Affected market: ATMs
Please note square brackets indicate commercial confidential text
removed or replaced at the parties' request
Royal Bank of Scotland Group (RBS) is a UK based financial services
company active in the retail banking sector through the RBS, NatWest,
and Ulster Bank brands. It operates [several thousand] Automatic
Teller Machines (ATMs) in the UK, [about half] of which are located at
bank branches and [about half] of which are located at non bank sites
such as railway stations and Tesco stores. Hanco ATM Systems Ltd/Hanco
ATM Machines BV (Hanco) was set up in 2000 as one of the UK's first
independent providers of ATMs, typically located in pubs or small
convenience stores. As at 31 December 2003 Hanco had a turnover of .
RBS acquired the entire issued share capital of Hanco on 26 June 2004.
The administrative deadline is 13 September and the statutory deadline
is 25 October.
As a result of this transaction RBS and Hanco have ceased to be
distinct. The parties overlap in the supply of ATM services at non Bank
branch locations and the share of supply test in section 23 of the
Enterprise Act 2002 (the Act) is met. The OFT therefore believes that it
is or may be the case that a relevant merger situation has been
There are two main types of ATM:
- Free ATMs are the traditional ATMs provided by banks at their
branches or other high volume sites like supermarkets and train
stations. Use of the ATM is free to the user, with costs being covered
by a charge to the card issuer under the rules of the Link system.
- Convenience ATMs, introduced in 1999 when Link membership was
opened to independents, are stand alone machines for lower transaction
volumes in pubs and convenience stores. Convenience ATMs charge the
user a 'convenience fee', typically around Â£1.50. They can be
operated on either a 'merchant fill' model, where the site owner
owns the machine and fills it with his own cash, or a 'cash in
transit' model where the ATM remains the property of and is filled by
the provider. On the demand side products such as counter services at
Bank branches and 'cash-back' are likely to be weak constraints on
ATM providers because of a lack of 24 hour access and ancillary
services. ATM users may switch between free and convenience ATMs
depending on the distance they are willing to travel in order to find
a free ATM, but frequent users of convenience ATMs are price
insensitive as they are already willing to accept a significant charge
for their use. Users are unlikely to be able to distinguish between
the two types of convenience ATM operation and third parties suggest
site owners face few restrictions on switching between them.
On the supply side free ATMs are almost exclusively supplied by banks
and building societies whereas convenience ATMs tend to be supplied by
Independent ATM Providers (IAPs). Switching does occur to a limited
extent, with a small number of free ATMs supplied by IAPs, for example
Hanco supplies  free ATMs to  and Moneybox supplies several
smaller banks, including Bradford and Bingley. In addition some banks,
such as Alliance and Leicester, charge users for ATMs in more remote
locations. Switching on the supply side is therefore relatively easy;
however it is unclear that a 5-10 per cent increase in price would be
sufficient to induce switching on a significant scale and no banks had
entered the convenience ATM sector even with the existing price
As the competitive assessment does not materially differ under either an
all ATM frame of reference or separate frames for free and convenience
ATMs, both have been considered for the purposes of this inquiry.
There are no geographic restrictions on where an ATM provider can locate
a machine, provided that there is access to a telephone line or mobile
link to access the Link Network. The relevant geographic frame is
The extent of direct overlap between the parties is very limited. On the
narrower frame of reference RBS does not operate in the convenience ATM
segment and Hanco [supply of] free ATMs, leads to an increment of less
than [0-5 per cent]. Taking the wider view, RBS already has the
largest ATM network in the UK, which the acquisition almost doubles to
around [15-25 per cent]. However there remain a large number of
sizeable competitors in both the convenience and free sectors, with the
top 6 banks and the next largest IAP ranging between 5 and 10 per cent.
One third party feared that RBS would rebrand the Hanco machines as RBS,
prompting customers to expect user fees at RBS ATMs, thus masking the
introduction of fees for currently 'free' RBS ATMs sited at remoter
locations such as railways stations. This seems highly speculative,
particularly given the RBS group strategy of running a portfolio of
different brands, confirmed by internal documentation, and the benefit
of goodwill attached to the Hanco brand in the convenience ATM segment.
Barriers to entry and expansion
Barriers to entry and expansion in the convenience sector appear to be
relatively low, with the main requirement being membership of the Link
network, which takes approximately 6 months and a fee to obtain. This is
supported by third party estimates of 2-3 new firms entering the
convenience ATM segment per year. Hanco itself is a relatively new
entrant having started supplying ATMs in 2000. Since then Hanco and
Moneybox, as well as other IAPs, have rapidly grown.
Entry into the free ATM sector is less likely as the costs involved are
higher and the availability of suitable sites is lower. There is some
evidence that the smaller retail banks are contracting out their ATM
businesses to third parties like Hanco and Moneybox, although the
volumes involved are currently low.
The ultimate customers are individuals and so unlikely to exercise buyer
One third party queried whether RBS may now have a large enough network
of ATMs to exit Link, prompting the collapse of that network. Even
assuming RBS' exit, the collapse of Link and any resulting consumer
harm is highly speculative. RBS would in any event appear to have a
strong incentive not to withdraw from Link, as to do so would limit the
utility of its ATMs to non-RBS account holders, thus foregoing card
issuer fee revenue that currently covers its ATM network costs. This
loss would likely be recovered only by introducing unpopular user fees
for its RBS customers. This concern was not raised by other members of
THIRD PARTY VIEWS
Only one of the dozen third parties who provided comments raised
competition concerns, with one other raising a theoretical concern.
Although the merged entity will have the largest network of ATMs in the
UK, its share of only [15-25 per cent] of all UK ATMs highlights the
relatively unconcentrated nature of the sector. Moreover, the direct
overlap between the parties is extremely limited as they operate
different types of ATM, with RBS active only in free ATMs and Hanco
almost exclusively active in convenience ATMs.
Third party concerns were limited to the potential for RBS to remove its
ATMs from the Link network and the possibility of RBS applying user
charges to its ATM network. There is no evidence that RBS would have the
incentive to pursue either alleged strategy; furthermore, the OFT doubts
the feasibility of foreclosure under the first strategy, given RBS'
relatively low share of supply in ATMs.
The merged entity is constrained by the large number of alternative
suppliers in both the free and convenience ATM sectors. In addition,
there do not appear to be substantial barriers to entry, in particular
with regard to the convenience ATM sector where there have been numerous
new entrants in recent years.
Consequently, the OFT does not believe that it is or may be the case
that the merger has resulted or may be expected to result in a
substantial lessening of competition within a market or markets in the
This merger will therefore not be referred to the Competition Commission
under section 22(1) of the Act.