Banks received a lot of negative press when ATM fees started hitting $3 a few years ago. ATM fees have continued to increase in recent years, but the ceiling has been at $3 across major banks, and fees have largely been the same or lower at regional banks.
ATM fees are now back in the spotlight. Several leading banks made waves by announcing changes to their surcharge policy. JPMorgan Chase is testing $4 and $5 fees, and other banks are no longer paying foreign ATM fees, as American Banker reported.
The main impetus is the quest to replace lost fee income because of increased regulation. There are certainly opportunities to increase ATM fee income, but there is also a lot of risk. The key is finding the right balance. It is important to know how much to raise the fee and to find the right fee level for each ATM instead of raising fees across the board. Banks not paying foreign ATM fees need to consider the impact on retention and determine whether some types of checking accounts should keep this service.
When a bank's ATM fees are below the market rate (e.g., below $3 today), raising fees to the market rate is typically profitable across most ATMs. However, going above the market rate is a different story. The impact depends on a lot of factors, including how many competitor ATMs are nearby, what rates they charge, demographics of the area and strength of your brand. Some ATMs can support going above the market rate, but others can't. Banks therefore need to test the higher rate at a subset of ATMs that are spread throughout the network to identify the right strategy for each ATM.
Not paying foreign ATM fees for your customers can affect account generation and retention. The response will also vary widely by customer and by market. While it isn't feasible to have a different policy by customer and challenging to have a different policy by market, it is easy to implement a policy where the payment of foreign ATM fees depends on the type of product a customer has. A basic checking customer may have a very different reaction than a premium checking customer.
It is tempting to raise fees to make up for lost income, but banks cannot go into these decisions blindly. Banks also need to be smart about testing. Chase is testing higher ATM fees in Texas and Illinois, but these markets may react very differently than the rest of the country. Make an informed decision before putting new account generation and customer retention at risk. Try new ideas first with a subset of customers or markets, and test in a representative sample of your entire network.
