ATM convenience fees are one of the most misunderstood developments in banking today, and the subject of intense media attention and legislative activity at both the state and federal levels.

Activists sling words like "rip-off" and "double-dipping" while ignoring basic economic issues. ATM price controls would limit deployment and development, in the end short-changing convenience-hungry Americans.

It is understandable that consumers complain about fees, forgetting as they will how time-consuming banking used to be. Time and money are in short supply these days, but conveniently located ATMs help save time, and charging fees to noncustomers, who may otherwise be subsidized by customers, allows banks to deploy ATMs at an ever wider variety of locations.

A record 33,000 new machines were shipped in 1996, up 40%, according to Bank Network News.

With about 150,000 ATMs deployed throughout the United States and connected via shared network arrangements across the globe, Americans can access their bank accounts at shopping malls, ball parks, and road stops. Traveler's checks, charging up to 3%, are almost obsolete.

Additionally, some financial institutions are trumpeting a no-fee policy, or are making arrangements to not surcharge each other's customers. This is called competition, and it is fierce. There's even a World Wide Web site on the Internet available to consumers looking for no-fee ATMs.

Consumers are smart, and those who don't want to pay extra for the convenience of getting cash from another bank's ATM know how to avoid convenience fees-for example by using their own bank's ATMs, finding a bank that doesn't charge, or requesting cash back from point of sale debit card transactions at grocery stores. Bank Network News reports POS debit volume nationwide grew by nearly 48% last year, to 1.15 billion transactions.

According to a recent American Bankers Association survey, nearly 60% of consumers say they have changed their ATM use habits as a result of convenience fees. Only 28% said they paid a fee in the last 60 days.

The Pulse EFT Association was forced to permit surcharging after a 1987 arbitration dispute involving the network and one of its members, and their experience with convenience fees is noteworthy. Now, 56% of surcharge revenue collected from Pulse cardholders is assessed by ATM operators that are not banks, showing that more than banks have a stake in this issue-and that competition for customer services has spread far and wide.

Bank and nonbank ATM operators of all sizes are discovering that charging noncustomers makes good business sense.

A recent survey by Grant Thornton LLP reveals that nearly one third of community banks currently assess convenience fees on noncustomers who use the banks' ATMs; another 16% expect to implement ATM surcharges this year.

The Independent Bankers Association of Texas, representing close to 700 banks, recently adopted a formal position that surcharging has not proven anticompetitive to small banks.

Many community bankers view ATMs as a substitute for extensive branch networks; they use ATMs as a way to attract deposits. Fees improve the business case for deploying the machines, particularly at nonbranch locations, for small banks, big banks, and nonbanks. Particularly in rural areas, ATM fees allow placements that would otherwise not be economical, allowing citizens to choose between convenience and a long trip into town.

Consumer groups have it wrong when they talk about two fees for one use. Convenience users are charged two fees for two reasons.

A new ATM costs between $7,000 and $50,000, depending upon features.

Monthly operating costs range typically from around $1,000 for low-end cash-dispensing machines to $3,000 for full-service machines. These costs include rent, telecommunications, cash courier services, balancing and settling the books for each machine, transaction authorization and routing, cost of cash in the machine, hardware maintenance, electricity, and signs and logo displays.

Interchange fees (paid through ATM network arrangements by the ATM user's bank to the ATM owner) average between 30 cents and 50 cents, typically not enough to cover the costs of service to noncustomers. According to generally accepted industry figures, the average ATM at a bank branch handles 6,000 to 6,500 transactions a month; the average off-site machine is used about 3,000 times a month, though many are used far less frequently.

Given these volume statistics, the best that can be expected by a bank in the form of revenue from an on-site ATM is about $3,250, and that's if every transaction initiated at the machine is initiated by a noncustomer. For off-site ATMs, the revenue potential is even bleaker: $1,500 tops, and then only at the busiest ATMs.

The only way some ATM operators can make a business case for installing ATMs, particularly in slow-traffic locations (like stadiums, truck stops, national parks or resorts) is by assessing a convenience fee.

The ATM is only one component in a financial institution's retail delivery strategy, albeit an important one. A healthy revenue stream ensures that banks continue to develop the full potential of these machines.

Consumers are aware of convenience fees. Existing ATM network rules require that any machine where these fees apply prominently disclose that fact by way of a sign on the ATM, and again on the ATM screen once the transaction request has been entered.

Convenience fees help continue widespread ATM locations. Consumers have ample information, so let's let them decide. Legislatures, including Congress, do not need to prohibit banks from charging noncustomers for using their facilities.

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