Will bankers' nickel-and-dime strategy of levying fees for automated teller machine transactions lead to a consumer revolt?
This is the question raised by a recent report on banking fees from the Consumers Federation of America, a Washington-based lobbying group.
The report, issued in early June and based in part on data from the American Bankers Association and the Financial Institutions Marketing Association, concluded that banks have been increasing their fees to retail customers at rates that far outpace the increases in optional costs.
Leading the way, in terms of the rising fees, were charges for ATM use. The report found that between 1990 and 1993, the average cost to a consumer for a "foreign" ATM transaction rose 45%. A Foreign transaction is one initiated at an ATM not owned by the consumers bank.
Volume Could Suffer
And while a number of bankers and consultants take exception to the CFA's survey methods and some of its findings, they acknowledge that ATM fees are quickly approaching a level that could have a negative impact on ATM transaction volume.
"I definitely think that a dollar [transaction feel] is some kind of threshold," said Richard Westelman, senior banking consultant at Dove & Associates, a Boston-based electronic banking consultancy. "That seems to be the level at which consumers start looking for alternatives to ATM use."
Experts have maintained that consumers would be willing to pay up to $1 for foreign transactions because they understand that the convenience of using any ATM carries a price.
Usage Trends Upward
Indeed, the numbers support this premise. Despite the rising fees, the number of foreign ATM transactions increased about 10% from December 1991 to December 1992. according to Speer & Associates Inc., a consulting firm based in Atlanta.
But with these growth numbers expected to level off in the next few years, experts said bankers must be careful not to give consumers a reason to think about reducing their ATM usage.
"If the consumer sees marked increases in transaction fees, with no change in the level of service he is getting from the ATMs, the bank has a problem," said Catherine Bond, an independent consultant based in Hartford, Conn.
Ms. Bond maintains that the strategy of charging consumers transaction-based fees is flawed because it punishes frequent users of ATMs, who typically lower a bank's operating costs by reducing the number of transactions handled by humans.
Instead of transaction fees, Ms. Bond and other industry experts recommend annual card-holder fees.
But, noting that few financial institutions seem ready to implement annual fees for ATM cards, Ms. Bond said banks should at least be moving toward adding value to the basic transactions as they increase their transaction fees.
One way to add value is by dispensing coupons for local businesses along with the receipts that consumers receive with each transaction.
"As long as the service from the ATM is greater than the price, consumers will pay anything," Ms. Bond said.