WESTPAC IN PUSH TO CREATE ATM UTILITY AS COSTS OF CASH RISE

The sale of its non-branch machines to Prosegur move as politicians and regulators intensify their scrutiny of ATM access in regional areas.

James Eyers
Senior Reporter

Nov 7, 2019
AFR

Share Westpac Banking Group says the sale of its non-branch automatic teller machine fleet to Prosegur Australia may be the catalyst for the creation of a new utility to allow banks to share the rising costs of distributing the shrinking amount of cash used to buy and sell goods and services.

The move comes as politicians and regulators intensify their scrutiny of ATM access in regional areas. Prosegur’s national strategy manager, Matt Sykes, confirmed the deal with Westpac is the “first step to create an ATM utility”.

“As the numbers of ATMs go down, we have identified some service gaps that are problematic, and over time the aim is to increase coverage and provide more access to ATMs for the Australian population,” Mr Sykes said.  Prosegur is a global cash management company headquartered in Spain.

Under the model, the banks that join the utility would mutually fund and maintain joint ATMs outside their branches. These would be painted with a new brand name but customers would be taken into their own bank’s software environment when they insert their card.

The intention is for customers of the member banks to have fee-free withdrawals. ANZ Banking Group and National Australia Bank could also be interested in joining the utility along with regional banks. However, industry sources said Commonwealth Bank might be reluctant to participate at this stage.

Other cash companies that  previously have been interested in running an ATM utility include are Lindsay Fox-owned Armaguard, which acquired Cuscal’s RediTeller ATM fleet  this year, and NCR Corporation of the United States.

Other players in the ATM market include Nasdaq-listed Cardtronics, which bought DC Payments and Cashcard in 2017; Next Payments, which is part-owned by Macquarie Group; and CashConnect, owned by Sydney company Banktech.

Banks have been forced to consider collaborating on ATMs since Commonwealth Bank decimated the unit economics of bank ATM fleets in 2017 when it unilaterally removed fees for withdrawals by non-customers, forcing the other banks to follow suit. The rise of tap-and-go payments has also reduced the use of cash, and lower withdrawal volumes have made ATM networks more expensive to run.The issue of access to ATMs in regional areas has been a focus for the House of Representatives standing committee on economics, which will conduct hearings on Friday with CBA chief Matt Comyn and Westpac chief Brian Hartzer.

A utility will help banks avoid the politically unpalatable decision of removing the last ATM in a regional town and having it replaced with an independent operator – which typically charge a fee of around $2.90 per withdrawal. Customers in regional areas can get cash from Australia Post branches through Bank@Post services.

The Reserve Bank, in its payments system board annual report last month, warned that while the “further removal of access points in metropolitan areas is unlikely to significantly impact cash access, removal of facilities in less populated areas, or a change in the provision of Bank@Post services, may reduce the ability of some Australians to access cash” . This would be a concern for the central bank.

It is understood almost 800 Westpac machines were sold to Prosegur, which is in negotiations to buy the non-branch machines of other banks.

Westpac chief Brian Hartzer said on Monday: “We don’t have a particular plan in terms of an ATM utility at this point, but having sold our off-site ATMs in bulk to a partner, that potentially does give them critical mass to create some other arrangements with other players who might be looking at the same challenge.

“As we think about the challenge of providing services in more remote areas, we think the idea of some shared processing utilities is a really good idea, and hopefully this move we have made will help get some of the other players thinking about participating in something like that.”

There are lots of options on the ATM fleet and we are engaged in lots of those discussions.

— Shayne Elliott, CEO, ANZ

ANZ Banking Group chief Shayne Elliott indicated last week ANZ could support an ATM utility. “While the major banks are competitors with each other, there are a bunch of things, especially in the payments sphere, where we co-operate, like BPay and NPP [the new payments platform], where we co-invest in infrastructure,” he said while delivering ANZ’s full-year profit result. “There are lots of options on the ATM fleet and we are engaged in lots of those discussions.”

Commonwealth Bank was not part of previous discussions three years ago when a utility model was also being discussed. Mr Elliott told the House of Representatives committee in October 2017 ANZ had engaged with the ACCC on the utility model and “were pretty close to pushing the button” with other banks, when the CBA fee announcement scuttled the plan.

Banks will come under increasing pressure to explain lower ATM numbers if customers find it harder to access cash for free, said Grant Halverson, CEO of payments consultancy McLean Roche.

“There will be questions about whether putting an ATM in the pub provides a service to the community, given banks have a social responsibility to be in all parts of the country and not be just a fair-weather traveller in the cities,” he said.

The sensitivity of the ATM access issue was laid bare during a forum with Commonwealth Bank customers on Monday night, when Mr Comyn fielded a question from an elderly customer worried about access to cash through ATMs. CBA subsidiary Bankwest has ended an agreement to have its machines in 7-Eleven stores.

“Overall there is a lot less cash, [so] unfortunately, we won’t be increasing the number of ATMs,” Mr Comyn said. “The number of ATMs nationally will reduce over time. I recognise the challenge we need to make sure there is accessibility to all banking services, including cash.”The rise of contactless payments has reduced demand for ATMs. Australians made an average of 23 ATM withdrawals per person in 2018/19, down from 40 in 2008, according to RBA data, while the total number of ATMs in Australia has declined by 12.5 per cent since the peak in 2016, or around 4100 machines. Regional banks have also been slashing the size of their ATM fleets. But the size of the ATM network in Australia is still large, based on the population size, compared to many other countries.

Industry data shows the major banks have 9505 machines in the market, 33 per cent of the total, down from 12,572 in 2015, as the number of independent machines rise.

The RBA said it will continue to monitor ATM access, especially in regional access. It says 95 per cent of Australians live within four kilometres of a cash withdrawal point: an ATM, bank branch, or Bank@Post outlet. However, 1 per cent of the population – around 250,000 – have to travel more than 15km to reach their nearest cash access point.

“These people generally live in rural areas; it is in these areas where cash use tends to be higher and the infrastructure that might enable alternative payment methods, such as mobile phone coverage, tends to be less developed,” the RBA said.