LINK Scheme Public Redacted copy Network Members Council

Minutes of a Meeting of the Network Members Council

Held at Level 33, 25 Canada Square, Canary Wharf, London, E14 5LB, in the Toronto and Montreal Rooms

26th January 2017

Present: Dr Ken Andrew Independent Chairman Sarah Comley American Express Phil Briley of Ireland Tim Allen Bank Alastair Mayne Cardtronics UK Justin Latter Change Group Sue Bentley Clydesdale Clare Hodgson Coventry Building Society Helene Soulages David Thrift HSBC Bank James Frost Alan Chambers Moneycorp Scott Manson Nationwide Building Society Garth Graham Northern Bank Nigel Constable NoteMachine Tim Watkin-Rees PayPoint Beth Williams Raphaels Adam Bailey Royal Bank of Iain Gibson Sainsbury's Bank Martin Bischoff Santander Douglas Gowan Jenny Campbell YourCash In Attendance: John Howells LINK Sue Wallace LINK Alex Leckenby LINK Graham Mott LINK Mary Buffee LINK Suzanne Davidson LINK Mandy Myers LINK

1. APOLOGIES FOR ABSENCE

Michael Coffey (AIB), Mick Willets (Citibank), Shell Tyson (Co-Operative Bank), Lyndsay James (Cumberland Building Society), Tim Wilder (DC Payments UK), Gerry Langdale (G4S), Simon Watts (Metro Bank), Duncan Letham (), Judy Rose (Triodos), Martin Southgate (TSB), Dave Walker (Virgin Money) and David Judson (Yorkshire Building Society).

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The Scheme Executive confirmed that they were placing votes received on behalf of Michael Coffey (AIB), Lindsay James (Cumberland Building Society), Martin Southgate (TSB). Shell Tyson (Co-Operative Bank), Tim Wilder (DC Payments UK), Simon Watts (Metro Bank). Judy Rose (Triodos), Dave Walker (Virgin Money), David Judson (YBS).

2. CONFLICT OF INTEREST

Members are reminded that PSR General Direction 5 requires that LINK’s NMC takes all reasonable steps to ensure that any person acting as a Network Member Council Representative must not be appointed to, retain the position of, or act as a Director of VocaLink. Network Members are therefore requested to declare any potential conflicts in this regard prior to discussion of subsequent items on the Agenda. There were no conflicts of interest declared.

3. MINUTES OF THE PREVIOUS MEETING

The minutes of the NMC meeting held on 8th December had already been approved by e-mail.

4. MATTERS ARISING FROM THE MINUTES

All matters were completed or in progress.

5. MINUTES AND COMMITTEE REPORTS

There were no matters arising from the minutes.

6. CEO’S UPDATE AND REPORT

John Howells (LINK) reminded Members that the meeting is minuted in line with the NMC Minutes Policy. Members were also reminded of their confidentiality obligations as set out in the Switching and Settlement and Members Agreement. John noted that a large number of Members had asked him to state that the priority for the discussion on interchange should be on reaching a conclusion that supported the needs of consumers. John confirmed that this was the priority for the LINK Scheme.

John noted that Redacted on commercial grounds has requested an extension to its notice period following technical difficulties in moving its LINK traffic to another international card scheme. This has been agreed to by the LINK Scheme Executive.

John also drew Member’s attention to the CMA Phase 1 investigation into the merger of VocaLink and MasterCard. Link Scheme Ltd has agreed to a number of potential remedies with VocaLink and MasterCard to address concerns raised by the Phase 1 investigation. These will all be subject to NMC approval at the 80% level and will be brought before Members before a deadline which VocaLink has said is Friday 3rd March.

The remedies that will be proposed to NMC are:  Redacted on commercial grounds

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These are supported by the Board of Link Scheme Ltd. The NMC is likely to be asked to approve these changes towards the end of February.

7. APPROACH TO THE INDEPENDENT ECONOMIC REVIEW OF INTERCHANGE

The Independent Chairman explained that a late paper had been proposed by Barclays which therefore required a vote for it to be admitted into the meeting. Tim Allen (Barclays) was asked to explain why the paper should be admitted.

Tim explained that there are many differing views amongst the membership and serious risks to the future of the Scheme. Barclays believes that in the UK we have a highly successful domestic network in LINK, which if it fails, will lead to less innovation, and will make consumer’s access to free cash more difficult. Barclays do not want LINK to fail and so therefore it is important to admit this paper as it sets out a process that will support a sustainable way forward being achieved.

As there were no questions from Members, the Independent Chairman asked Members to vote using a show of hands to admit the Barclays paper into the meeting. The motion was then put to the vote.

NMC agrees to admit the Barclays paper into the meeting.  For: 25.  Against: 1 (Cumberland BS).  Abstentions: 1 (Northern Bank).

This paper was admitted.

Tim then summarised the Barclays paper. The Independent Chairman asked Members to comment.

Adam Bailey (RBS) stated that RBS welcomed the Barclays proposal. He added that it was important to have effective competition law advice on the proposal. John Howells (LINK) confirmed that, should the motions be passed, the LINK Scheme Executive would immediately obtain advice from A&O to ensure that all LINK Members could understand the competition law position.

James Frost (Lloyds) stated that Lloyds supported the idea in principle but asked for confirmation that any recommendations would come back to NMC for approval in the normal manner. Tim confirmed that this would be the case.

James then stated that Lloyds did not support the timescales in Motion 2 and that it needed to be faster.

Tim explained that the six months proposed is at the latest end point, and that earlier resolution was desirable and possible.

Clare Hodgson (Coventry Building Society) added that regular feedback to NMC should be provided and not left until the end of the process. John Howells agreed that

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the LINK Scheme Executive would request updates from the Working Group, if approved, for every NMC meeting.

Alastair Mayne (Cardtronics) noted that he had advocated a similar proposal in the past, that Lloyds had not then been in favour of it, and that some other Members had also not been supportive of. He asked Tim Allen what had changed. Tim explained that the supplementary papers submitted to NMC for this meeting had revealed significant divergent views within the membership. Given the risk to the Scheme, Barclays felt it was now necessary to proposed the Working Group.

Alastair asked for clarity on the intention on seniority of Working Group members. Tim said that the intention was that all would be direct reports of a retail bank CEO, or with delegated authority from such an individual.

Alastair said that it was important to get policy input up-front on policy objectives, as this was necessary to understand what was required to be achieved. Therefore, the Treasury and the PSR should be invited to attend the Working Group. Alastair also noted that the timescales proposed did not fit with the deadline of 3rd March with regards to the CMA’s assessment of the merger of VocaLink and MasterCard. He added that it is not possible to resolve the matter of value creation for VocaLink’s shareholders, and not address income certainty for Members at the same time. The timeline therefore needs to be accelerated to align the various activities and to reach an early resolution, rather than maintaining the uncertainty for consumes and Members. If this could not be addressed, then Cardtronics would in principle not support the Motions, although it would participate should they be passed in any case.

Tim said that first and foremost objective Members must address is the sustainability of LINK and how it provides the right level of access to cash for consumers.

The Independent Chairman noted that the matter of the Treasury and the PSR being involved could be addressed at the first meeting of the Working Group. Tim agreed.

Tim Watkin-Rees (PayPoint) noted that the smaller Issuers and Acquirers are important to LINK, but that it is recognised that it is important to get the large players involved. However, the conclusions of the Working Group must be non-discriminatory for the smaller Issuers and Acquirers.

Alastair noted that the proposals in the Lloyds paper are very damaging for ATMs in the UK and, if that remains Lloyds’ intent from the Working Group, then the approach is not viable.

Martin Bischoff (Santander) stated that Santander supports the Barclays paper, as there is a clear disparity in views between some Members. He added that Santander supports the LINK Scheme, given the essential need to provide consumer cash access, and that the timeline does need to be perhaps accelerated.

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Nigel Constable (NoteMachine) stated that NoteMachine broadly support the Barclays paper, but agreed with Cardtronics on the matter of the timing of the VocaLink deal, which needs addressing as otherwise it leads to being tied into a contract with no revenue-based agreement. He added that Lloyds’ proposals seemed designed to undermine cash access for consumer in the UK.

James Frost strongly refuted the statement that Lloyds is trying to undermine consumer cash access and stated that Lloyds’ intention is strongly support consumers. He added that Lloyds can see no need for acquirers to request an Interchange plus surcharging model.

Alastair noted that, with Treasury and PSR input, if we start on this as soon as possible, we could have a quicker conclusion. Therefore, the initial meeting needed to be on Monday, and that this is the only way that Cardtronics could be supportive. Lloyds are being very challenging, and from a senior level it should be possible to get a meeting set up immediately, if its intentions are sincere.

Tim Allen explained that he would like nothing more than to be able to get the meeting organised for Monday. However, with the people required, there is no way that this is possible, and so he couldn’t commit to that timescale.

There was then a debate about the timing of the Working Group’s first meeting, and of the end point. As this did not lead to clear agreement, the Independent Chairman called a poll to confirm the date to go in Barclays’ Motion 2, with Lloyds proposing Thursday 23rd March (the next NMC date) as an alternative.

During the debate Alastair Mayne observed that the meeting should be transparent and perhaps recorded.

Nigel Constable stated that he supported getting clarity for the March NMC. He then observed that LINK should not conduct the 2017 Cost Study as, at this point, as it is a waste of time and money. John Howells stated that the Cost Study would continue as normal unless the NMC instructed otherwise and asked that NoteMachine submitted a paper with its proposals in this area, should it wish NMC to consider the point.

As there were no further questions from Members, the Independent Chairman asked Members to vote using the electronic voting equipment. The motion was then put to the vote.

Members approve that Barclays’ Motion 2 date to be changed from 25th July to 23rd March 2017 (50%).  For: 20.65%.  Against: 79.35% (, Barclays, , Coventry BS, Handelsbanken, HSBC, Nationwide BS, Nat West, Northern Bank, NoteMachine, RBS, Sainsbury’s Bank, Santander, , YourCash).  Abstentions: 5 (Amex, Cardtronics, Moneycorp, PayPoint, ).

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This motion was not carried.

As there were no further questions from Members, the Independent Chairman asked Members to vote using the electronic voting equipment. Barclays’ Motion 1 was then put to the vote.

Barclays’ Motion 1 Members approve the Motion for a Working Group to be formed by the eight largest NMC Members by voting share, as defined in the Barclays paper submitted to this meeting (50%).  For: 87.74%.  Against: 12.26% (Cardtronics, Cumberland BS, Handelsbanken).  Abstentions: 1 (PayPoint).

This motion was carried.

The Independent Chairman then asked Members to vote on Barclays’ Motion 2.

As there were no further questions from Members, the Independent Chairman asked Members to vote using the electronic voting equipment. The motion was then put to the vote.

Barclays’ Motion 2 Members approve the Motion that the Working Group shall complete its recommendations for consideration by the NMC by the 25th July 2017 at the latest (50%).  For: 82.72%.  Against: 17.28% (Cumberland BS, , , Lloyds).  Abstentions: 0.

This motion was carried

The Independent Chairman summarised that the Working Group will be set up by Barclays, with Tim Allen taking this forward: ACTION: TIM ALLEN (BARCLAYS). In addition, John Howells will seek competition advice on the proposal for NMC. John Howells confirmed that he would have competition advice available by the end of the week. ACTION: JOHN HOWELLS (LINK).

The Independent Chairman asked NMC to confirm that Link Scheme Ltd., which has been tasked with dealing with the interchange matter, should now hand over to the Working Group. The meeting confirmed that this was its requirement.

The Independent Chairman asked James Frost if he wished to withdraw the Lloyds paper and James confirmed that it should be withdrawn. However, as the March date was not agreed, Lloyds requested an Extraordinary NMC meeting in 4 weeks’ time for an update.

The Independent Chairman asked NMC if it would support this, and all agreed, selecting Tuesday 28th February in London as the desired date. ACTION JOHN HOWELLS (LINK).

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The Independent Chairman then asked Nigel Constable if he would be withdrawing the NoteMachine Paper. Nigel Constable stated that he would not present the paper, but that the statements that it contained still stood.

The Independent Chairman than asked Alastair Mayne if he wanted to withdraw the Cardtronics paper. Alastair stated that the paper and votes could be withdrawn. However, he noted that Cardtronics and NoteMachine have made major investments to support the in their need to provide their customers with access to cash. He noted that this was also enabling a major branch closure programme, with associated cost savings for the banks. He expressed surprise and concern that some banks are now proposing to undermine the ATM channel that they had caused to be built to meet their customers’ needs and to enable branch closures. This is not logical, and there seemed to be no clarity on how to meet the costs of the ATM channel that the banks want, but that some are now not willing to pay for. This illogical position has to be resolved if severe damage to the ATM channel and consumers is to be prevented.

Nigel Constable added that NoteMachine and Cardtronics have made large investment into free-to-use, and that this has also included vertically integrated into facilities such as Armored Vehicles and Cash in Transit, to support bank’s customer’s needs. These are significant investments for the benefit of bank’s customers that are not recognised by the current proposals to cut ATM interchange.

The Independent Chairman then asked Members to confirm that they wished the paper containing the Link Scheme Ltd Board’s proposals that they had commissioned to be withdrawn.

The Independent Chairman asked Members to vote using a show of hands. The motion was then put to the vote.

Members agree to withdraw Agenda Item 7 “Approach to the Independent Economic Review of Interchange”.  For: 24.  Against: 0.  Abstentions: 0.

The paper was withdrawn.

8. ANY OTHER BUSINESS

There was no other business to be discussed.

9. DATE OF NEXT MEETING

The next meeting of the NMC is scheduled for Tuesday 28th February 2017 at a venue to be confirmed.

Please note that the schedule of NMC meetings for 2017 is as follows: Thursday 23rd March 2017 – Redacted on commercial grounds Thursday 15th June 2017 – Redacted on commercial grounds Thursday 14th September 2017 – Redacted on commercial grounds

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Thursday 7th December 2017 – Redacted on commercial grounds

Please note that full details of votes placed are available in the LINK Scheme Member repository.

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RECORD OF NMC VOTES CONDUCTED BY E-MAIL SINCE THE LAST MEETING

The following are the NMC votes that have been conducted via e-mail between the NMC meetings on the 8th December and the 26th January 2017.

1. Administrative changes to the Members Agreement and Switching and Settlement Agreement

The following vote was issued by Sue Wallace on 21st December 2016:

As advised at the NMC Meeting on 8th December there are a number of administrative changes which need to be reflected into the Members Agreement and Switching and Settlement Agreement.

The changes consist of:

 Changes to the membership name of two Network Members.  Changes to the NMC Representatives for a number of Members.  The introduction of Triodos Bank which went live on 5th December.  Amendments to the Switching and Settlement Agreement Appendix 3 Pricing Schedule Annex 2 to reflect the Redacted on commercial grounds

48.77% of total votes were submitted.

100% of the votes placed were in favour.

20 Members abstained. (AIB, ASB, BARC, CTUK, CHANGE, CITI, CLYD, CREAT, DCPUK, G4S, MUTUEL, METRO, NBS, NATW, PPOINT, RBS, TESC, TRLX, VMONEY, YCASH).

The resolution required 80% approval and was therefore passed.

In addition, in the meeting on 8th December Network Members approved that interchange on non-cash transactions (identified in the Rate Card as Future Additional Transactions) would remain at zero until the end of 2017. Network Members also approved the approach to the collection and maintenance of the CPMI-IOSCO Reserve. Both of these items have been reflected in to the Members Agreement, version 17.2 of Appendix 3 Rate Card as items 3.5(D) and section 7 respectively.

48.77% of total votes were submitted. 100% of the votes placed were in favour.

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20 Members abstained. (AIB, ASB, BARC, CTUK, CHANGE, CITI, CLYD, CREAT, DCPUK, G4S, MUTUEL, METRO, NBS, NATW, PPOINT, RBS, TESC, TRLX, VMONEY, YCASH).

The resolution required 80% approval and was therefore passed.

2. Appointment of Mark Boleat as Chairman of LINK

Members approve the appointment of Mark Boleat as NMC Chairman as proposed. The appointment will become effective on the retirement of the current Chairman, according to the timescales previously approved by NMC. It is subject to approval by the and formal acceptance by Mark Boleat.

This vote was conducted using the 2017 NM Adjustment Schedule

88.14% of total votes were submitted.

100% of the votes placed were in favour.

11 Members abstained (ASB, CHANGE, CITI, COOP, CREAT, MUTUEL, METRO, NBS, TRLX, TRIODO, VMONEY).

The appointment required 50% approval and is therefore passed.

Members approve the appointment of Mark Boleat as CLG Chairman (and in the interim if needs be as LSL Chairman). This appointment will become effective on the retirement of the current Chairman of CLG and/or LSL, according to the timescales previously approved by NMC. It is subject to approval by the Bank of England and formal acceptance by Mark Boleat.

This vote was conducted on the basis of one Member one vote.

28 votes were submitted.

All votes submitted were in favour.

11 Members abstained (ASB, CHANGE, CITI, COOP, CREAT, MUTUEL, METRO, NBS, TRLX, TRIODO, VMONEY).

The appointment required 50% approval and is therefore passed.

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