industry is diverging along two very different paths. Some banks are reducing and even eliminating fees to encourage the use of electronic service alternatives while others are raising charges, hoping to profit from consumers' growing demand for convenience. In general, automated teller machines are still seen as a means to reduce human teller transactions. Pricing decisions are taken carefully to avoid alienating customers and perhaps losing them to competitors. "Most banks are trying to strike a happy balance between the desire to maximize revenue and not pushing people back into the branches," said Alan Pohlman, executive vice president of Carmody & Bloom, Ridgewood, N.J. Evidence of a rush to the middle ground can be seen in research by Speer & Associates, the Atlanta-based consulting firm. A survey of 105 financial institutions showed that 87% had some type of ATM fee in 1993. Also, 29% were charging for "on-us" transactions by their customers, while 65% levied fees on "foreign" transactions. In 1994, however, the average ATM fee declined to 36 cents from 49 cents, while the foreign charge rose by just a dime, to $1.10. But higher prices did not appear to have dampened consumer enthusiasm for ATMs, as Speer's research has revealed continuous volume growth over the last five years. Meanwhile, the stakes in ATM pricing were raised by Citibank's move earlier this year to eliminate most of its electronic banking fees. The gambit was aimed at attracting new customers inclined to bank mainly via ATMs, phones, and personal computers, while boosting usage among the bank's own customers. Citibank was already boasting that 80% of its retail transactions were handled electronically. Industry sources said its electronic banking accounts doubled since the fee reductions. Citibank was willing to forgo an estimated decline of $10 million in annual fee income in hopes of serving more customers over lower-cost delivery systems. The New York bank is making an especially strong bid for PC banking customers, who no longer have to pay a $9.95 monthly fee. Because these customers typically have a higher net worth, they hold considerable promise of deepening their banking relationships by purchasing more products. "We're removing the barriers that keep customers from doing more with us," said a Citibank spokeswoman. Also gone is the apparent contradiction of allowing customers free access to human tellers while charging them for an equivalent, but automated, transaction. The Citicorp unit's electronic pricing strategy also consisted of enhancing the job of tellers, now called customer service representatives, to include more sales and service functions. The policy is also expected to reduce the cost of branch operations. Despite the emphasis on electronic banking, the bank says it has no plans to limit or charge for teller visits. Citibank's bold strategy places in even starker contrast the handful of other institutions that have moved to make some electronic transactions more expensive. Charges for certain foreign ATM transactions at Wells Fargo Bank and Bank of America, for example, have climbed as high as $2. Such aggressive pricing indicates that ATMs are evolving beyond their original function as a convenient way to lure customers away from branch tellers. They are acquiring the characteristics of revenue producers. While charges for foreign transactions - those at other banks' ATMs - are meant to cover the cost of servicing and settling interbank accounts, there is some question as to how much is cost recovery and how much is profit. Mr. Pohlman noted that charges of 45 to 60 cents are usually enough to cover interchange fees between banks. National Westminster Bank says it sees its nearly 600 ATMs as potential money-makers, but that will depend more on product sales than on transaction fees. "We like to think of ATMs as branches rather than automated tellers, since a branch is where customer needs are met and products get sold," said Bryan Derman, senior vice president of nonbranch marketing and distribution. Accordingly, Natwest ATMs are programmed to churn out regular sales pitches. Instead of flashing customers a "please wait" message while a transaction is being processed, the screen highlights product information. The bank reinforces the pitch on the customer receipt. Despite addressing consumer demands for convenience, Mr. Derman acknowledged that ATMs have not succeeded in producing a direct, one-for- one substitute of teller visits. Natwest, like many others, has seen no reduction in teller visits, which Mr. Derman attributes to its broader customer base. Even as some consumers stubbornly keep going to conventional tellers, First National Bank of Chicago decided earlier this year to provide a little nudge in the electronic direction. The bank started charging some customers $3 for routine teller visits. A storm of criticism followed, though First Chicago said the pricing bomb was really a surgical strike at a few people whose transaction habits were a drain on branch profitability. According to a bank spokeswoman, deposit-taking, which many say is the most disappointing aspect of the ATM business, has doubled since the teller charges were instituted back in April. Total ATM transactions also are reportedly up, and more customers are using the bank's own machines than those belonging to competitors. The spokeswoman said the bank set out to reward the customers who mostly use the electronic alternatives. "Customers who use only tellers should not have the same fee and balance requirements as people using ATMs," she said. Under the new pricing strategy, ATM users with savings account balances as low as $250 get free ATM usage but just four free teller visits a month, which can also be applied to foreign ATM transactions. First Chicago has supported its new strategy with in-branch events such as ATM demonstrations. It also plans to add deposit features to its machines that only give cash. The recent trends in ATM pricing complicate what was already a tricky area for the many banks still experimenting to find the right mix of fees and freebies. Mr. Pohlman of Carmody & Bloom said that unless banks do the necessary research before implementing changes in pricing, the impact on volume and consumer behavior may hold some unpleasant surprises. "One of the negatives of increasing ATM transaction fees is that you are indirectly encouraging larger withdrawals and fewer transactions," he said. Richard T. Robida, senior executive vice president at Speer & Associates, said ATM charges also may have some intended consequences on the development of point of sale networks. They could, for example, inspire POS merchants to impose surcharges on debit card transactions, which could turn off consumers. Or banks might realize they can do better installing off- premise ATMs and charging $2 surcharges, rather than trying to advance the cause of POS debit. Overly aggressive pricing also raises the specter of regulatory action. ATM fees already have attracted the attention and wrath of consumer advocates, who claim they are excessive and penalize the most vulnerable customers. Ms. Monahan is a freelance writer based in New York.

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