'No-frills bank' customers face heavy cash withdrawal fees

Some of Britain's poorest bank customers could be forced to pay heavy charges for using the cash machines that will be installed in local branches of the Post Office's Universal Bank.

Some of Britain's poorest bank customers could be forced to pay heavy charges for using the cash machines that will be installed in local branches of the Post Office's Universal Bank.

The Post Office is in discussions with the UK's biggest banks over the provision of a no-frills bank account for the 4 million adults in the UK with no access to financial services. It is talking to providers about installing 3,000 cash machines in rural areas or small towns during the next 18 months.

However, it has emerged that many of the banks have examined the proposed sites and decided that there would not be enough users to cover the costs of installing the machines.

The gap is likely to be filled by independent providers, who already manage automatic teller machines (ATMs) in remote locations and charge all customers on average £1 to withdraw money.

The head of one of Britain's fast-growing independent ATM deployers said his company is trying to break into the talks with the Post Office: "We are very interested in doing a deal but at the moment certain banks are being offered the shooting rights," he said.

However, one banker who has looked at the proposed sites said: "About a third of the areas will probably be taken up by banks, but the rest are in such small towns and villages that the banks won't touch them."

This rejection of many of the Post Office's proposed ATM sites follows the banks' undertaking earlier this year to drop disloyalty charges from January on their own customers who use another provider's machine. Most banks have also said they will not surcharge the customers of a rival.

This has made many of the Post Office's proposed sites unattractive as costs can no longer be recouped from customers.

As well as the independent providers, it is expected that Alliance & Leicester, which has an exclusive deal with the Post Office to provide business banking, will install up to 1,000 machines in local Post Offices. However, while its service would be free to use for its own customers, other customers and possibly customers of the new Universal Bank would pay to use some of the machines. At the moment Alliance & Leicester surcharges £1 for withdrawals from some machines in locations with low "footfall" and it expected to continue with this policy.

Basil Larkins, network banking managing director at the Post Office, refused to comment on exactly what will be offered as part of the Universal Bank account. It is widely believed customers will receive a card allowing them to withdraw money over the counter or via a cash machine.

The Post Office has reached an advanced stage of discussions with banks over the shape of the Universal Bank account, expected to be called Clear.

While most of the banks believe they will support the initiative, at a joint cost of £130m to £150m a year, the most likely option is that it will be run by Girobank, now operated by Alliance & Leicester.