its prize fee income is a little hard to take.

Top of the list is the hated “foreign” ATM fee, which last year generated around $600 million for our banks when you used your card in someone else’s ATM.

But it would seem that is going to happen after the industry and the Reserve Bank revealed plans today for the wholesale reform of the automatic teller system, across the country.

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The changes will be introduced over the next year, for the reforms to kick in from October 1, 2008.

The $1 charge for using your card in another bank or ATM owner’s machine, will go: you may still be charged for it, but the charge will have to be displayed on the screen of the ATM before you start the transaction and can be cancelled by the user at no cost.

The bank fees for this seem to be around $2 or more a transaction, which is made up of the $1 “foreign” fee, and then a fee for the bank’s own costs on top of that.

Access to the ATM system will be freed up considerably and the RBA statement said:

… the reforms are also expected to lead, over time, to more ATMs in a wider variety of locations, increasing choice to consumers. They are also likely to promote increased competition in the provision of ATM services, with new ATM operators more easily able to enter the system to provide ATMs in both new and existing locations.

ATM numbers in Australia have tended to stall in recent years with the system controlled tightly by the big five banks and a couple of independent groups. That will now change slowly to allow other groups to establish their own network.

The RBA said:

The key elements of the proposal are:

  • the development of an objective and transparent access code by the Australian Payments Clearing Association (APCA), setting out the conditions that new entrants are required to meet, the rights of new entrants, and the requirements on current participants in dealing with new entrants;
  • the clear disclosure of any charges levied by the ATM owner before the customer proceeds with a withdrawal, with the customer able to cancel the transaction at no cost; and
  • the abolition of the bilateral interchange fees paid by banks and other financial institutions to ATM owners for the provision of ATM services. These fees – which average around $1 per transaction – are neither transparent to customers nor subject to the normal forces of competition. With these fees abolished, ATM owners will be free to charge customers who use their ATMs but must disclose the fee, increasing the overall transparency of pricing.

The proposal was considered and approved at a meeting on Monday of the Payments System Board. The changes were “an industry-developed proposal for reform” of the ATM system in Australia. It has been developed by the Australian Bankers’ Association (ABA) and its members, according to the RBA statement.

The board said that “under this proposed reform model, multilateral interchange fees in sub-networks – either those currently in existence (in the Rediteller and Cashcard networks) or those that may form in the future – would be possible.

“However, the Board’s view is that if such fees exist, they should be publicly disclosed. In addition, the rules that govern access to sub-networks should be transparent and objective and not impair efficiency and competition in the payments system.

The Board said that when implemented, “these reforms will significantly increase the transparency to consumers of the fee charged for withdrawing cash from an ATM. Consumers will be able to see the fee charged by the ATM owner on the screen of the ATM at the time of the transaction, and will be given the option of cancelling the transaction if the fee is too high. Also, the Board expects that the removal of the hidden interchange fees will lead to substantial reductions in, and perhaps the abolition of, the ‘foreign’ fees that most banks currently charge their customers for using ATMs owned by another institution.”

Foreign fees have been among the fastest growing of the hidden fees banks charge. Westpac and the NAB have recently lifted their foreign fees up to $2 a transaction or more. Westpac put up its foreign fee by a third at the start of the year, from $1.50 a transaction to $2.

Westpac and NAB increased their foreign fees, even though it and the Australian Bankers Association were negotiating the new access and fee regime. Those talks have been going for around 18 months.

So that’s why I am a bit suspicious of bank’s bearing gifts, or is it “never look a free ATM in the … ?”

The fees won’t go away completely, they will still be there in some other form, but the banks will not be able to hide them away, as they do now.

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Peter Fray
Peter Fray
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