Pushing to make automated teller machines a bigger revenue generator, many financial institutions are raising the fees they charge their customers to use a proprietary ATM.
The average fee for "on-us" transactions - which result from customers using an ATM owned by the same bank that issued the card - rose over 41 %, to 41 cents from 29 cents, according to research by Speer & Associates, a bank technology consulting firm.
While only about a quarter of all banks charge for on-us transactions, the willingness among that group to increase existing fees supports the belief that bankers are becoming more eager to squeeze profits from their ATM services than they have been in the past.
"Most financial institutions [in the past] have given the payment system delivery an operational role and have not paid a lot of attention to it as a potential source of fee income or as a line of business." said David M. Van Lear, chairman and chief executive of Electronic Payment Services Inc., based in Wilmington, Del.
A Different Tack
"Now, we are seeing a lot of people rethinking their strategy, and as they do that I think they are looking at what the revenue opportunities are."
The fact that banks are looking to their ATMS for profits comes as little surprise. For years bankers viewed the electronic banking terminals as a means to reduce operating costs. The idea was to divert basic transactions like cash withdrawals to a delivery mechanism that would allow a reduction in the numbers of live tellers.
As has been well documented, ATMs have not played the role written for them in that original script. Despite the fact that U.S. banks operate almost 90,000 ATMS, most financial institutions have not significantly reduced their teller force.
In fact, there are those that argue that ATMS have actually increased bank expenses by creating a whole new set of transactions to process and support.
But while banks are highly protective of their electronic banking revenue figures, there are indications that financial institutions have finally figured out how to make money from their ATM business: by raising fees.
"The first charges were really on shared transactions where very real, very explicit per-transaction cost in a lot of cases," said Richard Kisida, a spokesman for Atlanta-based Speer & Associates.
"Once they discovered that customers were fairly receptive to paying a reasonable charge for ATM transactions, they began charging for on-us transactions as well."
Speer & Associates declined to furnish information on the average cost per ATM transaction to financial institutions, citing confidentiality agreements with their survey participants.
However, Mr. Kisida indicated that the average spread between ATM transaction costs and the price charged to consumers is currently "reasonable and appropriate."
Fees Pay for Programs
According to the Speer study, which was based on responses from 102 financial institutions that operate roughly 25% of the nation's ATMs, the average fee charged for an on-us withdrawal from an ATM was 40 cents. The same transaction done by consumers at an ATM not owned by their bank carried an average of 93 cents, the study found.
As was noted earlier, the study found that the fees for on-us transactions have risen dramatically over last year. The report explains the rise as evidence that banks "are now looking for their customers to support their ATM programs."
There is more evidence in the report to support this claim While the majority of ATM fees take the form of per transaction charges, some institutions are charging an annual ATM card fee. The annual fees range from $6 to $15 per year, with an average annual fee weighing in at about $12.
About 12% of the survey respondents charge annual card fees, and while some experts feel such a strategy is a good one, others say annual fees are more likely to alienate consumers than per transaction charges.
Experts also caution that there is a threshold beyond which transaction charges begin to negatively impact transaction volume. Most financial institutions find that the highest they can charge without some backlash is $1 per transaction.
But even if transaction fees never go any higher, the rising volume of transactions at ATMS, as well as new debit transactions coming from Point of sale terminals, bodes well for the electronic banking business.
According to Speer, the average number of monthly transactions per ATM grew 21% last year from 5,000 in 1991 to over 6,000 in 1992.
In addition, the survey participants indicated that they expect to expand their debit card base by 7% in 1993, which will help boost the number of transaction accounts by 14%.