ATM fees: competition consequences

The new ATM fee regime may have unintended consequences: even if your ATM network is free to your customers and you don't charge a foreign ATM fee , if they use a foreign ATM they will incur a fee to the owner of that ATM. If you don't have an alternative ATM near your customers will they move to a more convenient fee-free network?

Some banks are imposing a "disloyalty fee" far in excess of the Reserve Bank's estimated processing cost of 10 cents to encourage their customers to use their "native" ATM's.

Reserve Bank Governor Glenn Stevens made his concerns clear in his Opening Statement to House of Representatives Standing Committee on Economics on 20 February 2009:

Under the new arrangements, there will be no interchange fees. An ATM owner will be able to charge the customer directly a fee for the use of the machine, but must disclose the fee prior to the transaction. Banks will probably continue to allow fee-free withdrawals by their customers at their own machines, because they expect to cover those costs with the revenue earned across the entire customer relationship. Use of another bank’s ATMs will presumably attract a fee by that other bank to cover the costs. But the only cost to a cardholder’s bank associated with use of a ‘foreign’ ATM is the cost of processing the transaction electronically – a matter of no more than 10 cents. Given this, we cannot see any strong case for a ‘foreign’ fee. Independent ATM owners will charge for the use of their machines, but that will maintain an incentive to grow their network. Otherwise, it is likely that the independents as a source of competition would diminish over time, reducing consumer choice. Access to the system will be governed by a code, which caps the price of connections, so that new competitors cannot be unduly hampered by the incumbent players over-charging to connect.

The essence of the changes is simple. People have always been paying, one way or another, to use ATMs. ATMs do have a cost of operation and somehow that cost has to be covered. Even where no explicit charge is levied, somewhere or other the financial institution is making up that cost. They do not provide services for free.

Now people will know exactly what the price of an ATM transaction is, and they will know it before completing the transaction. There should be no ‘foreign’ fees of any significance. And competition will be maintained, by allowing the independent ATM owners to remain viable and new competitors to enter more easily. That is, in our judgment, an improvement over the arrangements of the past and is the best way of keeping costs down in the long run.

Comments

[ATM Machines]

Hi,

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