We write to offer comments from the specific perspective of Airdrie Savings Bank which we hope will be helpful to the Select Committee as it investigates cash machine charges.

  By way of background, Airdrie Savings Bank was founded in 1835 and is now the last of the many savings banks in existence at one time still operating independently. We have eight branches in the North Lanarkshire area, some 60,000 customers, and have on issue some 21,000 cards with cash machine capability. The Bank is mutual in character in that it has no external shareholders and the assets of the Bank are vested in our Board of Trustees whose primary responsibility is to look after the interests of the customers. Accordingly, any surpluses are retained in the Bank and are reinvested in the business for the benefit of our customers, primarily in maintaining our branches—we have never closed a branch—to provide the primary focus of our service to our customers.

  Until two years ago we operated our own small network of 12 cash machines but in the face of increasing costs of maintaining that network, as well as the costs of offering our customers access to other providers' cash machines, we disposed of those machines to an external (non-charging) provider. Our current position is that through the operation of the LINK interchange fees we pay to providers of cash machines approximately £500,000 per annum in transaction costs for our customers' usage of those machines. We see these costs as very much part of our overall costs. We have also been of the view that customers should not have to pay to obtain their own cash and so we absorb these costs fully and do not pass any on to our customers through specific charges. Of course we have the normal banking range of service charges and interest earning opportunities to generate revenue and so the specific cost of cash machine usage is simply absorbed within a whole range of costs set off against that income. It is however the case that the cost of £500,000 is the largest single item of cost, apart from staff cost, and equates very closely to a full year's pre-tax profit.

  The current scenario puts us in the position where the cost of a proportion of our customers using cash machines is borne by all of our customers. Accordingly, and based only on that fact, it would actually be more equitable for those costs to be borne only by customers using cash machines either through direct charging at the machine at the time of use or by our imposing a specific service charge related to that activity. Of course we are perfectly free at any time to introduce such a specific service charge but to do so would be in conflict with our aims to try to be as fair as possible to our customers, a significant proportion of whom are in low income categories, and offer them an equivalent service to that available from the larger banks. In other words, competitive market forces steer us away from such a move.

  In a scenario such as ours, the introduction of a standardised and relatively modest charge for cash machine usage imposed by the machine provider for each transaction would actually be a much fairer method of recovering costs than the present approach—a "user pays" principle. In addition, such a charge would have the merit of correcting the present confusing situation under which many transactions are not charged direct to the customer while many other transactions are charged direct at quite high rates of charge. We realise that this view will not be popular in the current climate as there is an attitude, which we have shared, that customers should not need to pay to withdraw their own money. An alternative view is that the provision of cash machines is a very convenient service providing customers with access to their money on a 24 hours a day/seven days a week basis. The provision of cash machines is an expensive service and perhaps many customers do not realise that they are in effect paying for the service through indirect means. For us, a change to this method would release £500,000 of cost which we would use either to reduce other service charges, increase rates of interest paid, or a combination of the two.

  Of course it would be difficult to legislate absolutely for a standardised charge and so charge levels would have to be left to market forces. It would, however, be reasonable to assume that competitive forces should keep the majority of charges at modest levels, say around the current levels of average LINK interchange fees. The industry is capable of making such a decision but will undoubtedly be hesitant to do so in the face of adverse public attitudes. In our view, it would undoubtedly help to influence the industry in a different direction if the Treasury Select Committee were to conclude that such a system of reasonable charging in fact provides a very equitable solution for customers as well as for all institutions participating in this market so long as that system is transparent and understandable.

1 December 2004