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GUEST OBSERVER
In Australia, ATM use is <a href="https://www.apca.com.au/docs/default-source/decline-of-cheques---milestones/towards-the-digital-economy-milestones-report-(november-2016).pdf" target="_blank">declining</a> by about 5% per year. Plenty of alternatives to getting cash are available, such as supermarket checkouts, and new technologies will only make ATMs more redundant. The question is, where will banks replace the revenue from removing ATM fees?
The RBA has <a href="https://www.commbank.com.au/guidance/newsroom/commonwealth-bank-cuts-atm-withdrawal-fees-201709?ei=card-view" target="_blank">reported</a> that some 250,000 so-called “<a href="https://www.apca.com.au/docs/about-payments/brochure.pdf?sfvrsn=0" target="_blank">foreign</a>” withdrawals are made each year. This is when you withdraw money from an ATM operated by a different bank. But this is less than a drop in the ocean compared to the <a href="https://www.bankers.asn.au/images/uploads/ArticleDocuments/192/ATM%20fact%20sheet_updated%20Jan%202016.pdf" target="_blank">725 million</a> total ATM transactions made in Australia each year.
<h2>New technologies threaten ATMs</h2>
Sometime later this year a couple of new technologies will be launched that further undermine ATMs. The biggest will be <a href="https://www.nppa.com.au/" target="_blank">NPP</a>, short for New Payments Platform. Another is <a href="https://www.bpay.com.au/osko" target="_blank">OSKO</a>, a new payment mechanism from the people who brought you BPAY. Soon people will be asking you if you want to OSKO that!
NPP is a <a href="https://www.apca.com.au/about-payments/future-of-payments/new-payments-platform-phases-1-2" target="_blank">brand-new system</a> that has been built from the ground up to be fast, reliable, flexible and able to handle the high volume of payments needed to operate a modern banking system.
If and when it works, the NPP will change the way that payments are made in Australia. Rather than putting a payment on a credit card or waiting a few days for a payment from another bank to clear, with NPP payments will be cleared in a few minutes or less.
Using NPP, anyone will be able to make an almost instantaneous transfer of funds into the bank of a supplier, such as a plumber (can you OSKO that?). Late at night one party animal will be able to transfer money from his/her account to a friend, in return for some of the folding stuff. With NPP, everyone with a smartphone and spare cash is an ATM.
The technical boffins at NPP have been <a href="https://www.apca.com.au/about-payments/future-of-payments/new-payments-platform-phases-3-4" target="_blank">beavering away</a> for over <a href="https://www.apca.com.au/docs/2014-media-releases/australia-s-leading-financial-institutions-sign-up-to-build-the-new-payments-platform.pdf" target="_blank">four years</a> building the Formula 1 of payment systems. With the help of international experts from the SWIFT organisation (which handles <a href="https://www.swift.com/about-us/swift-fin-traffic-figures" target="_blank">millions of high value payments</a> each day between the world’s largest banks), <a href="https://www.apca.com.au/docs/2014-media-releases/australia-s-leading-financial-institutions-sign-up-to-build-the-new-payments-platform.pdf" target="_blank">support from the Reserve Bank of Australia</a> and money from the biggest Australian banks.
<h2>Replacing ATM revenue</h2>
So where does that leave ATM’s? Apart from possible conduits for <a href="https://www.propertyobserver.com.au/https://www.abc.net.au/news/2017-08-11/asic-to-investigate-cba/8796542">money laundering</a>, they are a dying breed in the long term. So in future, how will banks pay for installing, replenishing with banknotes and protecting ATMs against <a href="https://www.telegraph.co.uk/news/2017/07/13/ram-raiders-usetelehandler-steal-atm/">ram-raiders</a>? With extra fees elsewhere, of course.
The banks that stumped up the money for NPP do deserve a reasonable return on their investment, which was not without risk. But there are alternatives to levying fees elsewhere to replace ATM revenue.
Following a lead from the government on promoting a more flexible banking system, the RBA and the competition regulator, the Australian Competition and Consumer Commission (ACCC) <a href="https://www.afr.com/business/banking-and-finance/financial-services/rba-accc-want-more-competition-in-banking-20170920-gyl5jj">recently asked</a> the Productivity Commission to investigate the <a href="https://theconversation.com/four-pillars-or-four-pillows-bankings-comfy-collective-23297">Four Pillars policy</a> with ACCC chairman, Rod Sims, describing retail banking as being:
- characterised by oligopolies comprising the large banks, who can influence products, prices and other conditions in important markets either alone or together.
The Australian Bankers’ Association <a href="https://www.afr.com/business/banking-and-finance/financial-services/rba-accc-want-more-competition-in-banking-20170920-gyl5jj">demurred</a> of course, saying that they did not:
- believe there are widespread systemic issues in the banking system or regulatory framework that hinder competition. Nor do we believe further regulation is the path to greater competition
So how to stop another round of opaque, predatory pricing? Give the banks what they say they want - competition.
<h2>Creating more competition</h2>
As part of a radical shakeup of banking, the Indian government has recently introduced the concept of <a href="https://www.thehindu.com/business/all-you-need-to-know-about-payment-banks/article7561353.ece">payment banks</a>, which as the name suggests concentrate almost completely on <a href="https://economictimes.indiatimes.com/wealth/personal-finance-news/how-to-make-the-most-of-payments-banks/articleshow/55704502.cms">payments</a>. As such these “banks” do not take deposits nor make loans, and so the need for prudential, as opposed to consumer, regulation is minimal.
It would not be difficult to create such payment banks in Australia. In fact, with companies like Woolworths, Coles and the Australian Post Office, which already have embryonic payments systems in place, we are almost there already. And of course, as initial investors and developers of NPP, the big banks already have a head start on providing payment services.
But how to create a level playing field? One way would be to float the New Payments Platform.
Assuming that the concept will work, as envisaged by the RBA and banks, there should be a market for the shares, especially among super-funds, which would love the long term stable returns from such a key infrastructure. The proceeds from the sale would be returned to the banks that had the foresight to invest and the public, of course, through the RBA.
A new company would set and publish transparent charges for its “wholesale” services, providing a reasonable return for its shareholders. In turn, the “retail” providers, the payment banks, would charge their customers for each payment and the lowest cost providers would set the pace on prices for the industry.
When payment banks are paired with the new “open banking” initiatives, such as those developed <a href="https://theconversation.com/more-lessons-on-fintech-to-come-for-scott-morrison-71715">in the UK</a> and encouraged by the <a href="https://www.pc.gov.au/inquiries/completed/data-access/report">Productivity Commission</a>, new FinTech (Financial Technology) companies would be able innovate in the payments area and keep costs down.
<img src="https://counter.theconversation.com/content/84594/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1">It looks like one of the most boring areas in banking is about to get a big kick up the pants, and the big banks may not like how it feels.
<a href="https://theconversation.com/profiles/pat-mcconnell-13137" target="_blank">Pat McConnell</a>, Visiting Fellow, Macquarie University Applied Finance Centre, <a href="https://theconversation.com/institutions/macquarie-university-1174" target="_blank">Macquarie University</a>
This article was originally published on <a href="https://theconversation.com" target="_blank">The Conversation</a>. Read the <a href="https://theconversation.com/atm-fees-may-be-gone-but-what-will-replace-them-84594" target="_blank">original article</a>.
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ATM fees may be gone but what will replace them?

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<img src="https://counter.theconversation.edu.au/content/79847/count.gif?distributor=republish-lightbox-advanced" alt="The Conversation" width="1" height="1">
GUEST OBSERVER
As the Automatic Teller Machine (ATM) celebrates its 50th birthday, it’s actually being used less and less to withdraw cash in Australia.
There are currently more than 32,000 ATMs across Australia and cash withdrawals in February 2017 were A$9,924 million, down 10 percent from the previous year and just above the total of February 2005.
ATM’s (Automatic Teller Machines) were first introduced at the end of June 1967 and were welcomed by both bank customers and the banks themselves. This “hole in the wall” enabled customers to access their cash 24/7. The ATM’s self-service nature enabled the banks to reduce their costs, by closing bank branches, reducing opening hours and laying off staff.
But the Reserve Bank of Australia’s 2016 Consumer Payments Surveyreported that cards were used more often than cash for in-person payments, as well as online payments. This is facilitated by Australian consumers and merchants’ rapid adoption of contactless.
The July 2017 changes to the level of merchant service fees for accepting payment cards might even further reduce our reliance on these machines. The changes should reduce surcharging and minimum spends for accepting cards (in theory) and we will then have even less reason to carry cash. 
ATMs will need to evolve to remain relevant, perhaps taking on other services entirely.
Lots of cash, just not from ATMs
Paradoxically, there has never been so much cash available in Australia. By April 2017 there were 1.5 billion individual banknotes on issue, an average of 62 notes for every Australian. The RBA has recently opened a new super bank vault to store its contingency reserves of banknotes. 
There are similar patterns in other countries. For example, the Bank of England notes in circulation rose by 10% in 2016, the fastest pace in a decade. This is despite technological advances that now allow people to pay by contactless cards and digital devices, such as mobile phones.
Why then is cash still so popular? The RBA’s 2016 survey concluded that cash is widely held as a store of value. If found 70% of respondents to the survey held cash in places other than their purses and wallets.
The government’s Black Economy Taskforce estimates that the Australian black economy is around 1.5% of GDP, or A$25 billion per year. Much of this is enabled by the use of hard cash, as opposed to electronic payments. 
Harvard professor Kenneth Rogoff wrote that physical cash can facilitate corruption and tax evasion. In his view, many of the disadvantages of cash could be reduced if larger denomination notes were withdrawn from circulation. 
As an example, the Euro 500 note is due to be withdrawn from the end of 2018, however it may take more than this to reduce the underlying attraction of cash.
There are many assumptions, attitudes and beliefs which legitimise and perpetuate participation in the black economy. Questioning these will require behavioural change from all citizens, according to the Black Economy Taskforce’s interim report. As an example, if someone else is avoiding GST by paying in cash, others might think “well if they are doing it, I would be a fool not to do it myself”.
Other uses for the ATM
These are services available to bank customers through their ATMs in countries other than Australia. For example, ATMs could be made more efficient by encouraging more customers to deposit cash into the ATM and then recycling that cash in the machine to be used by those seeking to withdraw cash. This would remove many of the costs and security risks of constantly replenishing ATMs with cash. 
Additional functions could be added to the ATM. In the United States you can buy postage stamps at the ATM; in Spain tickets to football matches; in Dubai bars of gold; in California fresh cupcakes and elsewhere fishing licenses and tax bills can all be accessed through ATMs.
As regards customer security to ward off identity theft, biometric measures could make access to the ATM more secure. In Japan finger vein scanning is already in use in many ATMs.
These developments could put ATMs in the forefront of an enhanced customer experience, giving the ATM reasons to survive for another 50 years.
Steve Worthington is adjunct professor, Swinburne University of Technology and author for The Conversation. He can be contacted <a href="https://theconversation.com/profiles/steve-worthington-138" target="_blank">here</a>.
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