In separate research reports, an industry consultant and a university professor are disputing recent assertions by the Consumer Federation of America that banks make excessive profits from their fees on automated teller machine transactions.

The consumer group said June 1 that ATM-related profits were just under $2 billion in 1993 - an assertion that was widely reported in the media.

Speer & Associates, an Atlanta-based consulting firm, concluded in its latest annual survey of shared ATM networks that they actually lost money last year. It said operating expenses for the 95,000 machines nationwide exceeded revenues and cost savings by $900 million.

Meanwhile, David B. Humphrey of Florida State University said bankers make money on ATMs, but not nearly as much as the Consumer Federation said. Based on 1992 data, which he used for an article on ATM profitability in the spring 1994 issue of the Federal Reserve Bank of Richmond Economic Quarterly, Mr. Humphrey estimated the income at $500 million to $600 million.

Richard Speer, chairman of Speer & Associates, said there are individual cases in which banks make money from ATM services, and he conceded that some prices for using machines away from bank premises have "gotten outrageous."

"But the idea that the banking industry as a whole is making a windfall from ATMs is an absolute illusion," Mr. Speer said.

The Consumer Federation stood its ground, asserting that bankers would not continue to operate ATMs if they were causing losses.

"We stand by the numbers and conclusions of our report," said Chris Lewis, a spokesman for the Washington-based umbrella group for consumer advocacy organizations. "ATMs are generating large revenues for the banking industry."

Much of the difference between the Speer and Consumer Federation profit estimates is explained by their vastly different views of operating expenses.

The Consumer Federation maintained that ATMs saved U.S. banks and thrifts over $2.3 billion from labor reductions and efficiency improvements, while Speer put such benefits at only about $94 million for 1993.

The disparity is indicative of something that bankers have known for years: Quantifying ATMs's ability to reduce the costs of human tellers and related branch operations is tricky.

Neither Method Perfect

Experts familiar with both the Speer and Consumer Federation methodologies found fault in both attempts to measure cost savings. These observers said, however, that the Consumer Federation's numbers were more reliable.

Speer came up with $94 million by estimating the number of tellers displaced in 1993 by high-traffic ATMs. The Consumer Federation arrived at $2.3 billion by estimating how much live-teller transactions would have increased if ATMs did not exist, and then assigning a cost to that greater volume.

Despite perceived flaws in Speer's cost-savings calculation, experts gave the Speer report high marks for what it did in other areas, including estimating the banking industry's income from ATM interchange fees and consumers fees, and the costs related to terminals, networks, and card issuance.

"The strength of the [Speer] report is that it is based mostly on actual ATM numbers and not so much on statistical models," said Prof. Humphrey, who studies the effect of ATMs on branch banking.

Speer said it based its findings on data on 38,700 ATMs in U.S. regional networks.

Another Accounting

If the Speer cost-savings numbers are averaged with the Consumer Federation's and then factored in with the rest of Speer's figures, the banking industry can be said to have made a few hundred million in ATM profits last year.

That would be is consistent with the results of Prof. Humphrey's research.

Mr. Humphrey, a finance professor and a former Federal Reserve economist, said his profit estimate of $500 million to $600 million takes into account the revenue that banks might get from the higher-balance customers that ATMs tend to attract.

While his profit figure is different from Speer's, Prof. Humphrey does not debunk the Speer conclusion that banks are not making a killing from their ATM programs.

"I think it's safe to say that, yes, banks are making money on ATMs," said Prof. Humphrey. "But I don't think [the profits] are anywhere near as high as the Consumer Federation estimates."

Other industry consultants said banks that are big deployers of ATMs are most likely to operate profitable ATM programs. Smaller institutions in many cases offer ATM services only because failing to do so would almost certainly mean losing their customers to larger competitors.

"Community institutions offer ATMs to accommodate their customer needs, not as a revenue producer," said Viveca Ware, associate director of bank operations for the Independent Bankers Association of America in Washington.

This trend is expected to continue. However, as larger banks and regional or superregional ATM networks such as MAC and NYCE increase the scale of their ATM networks, the services should become more profitable, observers said.

The Speer study supports this expectation. By 1997, Speer estimated, ATM programs should yield about $1 billion in net profit industrywide, with the revenue associated with participating in networks expected to be the most important source of profits.

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