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ATM Fee Reforms

On 3 March 2009 a number of important reforms to Australia’s ATM system came into effect. These reforms, which have been implemented by the industry and supported by the Reserve Bank, will result in a number of benefits to competition and efficiency in the Australian ATM system.

Direct Charging at ATMs

The change most immediately evident to the public will be the introduction of ‘direct charging’ at ATMs. In general, when a cardholder makes a withdrawal or a balance enquiry at an ATM not owned by their financial institution (a ‘foreign ATM’), the owner of that ATM will now charge the cardholder a fee. The fee will be clearly displayed on the ATM screen prior to the transaction being completed and the cardholder will have the opportunity to cancel the transaction if he or she does not wish to pay the fee or believes that an ATM charging a lower fee may be situated nearby.1

Direct charges will not be levied at ATMs owned by the cardholder’s own financial institution. In addition, some – typically smaller – institutions have in place arrangements that will allow customers to make fee-free withdrawals from ATMs that they do not own.

The move to direct charging coincides with the elimination of another fee – the interchange fee – as part of the reforms. Prior to the reforms the interchange fee was paid by a cardholder’s bank to the ATM owner whenever a foreign ATM transaction was undertaken. The cardholder’s bank often passed this fee on to the cardholder, plus an additional margin, in the form of a ‘foreign ATM fee’. Where charged, foreign fees appear on the cardholder’s regular statement.

With the elimination of the interchange fee, the Bank no longer sees a case for financial institutions to charge ‘foreign’ fees when their cardholders use an ATM owned by another institution, although some financial institutions continue to do so, at a significantly reduced level. This shift to cardholders predominantly paying the ATM owner, rather than their own financial institution, has improved the transparency of fees and will improve competition within the system.

Rationale for the Reforms

The Reserve Bank had for some time been concerned about the role of interchange fees in the ATM system. These fees were not transparent, were inflexible, and bore little relationship to the cost of a foreign ATM transaction. As a result, there was little competitive pressure on interchange fees, which ultimately flowed through to the fees paid by cardholders. A continuation of this inflexibility may over time have resulted in the number of ATMs in Australia declining as owners of ATMs found it unprofitable to deploy ATMs, particularly in high-cost and low-volume locations.

In contrast, direct charging allows ATM owners to directly compete for business with one another by offering lower charges than other ATMs in the vicinity. This will introduce a competitive discipline that has been absent from the Australian ATM system to date. Overall these changes could be expected to offer cardholders a more competitive ATM system, with access to more ATMs.

Another aim of the reforms is to make it easier for new players to become part of the system and compete with existing ATM providers. The removal of interchange fees helps to achieve this because the need to negotiate an interchange fee with each of the existing major players in the ATM system can act as a barrier to entry. The Bank is also requiring that the costs charged to new entrants wishing to connect to the ATM system are capped to prevent existing participants from unnecessarily restricting the entry of competitors.

More Information

More detailed information on the reforms can also be found in An Access Regime for the ATM System and on the APCA Website.

  1. A small number of ATMs are initially unable to display the charge on screen. For a short period charges for these ATMs will be disclosed via a notice at the ATM.