Fourth in a Series

Automated teller machine users are ticked off.

Though customers of banks and other financial institutions have never been thrilled to pay fees of any kind, the recent proliferation of ATM surcharges may be pushing them into outright hostility.

They vented their spleen in responses to the 1997 American Banker consumer survey, consisting of 1,001 telephone interviews conducted by the Gallup Organization during October and November.

Satisfaction with ATM services declined significantly over the last year. Though many use them for most of their banking, ATMs earned a quality rating well below what customers gave to general service levels at their principal financial institutions.

The survey participants-all heads of households with at least one type of deposit, investment, or credit account-were at least moderately satisfied with the availability of ATMs and the services they offered.

But the good news ended there for industry executives intent on keeping their ATM-cardholding customers-a number that held steady this year at 66% of the financial-consumer population-happy.

On a scale of 1 (poor) to 5 (excellent), 38% of ATM cardholders gave "prices charged" a 1. That was up from 24% last year, which was already far worse than the responses in past years' surveys to questions about fees and service charges in general.

When Gallup last asked a nationwide sample of consumers about overall pricing, in 1996, only 5% said their principal institutions were "poor."

Conversely, 28% last year said the institutions were "excellent" in pricing, not a good score but clearly ahead of the 17% in 1997 who gave ATM prices the highest rating.

The feelings ran so deep that credit unions, which do better than other types of institutions on almost all measures of customer satisfaction, did worst in ATM pricing.

Of cardholders who do most of their financial business with credit unions, 43% gave them a 1 on prices, up from 25% in 1996. Commercial banks' "poor" ratings rose to 37% from 25%-both numbers very close to the national averages of 38% this year and 24% in 1996.

"Consumers are mad as hell," said Stephen Cole, president and chief executive officer of Cash Station Inc., the Chicago-based automated teller network.

He and other observers said the obvious culprit is surcharges-the additional fees, now going as high as $2 to $3 or more-that customers pay to withdraw cash from machines owned by companies other than their card- issuing banks. Some customers are also charged transaction fees by their own banks, but those fees tend to be much lower.

"Those customers who now find themselves seeking out ATMs at their own institution are clearly irritated to do so," Mr. Cole said.

Surcharging began to be a national phenomenon in April 1996, when MasterCard International's Cirrus network and Visa U.S.A.'s Plus System gave up their resistance to the practice and changed their rules to allow it.

David Thomas, director of retail distribution for Banc One Corp. of Columbus, Ohio, said "1997 is really the first year surcharging has been widely applied. Now that is beginning to be reflected in the change of customers' attitudes."

One effect of surcharging, which was permitted in 14 states before MasterCard and Visa lifted their bans, has been rampant growth in installed machines, particularly away from bank premises. Faulkner & Gray, a Chicago- based newsletter company owned by Thomson Corp., which also owns American Banker, said the number of ATMs in the United States increased by 19% in the 10 months through June 30, to 165,000.

"The availability of more and more places to get ATM services seems to be overshadowed by the negative reaction to price," said Alan Pohlman, executive vice president of the consulting firm Carmody & Bloom in Ridgewood, N.J.

Apparently unimpressed with the added convenience that surcharging has financed, 32% gave "other institutions' locations" a 5 (excellent)-no different from the score for "own institutions' locations" and six points lower than a year earlier.

Adding up the 4 (good) and 5 (excellent) scores, "own institutions" totaled 59%, down from 64% in 1996. "Other institutions" were at 63%, down from 64%.

Overall ATM satisfaction declined among customers of all financial institution types except savings institutions.

Dennis Lynch, president and chief executive officer of NYCE Corp., the regional network company based in Woodcliff Lake, N.J., said, "We as an industry need to focus on the message of customer convenience. We're dealing with consumers' attitudes and perceptions less than how many ATMs there are."

Ronald Braco, senior vice president of Chase Manhattan Corp., New York, said the dissatisfaction is not just about surcharging, but stems from what he characterized as "gouging" by ATM deployers with fees as high as $4 at remote locations.

"That's going to create tension with the consumer," Mr. Braco said.

As yet, customers have not been switching institutions because of ATM fees, observers said. Some may be altering their behavior.

While regional networks have reported declines in "foreign" ATM transactions, with surcharging acting as a disincentive, their point of sale debit volumes are booming. Many supermarkets, for example, will give "cash back" over and above purchase amounts-in effect, a free cash withdrawal.

The size of the ATM-cardholding population has changed little since 1994, according to American Banker/Gallup surveys.

Financial-consumer households with ATM cards hit that 66% wall because of demographics, experts said. That should change as younger people move into the work force and open bank accounts that now routinely come with ATM and debit cards.

Though 82% of respondents 18 to 34 have ATM cards, the penetration rate drops steadily with advancing age. Among those 65 and older, 42% said they have the cards.

"This is just a function of a generation needing to (move) into the next age-demographic," Mr. Cole said. "Generation X-ers are clearly embracing ATMs in much higher percentages than the baby boomers did."

Also holding constant since the 1996 survey was the percentage of ATM cardolders-84%-who said they had actually used their cards over the year. They claimed to make an average of seven machine visits a month.

The 18-to-34 group is the only age segment that does more than the average transaction volume, at eight a month. But 36% of those cardholders do eight or more transactions a month, versus 27% for all ages.

Of the people 18 to 34, 90% used their cards at least once in the last year, compared with 89% of those 35 to 54, 83% of those 45 to 54, 70% of those 55 to 64, and 64% of the over-64s.

Household income is also a determinant, with 82% of those earning less than $40,000 a year tapping ATMs, versus 91% in the over-$75,000 category, and 86% in the middle.

Mr. Thomas of Banc One said banks tend to be focusing on upper-income groups in many of their promotions and simultaneously will cross-sell ATM services to encourage card activation and use.

He suggested that banks could do more than just wait for demographic changes to boost ATM card penetration. He sees the 35- to 54-year-olds, essentially the baby boomers, as ripe targets.

"Focusing on those ages would probably bring larger dividends than focusing on the older age groups," Mr. Thomas said.

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