Are ATMs still golden? – the LINK interchange proposals

5 Feb

Gold ATM v2

Observant readers of the financial press will have noticed that the LINK board, which manages the country’s main ATM network, has announced phased reductions in interchange fees. These are paid by banks when their customers use ATMs owned by another bank or by an ‘Independent ATM Deployer’ – IAD. The proposed reductions total 5% a year for four years, starting in July 2018, with an exemption for ‘remote’ ATMs and a strengthened Financial Inclusion Program – see for the full story.

I say ‘observant readers’ advisedly, as those of us enjoying ‘free in credit banking’ are not of course impacted by this change. Our own bank absorbs the costs of us using an ATM owned by a different bank or IAD.

Even more observant readers will have noticed some fallout from this announced change – one source quotes ‘experts’ as warning of ‘cash machine deserts’; and the FT reports ‘ATM operators in turmoil over Link move to cut fees’.

So did the LINK board get it right? Or are we facing the end of our beloved cash machines?

In theory, of course, the answer is easy – the marginal net benefit (MNB) of an extra ATM in a given area will decline with the number of ATMs, and presumably the marginal cost curve for additional ATMs rises – non-bank ATMs are more costly than bank ones, and some locations are more costly to serve than others. So the number of ATMs in an area should grow until the marginal cost of an additional ATM exceeds its MNB. And if we’ve done Econ 101, we might think that the pricing mechanism should have some role to play in bringing about this happy equilibrium.

But this is not of course how either the LINK scheme works. For most customers, free access to LINK ATMs is part of their current account bundle, so there is no price signal for customers if the costs of ATM provision is ‘too high’. And on the supply side, the interchange fee is set on the basis of a cost study, which effectively allows for the recovery of the total costs of operating the LINK network. Cost-based recovery mechanisms, widely used in regulated utilities, are known to cause problems, as they weaken incentives to cost control. But more seriously, for the ATM network, they offer no mechanism for limiting ATM numbers: if an operator can put in a new ATM with below average costs, and with little impact on transaction volumes, it is in their interests to do so. This is why, in regulated utilities using cost-based pricing (usually cost-plus to allow for a profit element), the regulator normally has some control over the volume of costs being remunerated – so, for example, how many nuclear power stations we build.

But even if equating MNB and marginal cost is not that simple, the methodology does tell us something – in particular, if the NMB curve is shifting to the right – ie an additional ATM is less valuable to consumers than it used to be – the ‘optimal’ number of ATMs will fall. And there can be little doubt that, with the rapid growth of contactless payments, this shift is occurring. Visa Europe reports, for example, that, by 11 May 2016, three billion contactless contactless transactions had been made in Europe in the last 12 months – nearly tripling the volumes in the previous year.

However, as the LINK documentation shows in a revealing graph, while the volume of cash payments in the UK has been declining, the number of free to use ATMs has been growing – a trend particularly pronounced over the 2013 to 2016 period, and one which is expected to continue. This could only be ‘optimal’ if the number of ATMs in the UK was, prior to this shift, significantly sub-optimal. But there is no evidence that this is the case. International comparisons, for example, show the UK as being ‘well stocked’ as far as ATM numbers are concerned.

So as I look at the evidence I conclude that the LINK board have done a good job. There is clear evidence that the continuing growth in ATM numbers is unlikely to be warranted. The only lever they can pull to change the number of ATMs is the interchange fee, and they have made modest adjustments (5%) to that for this year, with further changes to come. This is after published consultations and specialist enquiries from LINK itself and the PSR, and buttressed by comprehensive monitoring arrangements and a ‘hard review’ in 2019 before the rate cut exceeds 10%. And the Financial Inclusion Programme (the one area where serious detriment might occur) has been strengthened.

The reduction in interchange also helps mitigate the competitive threat from other networks who can offer lower costs. Arguably, the LINK board would be failing in its duties if it had not taken some action on this.

There are of course winners and losers, as the consultation shows – the major losers being the IADs. But it is not the job of an industry regulator (the PSR) or the Treasury Select Committee to ossify the payments landscape in the face of significant changes in payments media and competitive threats. Not all changes are changes for the worse.

And the golden ATM? The picture is of the first ATM opened in the UK in 1967, in Enfield, now painted gold. Perhaps regulators with an innovation remit might like to ask why the functionality is still much the same?





New Year, New Job?

30 Dec

New Year Resolutions Color_edit_toon_Reso

So a New Year beckons – and for some of us, the start of a new job. What are the do’s and don’ts of your first three months in a new role?

I had to think about this recently for a client I was mentoring who was changing jobs – and this led to some research and reflections on my own experience. Discussing it with my wife (we mentor as a couple) her conclusions were similar to mine, but with a very different job history. So I thought others might benefit from our joint wisdom.

Do – understand your objectives
I know it sounds obvious, but it’s important to understand what your new organisation requires from you, and in what domain it expects you to achieve these results.

Sometimes this will be obvious – if you’re a sales rep, given a specific territory, it’s pretty clear what you are expected to achieve. But in many organisations today, it’s more complex. You may have a series of objectives given to you. How are you supposed to allocate your time between them? Or do they need to be tackled in a particular order? Do people need you to pioneer a new business opportunity or augment resources to deliver a major project?

A simple approach to this would be to ask your manager – but again you may find yourself in either matrix reporting structures or landed with a manager whose views and advice carry little weight further up the organisation. Or perhaps there are a couple of founders who have brought you on board because their VC partners told them they needed a COO, a CFO, etc – but they have no clear idea what your role should be.

Discussing your objectives with the key stakeholders – your manager, the person above him, those founders – is a good start, preferably before you join. Even better is recording them in some form – for example, IBM used a ‘Personal Business Commitments’ approach that Lou Gerstner had invented. And better still is to check back with your stakeholders during the first few months as to whether you are meeting their expectations and whether there is anything they would like you to change. Do this informally if you can.

Do – manage the tension between acclimatising and adding value early

There is always the temptation in a new job to charge in, make changes, and notch up some early wins. Most of the time this is a mistake – you don’t understand as a new arrival the constraints the organisation is operating under, what can be changed and what can’t, or what the drivers are behind can appear as illogical or inefficient processes. Better to look and learn if you can – but do keep a record of what strikes you in those first few days.

But equally you are being paid for results – those trades have to be done, the budget round completed or whatever. And the skills and experience you have brought with you might provide the opportunity for some early tweaks to what you are required to do that will impress.

Do – build your alliances and your team

Most business results aren’t achieved solo – they require a team, and a network within the organisation that can help you open doors and facilitate the approvals processes required to get anything done. So start identifying how things work, how important decisions are taken, and who the key influencers are. Organisational cultures vary – work out how yours ticks.

As for your team – find out who’s on it, and what their strengths and weaknesses are. And find out who was doing your job before you arrived. The normal (and sound) advice is to ‘clean house if necessary’ – but remember that not everybody needs to be a star, and value commitment and loyalty, because you will need it when things get sticky.

Don’t – be afraid to ask for help

During my twenty-five plus years in management consulting, I had the privilege of working with some absolutely outstanding partners. One of the things that struck me – especially among the partners at PricewaterhouseCoopers (PwC) was their willingness to ask for help – sometimes from me, sometimes from their partner colleagues. Perhaps (in the early days before LLPs) the spectre of unlimited personal liability helped, but they definitively did not see asking for help as a sign of weakness – just common sense.

Asking for help can be anything from enquiries about how the photocopier works to advice on how to tackle a difficult boss. Just be prepared to return the help when the time comes.

Want to read more?
If so, I suggest a couple of good articles from the Harvard Business Review:

Brexit and The Ashes

20 Dec

There is a certain awful similarity between the latest cabinet discussions on a trade deal with the UK and our performance in the Ashes down under.

The ‘official readout’ from this week’s Cabinet discussion says: ‘the UK would also be seeking a significantly more ambitious deal than the EU’s agreement with Canada’ – so endorsing David Davis’ ‘Canada +++’ approach, and fulfilling Theresa May’s wish to ‘aim high’

The EU side don’t seem so sure – Michael Barnier has said that a trade deal cannot include financial services, and there have been many warnings from EU leaders that ‘the four freedoms’ – free movement of people, goods, services and capital – are indivisible. So if we want to control EU immigration we can’t expect free trade in goods and services.

Which side will win? The stage 1 negotiations on Brexit don’t offer much hope – instead of ‘whistling’ for their money, we’re offering €40bn. But it’s the cricket analogy that’s really interesting. Here’s what Freddie Flintoff was saying before the Ashes started:

‘I think England will win 3-2…I don’t think we’ll start well [but] we’ll win at the Adelaide and then we will get beat in Perth and then we will win in Melbourne and Sydney – 3-2’

Unfortunately Freddie’s predictive ability isn’t as good as his bowling – we have now played three and lost three, and the Ashes.

Might a similar outcome await Mrs May and the Cabinet?

And guess who published Freddie Flintoff’s confident prediction? Yes, you’ve got it – the Daily Express!

AI, IBM Watson, and banking

27 Oct

IBM watson

OK, I know it doesn’t sound like the most riveting topic for a Friday morning, so I’ll keep it short.

Lots of bumf out there at the moment about AI, so it’s refreshing to hear 20 minutes or so from Bridget van Kralingen of IBM on the subject, focusing on what’s happening in financial services. Intelligible for the non-geeks amongst us with some nice examples – see

Note – to listen to this, looks as if you have to download or create an account with Periscope, which was used to record it. Part of the Twitter family, so you can access via your Twitter account. Otherwise Bridget dances round the stage but with no sound – nice, but not quite the point.

Meerkats and banking

13 Oct


I ponder, from time to time, about the potential impact of PSD2 and Open Banking. Will it lead to significant change and increased competition from third-party providers, as many commentators seem to expect? Or – given the well-known inertia of the average banking customer – will the whole thing turn out to be a damp squib?

Inertia, of course is not the only factor at work. Four example, Sheila Bair, in a piece in Monday’s Financial Times, drew attention to the data security concerns that many have voiced. If data can be hacked at a firm such as Equifax, banking customers may well have good reason to question whether retailers and others should have access to their bank account details, even if the Directive requires high levels of security to be in place.

So when I start reading Jeremy Light’s Accenture blog on the subject (see ) I see my scepticism confirmed:

‘We found most consumers would be unwilling to initiate a payment through an online platform (58 percent) or a social-media company (82 percent). Fear of fraud is the primary factor. An overwhelming majority (85 percent) of consumers point to the risk of fraud as the biggest barrier to sharing bank account information with third-party providers. Data protection risks and increased potential for cyberattacks also feature highly.’

However, Gen Zs and Millennials (viz the young digital guys and gals, unlike this ageing baby boomer) are much more willing to give open banking a try:

‘One-third of Gen Z’ers say they’ll be likely to use open banking instead of usual payment methods, [and ] 42% of millennials and 52 % of Gen Z’ers say they’ll give online retailers permission to initiate payments directly from their bank accounts using apps/websites.’

So having had some of my scepticism challenged, I turned my thoughts to Meerkats – or, more accurately, to why price comparison websites had been so successful. My logic is simple: opening up customer data should make pricing banking offerings more competitive, but it will probably take aggregators like these sites to exploit the economies of scale involved.

So why their success? The title of Martin Lewis’ site – – says it all: it saves the consumer money, and so makes the investment of time worthwhile. Not – please note – that it saves the retailer the merchant service charge for using debit or credit cards!

That seems to me the clue for third party providers wanting to exploit PSD2 & Open Banking – create a customer value proposition that offers enough benefits to retail banking customers to overcome their ‘inertia’ – or more accurately, to recompense them for their time clicking away on their tablet or computer. Can they do it? Is there a big enough profit pool in retail banking to earn a return and incentivise the customers?

Well, here’s a clue for would-be challengers: forget about personal customers – even GenZs – and see instead how you can use PSD2/Open Banking to prize the sticky paws of the major banks off their small business customers. That is the major area where I see a lack of significant competition – but certainly no lack of profit.

Meanwhile – back to Meerkats. Check out their Kingsman video – – but make sure you’ve cleaned your specs first!

Amazon gets serious about banking

12 Jun

Amazon Bank

The FT on Friday had an interesting piece on Amazon’s foray into banking (see if you have access). It reckons that Amazon will be extending its lending to small businesses in the US, the UK, and Japan – focusing particularly on lending for working capital to sellers using its platform.

So here – in no particular order, are some points on this Amazon play:

  • It seems similar to the PayPal/Ebay story – recall that PayPal started off as the way to buy stuff on Ebay
  • It’s a global play – like Metro Bank, but unlike many other UK challenger banks (anyone remember Egg?)
  • The data it has access to on its borrowers gives it a genuine source of competitive advantage, both in the initial offering and the monitoring – to say nothing of control if they look like defaulting
  • It is going after a segment (small business banking) where there have been ongoing public policy concerns about a lack of effective competition

All in all, hard not to see it as good news all round.

La La Land and the vicars

3 Jun

All Gas Gaiters

Off last night to see La La Land for a second time at our local cinema club. I enjoyed it the first time, and was looking forward to seeing it again.

Why see it again? Was it that good? I had thought so, but I had noticed from Facebook that this wasn’t a universal view (search for elwin cockett la la land – Elwin’s an archdeacon, hence the title and picture 😎).

So why did it affect me so much? It’s the storyline – in our jobs and careers, do we chase our dreams, or do we make compromises?

So if that’s the theme, perhaps not surprising that the vicars don’t get it. But many of us have been there, and juggled with how relationships will work if our jobs pull us physically apart. Or whether to compromise on the job we want to take the job  that pays the bills. Or, as in the ending, we’ve thought about the great ‘might have beens’ of life and relationships.

I know they can’t sing – but that’s not the point. It’s more about Mia’s audition lyrics – ‘Here’s to the ones who dream, / Foolish as they may seem. / Here’s to the hearts that ache. / Here’s to the mess we make.’