Hanco ATM Systems Ltd and Hanco Automated Teller Machines B.V. / Royal Bank of Scotland Group plc

OFT closed case: Acquisition of Hanco ATM Systems Limited and Hanco Automated Teller Machines B.V. by The Royal Bank of Scotland Group plc.

Affected market: ATMs

No. ME/1200/04

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 created. 


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 £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 differential.

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.

Geographic market

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 therefore national.


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.

Buyer power

The ultimate customers are individuals and so unlikely to exercise buyer power.


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 Link.


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 United Kingdom.


This merger will therefore not be referred to the Competition Commission under section 22(1) of the Act.

Published 7 September 2004