The ATM Industry Association (ATMIA) is calling on card networks such as Visa and MasterCard to abolish rules prohibiting higher surcharge fees for more expensive cards. Robin Arnfield reports on the development and the effects it is having on the US market at large
In an August 2016 position paper, ATMIA said it ‘believes that the freedom to apply a convenience (or surcharge) fee on ATM transactions is a fundamental economic and business right for independent ATM deployers (IADs) and small financial institutions (FIs), and is a practice which is conducive to greater convenience, choice and fee transparency for consumers’.
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ATMIA is a global non-profit trade association for all participants in the ATM industry. The position paper asks all card networks worldwide to remove any rule prohibiting differential variable ATM convenience fees.
“The removal of such restrictions stifling competitive price movements, would encourage the use of more cost-effective networks and make ATM networks far more competitive and sustainable for a dual-sector industry (comprising FI-owned ATMs and convenience/off-premise ATMs) than is currently the case,” ATMIA says.
“The National ATM Council is supportive of the ATMIA’s call for the card networks’ rules banning variable differential surcharging at ATMs to be removed,” says Bruce Renard, executive director of the National ATM Council, a Jacksonville, Florida-based US retail ATM trade association.
“All the US card networks allow ATM operators to charge convenience fees to their customers,” says David Tente, ATMIA’s executive director, USA and Latin America.
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By GlobalData“After the card networks introduced rules authorising surcharging at US ATMs and the first IAD-owned ATMs appeared in 1994, the number of ATMs in the US more than doubled. This was because non-banks were able to install convenience ATMs that charged for usage.”
The problem is that Visa and MasterCard’s Access Fee Rules do not allow ATM operators to discriminate against cards bearing Visa or MasterCard branding by charging a higher convenience fee compared to cards routed over lower-cost PIN-debit networks.
“Visa and MasterCard insist that any ATM surcharges on their cards mustn’t be higher than convenience fees for cards routed over other networks,” says Tente.
“As Visa and MasterCard charge ATM operators higher transaction fees than the other networks, the requirement for uniform charges means ATM operators can’t recoup their costs from accepting Visa and MasterCard cards.”
“The inability to vary cost-based ATM convenience fees in response to supply and demand dynamics will lead inevitably to shrinkage of the convenience ATM market, as is happening already in some regional markets,” ATMIA says. “This, in turn, will reduce expenditure of cash at retail locations, and damage consumer economies around the world.”
ATMIA argues that ‘bans and restrictions on ATM convenience fees in various ATM networks, whether domestic, national or international, are a threat to the model of an ATM industry servicing a broad, society-wide customer base with conveniently located, competitively priced, fee-transparent ATMs in urban and rural environments’.
ATMIA notes that de-installation of off-premise ATMs would hurt low-income consumers with basic bank accounts because ATMs can provide basic banking services such as access to money transmission services, lower transaction costs on payments and receipts, and quicker access to funds.
The US
Tente says the issue of differential variable ATM surcharging is very important in the US which has 16 primary PIN-debit/ATM networks. This contrasts with the UK and Canada, both of which have just one shared interbank ATM network, Link and Interac respectively. The US also has a much higher penetration of non-bank ATMs than the UK and Europe.
According to the National ATM Council, around 300,000 of the around 430,000 ATMs in the US in 2014 were operated by IADs.
The US ATM trade association estimated that three-quarters of the off-premise ATMs deployed at US non-bank locations in 2014 were operated by IADs, with the remainder being operated by FIs.
According to ATMIA, around 20% of non-bank ATMs in the US in 2014 were owned by independent ATM companies, with the remainder owned by merchants and retailers.
In 2010, ATMIA raised the issue of Visa and MasterCard’s ban on discriminatory charges for their cards at US ATMs with the US Department of Justice, arguing that the two networks were being anti-competitive. However, the DoJ chose not to intervene on the issue, Tente says.
In June 2016, the US Supreme Court agreed to hear appeals by Visa, MasterCard, JPMorgan Chase, Bank of America and Wells Fargo. The appeals asked the Supreme Court to reject three class-action lawsuits claiming the networks and banks conspired to inflate ATM access fees charged to cardholders in violation of antitrust law, Reuters reports.
The plaintiffs want the Supreme Court, whose next term runs from October 2016 to June 2017, to overturn an August 2015 ruling by the US Court of Appeals for the District of Columbia Circuit on the three lawsuits.
These lawsuits, two of which were brought by consumers and the third by the National ATM Council and several IADs, accused MasterCard and Visa of adopting rules to protect themselves from competition with lower-cost ATM networks. These rules prevented ATM operators from charging cardholders lower fees when ATM transactions were processed by lower-cost networks, the lawsuits alleged.
They also benefited major US banks, which were shareholders in Visa and MasterCard before the two networks’ IPOs, the two consumer lawsuits alleged.
The US Court of Appeals said in August 2015 that the US District Court for the District of Columbia had been wrong to decide in February 2013 that consumers had no standing to sue and had not adequately alleged antitrust violations. It then remanded the three consolidated lawsuits to the District Court for further proceedings, Reuters said.
Tente says ATMIA is considering its strategies both for the Supreme Court appeals and for the issue of DoJ intervention on Visa and MasterCard’s Access Fee Rules.
Tente says that pressure on ATM fees has a negative effect on ATM deployers because of the thin margins in the ATM industry.
“ATM interchange fees have been declining in several markets around the world, including the US,” he says.
“Also, in many cases, a non-bank ATM operator has to share their surcharge fee revenue with the retailer housing their ATM.”
Card issuers pay interchange to the owner of an ATM, with ATM interchange fee rates being set by Visa, MasterCard and other PIN debit networks such as US-based NYCE, Pulse and Star. Visa, MasterCard and other ATM/debit networks charge ATM owners an acquiring fee for each transaction for providing access to their networks.
Currently, the gross interchange fee paid by a cardholder’s issuer to a US ATM operator is between $0.00 and $0.60 per transaction.
MasterCard and Visa charge high network services fees, so ATM operators receive as little as $0.06 –0.29 per domestic transaction over these networks. However, a transaction routed over a lower-cost ATM network can result in net interchange of up to $0.50.
Compliance costs have generally been rising for ATM operators over the past decade.
“US ATM deployers are required to migrate their ATMs to EMV or face a fraud liability shift from Visa and MasterCard,” Tente says.
“EMV migration is a major expense for ATM deployers. We think that there may be some loss of ATMs in the US if ATM owners decide it is too expensive to migrate their ATMs to EMV. Also, non-EMV-compliant ATM operators risk being disconnected by their acquirers who don’t want to carry the cost of any resulting fraud losses.”
MasterCard’s EMV migration deadline is October 2016, while Visa has set October 2017 as its deadline.
There has historically been limited freedom at US ATMs for ATM deployers to choose over which network to route transactions, says Renard.
“This is because many US debit cards are proprietary cards, where the issuer has agreed with MasterCard or Visa to use their network for ATM transactions,” he says.
“In fact, many US debit cards just contain a Visa or MasterCard badge, not the badge of a PIN debit network.”
With the advent of EMV, the global card networks and US PIN debit networks have agreed on a standard known as the US Common Debit Application Identifier (AID) to facilitate routing EMV debit card transactions to multiple payment networks supported by the issuer.
The purpose of the US Common Debit AID is to ensure that EMV cards comply with the Durbin Amendment’s requirement that merchants be provided with a choice between at least two unaffiliated networks for purchases made with debit cards.
The Common Debit AID is also designed to meet concerns that with the move to EMV, US ATM deployers’ already limited routing choice is not further eroded.
“The introduction of the Common Debit AID means that, if a US debit card contains the Common AID, then the ATM processor should be able to route the transaction over a lower-cost PIN debit network instead of a costlier Visa or MasterCard ATM network,” says Renard.
However, there are still concerns that, despite the Common Debit AID, MasterCard and Visa may have an advantage over lower-cost PIN debit networks at ATMs.
“If there is an issue with the Common AID, then the ATM transaction would default to a Visa or MasterCard network,” says Renard.
“ATMIA is calling for ATM operators in the USA to have transaction routing choice at their ATMs,” says Tente.
“We’re very vocal about that.”
